In September, the DOJ released an annual Fair Lending report. The report showcased some of the Department's priorities for the past 12-18 months. Here are those priorities, plus some additional data points you need to know. The top takeaway: Redlining compliance is still a primary area of scrutiny.
Last month, the Department of Justice released their annual report, "The Attorney General's 2016 Annual Report to Congress Pursuant to the Equal Credit Opportunity Act Amendments of 1976."
This annual Equal Credit Opportunity Act (ECOA) report tends to provide a lot of great insight into the DOJ's Fair Lending-related priorities.
Here are the DOJ's top three Fair Lending compliance priorities for 2016 and 2017:
(For reference, last year the DOJ reported that they were focused on addressing discrimination in indirect auto lending, ensuring equal access to mainstream mortgage lending, and again, continuing and improving inter-agency collaboration.)
In addition, the DOJ covered their efforts to help prevent American servicemembers from discrimination through the Servicemembers Civil Relief Act (SCRA) in depth. They also shared a lot of valuable data about their recent Fair Lending investigations, settlements and enforcement actions.
Here's the first key takeaway: Redlining remains a regulatory priority. You need to know your Redlining risk exposure. Now that the 2016 HMDA LAR is public, it's a great time to analyze your data for Redlining compliance.
The Civil Rights Division of the DOJ is responsible for enforcing ECOA, the Fair Housing Act (FHA), and the SCRA. In particular, the Housing and Civil Enforcement Section is responsible for ECOA, FHA, and SCRA compliance. Today, the Housing and Civil Enforcement Section is led by Chief Sameena Shina Majeed.
The DOJ's Civil Rights Division has the authority to enforce ECOA and the FHA either on its own initiative or at the referral of another agency. (As we'll cover later, referrals are an essential part of the DOJ's Fair Lending enforcement.) If applicable, the DOJ can file suit under both regulations.
There are seven agencies that may refer Fair Lending cases to the DOJ: the CFPB, the FDIC, the FRB, the NCUA, and the OCC, as well as the FTC and HUD.
While the DOJ focuses mostly on mortgage lending, they also have authority to regulate non-mortgage Fair Lending violations.
Below is a quick summary of the DOJ's Fair Lending-related actions as outlined in the report:
Those six lawsuits settled for a total of $37M. Of those six, two were Redlining-related. That means that one-third of the Fair Lending settlements in 2016 were for Redlining violations. One of these Redlining cases also involved pricing and underwriting discrimination, as well as denial of loan applications based on race.
"In addition to the two redlining settlements referenced above, the Division currently has seven redlining investigations across the country involving allegations that lenders unlawfully refused to serve the mortgage lending needs of minority communities."
As we mentioned earlier, Redlining is a major regulatory priority. It's time to make sure you have an accurate, comprehensive, and action-focused understanding of your Redlining risk.
TRUPOINT offers Redlining software (Redlining Analytics, part of the TRUPOINT Analytics platform) that will help you quickly and easily analyze your data and understand your Redlining risk. If you'd like to learn more, here is a free sample report from the software.
In addition, we've blogged extensively about the topic. Below are some of our most popular Redlining blogs to review. Each one of these links will open in a new window, so feel free to click them all:
The other settlements were spread across different Fair Lending violations. They included a case involving targeting minorities for predatory loans, a case involving underwriting discrimination based on disability and receipt of public assistance income, and a case involving discrimination on the basis of familial status.As of December 2016, the DOJ has 33 open Fair Lending investigations. Taking a quick look at these open investigations can provide help us anticipate future settlements and regulatory priorities.
According to the report, these investigations focus on the following types of discrimination:
Here's your second key takeaway: Fair Lending compliance isn't going anywhere. We expect Fair Lending to be a priority throughout 2018. Regardless of which political party is leading, or even if the CFPB gets defanged, some elements of the regulatory system will always remain. Priorities might shift, and power may get redistributed, but the regulators are still focusing on Fair Lending compliance.
"The Division continued to build its working relationships with the bank regulatory agencies, the Department of Housing and Urban Development (HUD) and the Federal Trade Commission (FTC) to strengthen our individual and collective capabilities to enforce fair lending laws," the DOJ writes in the report.
In addition to collaborating with the CFPB, FDIC, FRB, OCC, NCUA, HUD, and the FTC, the DOJ is also involved in the Federal Interagency Fair Lending Task Force, which discusses consistency in enforcement, among other key topics.
Referrals from other agencies are a key part of the DOJ's Fair Lending work. In 2016, the DOJ recieved 8 referrals from the CFPB, 4 from the FDIC, 7 from the FRB, 1 from the OCC, and 2 from HUD. In addition, 6 of the 7 lawsuits filed in 2016 were based (at least in part) on a referral.
Under ECOA, the other regulatory agencies are required to refer issues to the DOJ when they have reason to believe a financial institution has engaged in a pattern or practice of discrimination.
From 2001 to 2016, 451 cases were referred to the DOJ. Of those 451 instances, 142 involved potential discrimination on the basis of race or national origin.
Here's a third key takeaway: your regulator is required to refer Fair Lending violations that may constitute a pattern or practice of discrimination up to the DOJ. Below is a chart from the report outlining the referrals to the DOJ over the years:
Since 2001, the FDIC and the FRB submit the most referrals, followed by the CFPB. In an interesting point of contrast, the NCUA has never referred a Fair Lending issue to the DOJ.
TRUPOINT Viewpoint: Every opportunity to gain more insight into the regulatory priorities and goals for the upcoming year is a valuable one, and the annual ECOA report is always a great resource. This year is no different. Once again, the DOJ's ECOA report reminds us of three timely Fair Lending best practices:
When you're ready to learn more about Redlining and Fair Lending analysis, TRUPOINT is here to help. The best place to start your research is with a free sample report of Redlining Analytics.