CFPB needs to quash draft rule aimed at weakening discrimination reporting requirements for mortgage lenders, attorney general says
The Consumer Financial Protection Bureau shouldn’t adopt its recently proposed rule that would undermine the ability to enforce fair lending laws and prevent discrimination in the mortgage lending market, New York Attorney General Letitia James said Friday.
On May 13, the CFPB announced that it would raise the reporting threshold for mortgage lenders under the Home Mortgage Disclosure Act, or HMDA, a 1975 law that requires mortgage lenders to make some mortgage data publicly available as a check to ensure compliance with fair lending laws. Some of this data includes information, which lenders already collect to comply with other regulations as well as their own underwriting standards, such as race, ethnicity, gender, age, census tract, credit score, the total cost of the loan, and property value, and whether the application was accepted or denied.
“Fair lending laws exist to protect consumers and ensure that lenders cannot engage in discriminatory practices,” said James. “The proposed rules would undermine these very protections and greatly hinder our ability to hold bad lenders accountable for such behavior. The CFPB was created to protect consumers, not put them in harm’s way by adopting regressive policies.”
The CFPB is failing to take into consideration the negative impact these relaxed reporting requirements will have on the ability to analyze local lending practices, she said, adding lenders have been collecting this data for years.
“Making this data available is critical to ensuring that the public will be able to hold lenders accountable for violations of our fair lending laws – laws that were passed to eradicate centuries of discrimination in mortgage lending in the United States,” she said.
James said by increasing the HMDA reporting threshold, the CFPB makes it difficult for the public and public officials to bring discrimination claims.
Under regulations that went into effect in 2018, all financial institutions that have originated 25 or more closed-end mortgages per year for the last two years, or 100 or more open-end mortgages per year for the last two years, are required to collect and report data. When these reporting thresholds were set in 2015 as a way to avoid another subprime lending crisis like the one that led to the 2008 economic recession, the CFPB said it struck a balance between the burden placed on smaller lenders and the need for data to ensure that mortgage lending is conducted in a non-discriminatory manner.
The CFPB is now proposing to raise the reporting thresholds for closed-end mortgages to 50 or 100 loans per year and for open-end mortgages such as home equity lines of credit or HELOCs to 500 loans per year. If adopted, the changes in reporting thresholds would exempt large swaths of the mortgage lending industry from the obligation to report HMDA data, she said.
In the filed comments, the New York attorney general argued that these changes would render HMDA meaningless, undermining the purpose of its existence. She also criticized the CFPB for reversing its prior position that such higher thresholds would impede the public and public officials’ ability to ensure that mortgage lending was being conducted in a non-discriminatory manner in their communities. James also said that it was premature for the CFPB to propose these changes before the public has had an opportunity to review the 2018 HMDA data.
In addition, she said the CFPB proposal violates the Administrative Procedure Act since it fails to take into consideration the cost of the proposed rule on the states and it was issued prior to the date 2018 HMDA data was published, preventing the public from an opportunity to comment.