CFPB Releases its 2014 Fair Lending Report

By: Melanie Brody, Anjali Garg

On April 28, the CFPB issued its third Fair Lending Report, highlighting fair lending developments from calendar year 2014. The CFPB reports that in 2014, its fair lending supervisory and public enforcement actions resulted in $224 million in remediation to approximately 303,000 consumers. The CFPB referred 15 matters to the Department of Justice in the areas of mortgage lending, auto finance, unsecured consumer lending and credit cards, and student lending. DOJ declined to open an independent investigation in five of those matters.

Risk-Based Prioritization: The report emphasizes the CFPB’s “risk-based prioritization” of its fair lending activities. Risk factors include consumer complaints and tips, supervisory and enforcement history with the CFPB and other regulators, quality of fair lending compliance management systems, data analysis, and market insights.

Supervisory Insights: The report notes a number of issues that the CFPB identified through its supervisory process. For example, the CFPB found that financial institutions had inadequate policies and procedures for documenting exceptions to established credit standards, indicating potential problems with the institutions’ fair lending compliance management systems. The report also highlights findings from the CFPB’s indirect auto lending supervision, including concerns about credit approvals and denials, buy rates, and discretionary markups and adjustments to the buy rates.

Key Takeaways: In the coming year, the CFPB will be particularly focused on mortgage lending and auto finance, but will also begin examining small business lending activity.

• Mortgage lending: The CFPB remains focused on HMDA data integrity and validation, more in-depth analysis of mortgage lending in exams and investigations, and pricing policies and practices. Institutions should consider evaluating their HMDA data integrity, third party vendor compliance with ECOA and Regulation B, and sufficiency of the institution’s mortgage lending compliance management system.
• Auto lending: The CFPB is concerned about discretionary dealer markup and compensation policies. Institutions should evaluate their compliance management systems and their policies related to discretionary pricing adjustments and discretionary adjustments to risk-based buy rates.
• Small business lending: The report notes that the CFPB is beginning to focus on its forthcoming small business lending data collection rulemaking, and is planning supervisory activity in the small business lending market.

Stay tuned to Consumer Financial Services Watch in the coming months as developments in these areas unfold.