On July 28, the Consumer Financial Protection Bureau (CFPB) issued a Request for Information (RFI) seeking industry input on the future of the Equal Credit Opportunity Act (ECOA) and Regulation B. While fair lending enforcement has slowed in recent years, the RFI signals that the national conversation on race discrimination is drawing renewed attention to the topic. The CFPB’s apparent openness to hearing different ideas suggests that this is a real opportunity for those in the industry to engage in and impact the discussion about the parameters of ECOA and the future of fair lending enforcement.
Along with a more general request for comments and information about fair lending, the CFPB also asked potential commenters ten specific questions.
The first question involves disparate impact. In 2015, the Supreme Court issued a 5-4 decision in Texas Dept. of Housing and Comm. Affairs v. Inclusive Comm. Project, Inc., 135 S. Ct. 2507, holding disparate impact is a cognizable theory under the Fair Housing Act. While Regulation B provides that ECOA may prohibit creditor practices that have a disparate impact, the Supreme Court did not specifically discuss ECOA in its opinion. Much has changed about the Court and the CFPB since 2015, and the CFPB is now asking whether it should provide additional clarity regarding its approach to disparate impact analysis. Guidance that eliminates or restricts disparate impact liability under ECOA could have a big impact on fair lending compliance. Such guidance could free up more resources for financial institutions to focus on preventing the more active and nefarious types of credit discrimination.
It’s no surprise that another question covers Limited English Proficiency (LEP). Many financial institutions have been hesitant to provide LEP products or services due to fair lending and UDAAP risks. The CFPB seems to recognize these negative incentives and wants to encourage, rather than discourage, outreach to LEP individuals. If the CFPB were to develop a safe harbor or some other mechanism for protecting financial institutions interested in this sort of outreach, credit availability for LEP individuals could be significantly increased.
Another question focuses on artificial intelligence and machine learning, which could significantly reduce the amount of discretion in the credit underwriting and pricing processes. However, as the CFPB recognizes in the RFI, there is a need for more guidance on how they can be used without creating additional ECOA and Regulation B risk. For instance, adverse action notices explain the reasons for credit denials, but this may be difficult when the underwriting decision was based on a complex model that used artificial intelligence and machine learning.
One question posed more directly in the RFI is whether or not ECOA’s prohibition on sex discrimination should also prohibit sexual orientation and gender identity discrimination. This question is receiving renewed focus in the wake of the Supreme Court’s historic June 15 decision in Bostock v. Clayton County, 140 S. Ct. 1731 (2020), which held that Title VII’s prohibition on sex discrimination includes discrimination based on sexual orientation and gender identity. While former CFPB Director Richard Cordray had favorably discussed this interpretation with regard to ECOA, this is the first concrete step that the CFPB has taken to consider it. For many financial institutions, such an interpretation would require significant changes to the application process and loan officer training.
The other specific questions in the Request for Information relate to the following hot-button fair lending topics:
- Special Purpose Credit Programs
- Affirmative Advertising to Disadvantaged Groups
- Small-Business Lending
- Scope of Federal Pre-emption of State Law
- Public Assistance Income
- Adverse Action Notices
Comments must be received by October 2, 2020. We encourage our clients to participate in this important process, and we are ready to assist as needed.