The Consumer Financial Protection Bureau (CFPB) has issued its annual report on the bureau’s fair lending activities for 2021. According to the statement from Fair Lending Director Patrice Alexander Ficklin, much of the CFPB’s actions were based on acting Director Dave Uejio’s call for “bold and swift action to address issues of pervasive racial injustice and long-term economic impacts of the COVID-19 pandemic on individuals and communities.”
To prioritize supervisory examinations and enforcement activity, the CFPB utilizes a risk-based approach to assess perceived violations of law and regulation. Through this risk-based approach, the CFPB determined that, in 2021, much of its recourses would be focused on fair lending enforcement and supervision efforts that advance priorities on racial and economic equity and promoting economic recovery related to the COVID-19 pandemic.
The report highlighted some of the major fair lending enforcement actions taken by the CFPB in 2021. The entities these actions were taken against included: Trustmark National Bank; LendUp Loans, LLC; JPay, LLC; and Nexus Services, Inc. These actions were all brought under the Equal Credit Opportunity Act (ECOA) as well as other federal consumer financial laws.
During 2021, the CFPB also initiated 31 fair lending examinations or target reviews. The most frequent identified issues during these supervisory communications related to the CFPB’s prioritized assessments. Prioritized assessments are targeted, higher-level inquiries compared to traditional examinations which were developed in response to the COVID-19 pandemic. The purpose of prioritized assessments is to obtain real-time information from entities that operate in markets that pose elevated risks of consumer harm due to pandemic-related issues.
The CFPB also engaged heavily in rulemaking procedures during 2021 as the bureau’s focuses shifted under the new Biden administration. One of its primary focuses was related to mortgage servicing during the pandemic. The bureau issued rules to aid borrowers as federal foreclosure moratoria began phasing out and an increasing number of borrowers exited forbearance.
External stakeholder engagement was also a primary focus for the CFPB as it worked with consumer advocates, civil rights, organizations, industry professions, and regulated entities to aid consumers during the peaks of the pandemic. The bureau used a variety of methods to both disperse and collect information for stakeholders to serve consumers.
The report also reiterated the CFPB’s skepticism of machine learning, predictive analytics, and artificial intelligence in lending practices.
“I am encouraged by the possibility of utilizing vehicles like special purpose credit programs to expand access to credit, but skeptical of claims that advanced algorithms are the cure-all for bias in credit underwriting and pricing,” Ficklin said in her letter accompanying the report.
Along with this report, the CFPB issued an advisory opinion on fair lending law coverage. The bureau’s opinion expressed intentions to apply ECOA and other lair lending laws to protect borrowers during the process of applying for credit as well as after credit has been received.
The bureau has utilized advisory opinions since 2020 as a tool to offer regulated entities guidance on how the CFPB plans to enforce federal laws going forward.
“The CFPB is ramping up its efforts to issue guidance and advisory opinions to assist entities with understanding their obligations under the law,” said CFPB Director Rohit Chopra. “Today’s advisory opinion and accompanying analysis makes clear that anti-discrimination protections do not vanish once a customer obtains a loan.”
This advisory opinion was intended to clarify that ECOA and related regulations are to be applied both before and after the completion of a credit application from a borrower. This means that lenders are prohibited from discriminating against borrowers with existing credit. For example, lenders cannot lower the credit limit of certain borrowers’ accounts or subject certain borrowers to more aggressive collections practices on a prohibited basis, like race or sex.
Additionally, this advisory opinion requires lenders provide “adverse action notices” to borrowers with existing credit, the CFPB said Adverse action notices must explain why an unfavorable decision was made against a borrower. Credit applicants and borrowers must receive these notices for reasons including that credit was denied, an existing account was terminated, or an account’s terms were unfavorably changed. These notices are designed to discourage discrimination, and help applicants and borrowers learn the reasons for creditors’ decisions.