Navigating the Evolving Landscape of Fair Lending: CFPB's 2023 Report Sheds Light on Priorities and Enforcement Trends
The Consumer Financial Protection Bureau (CFPB) has recently released its annual Fair Lending Report for the calendar year 2023, providing a comprehensive overview of the agency's activities and priorities in the realm of fair lending. The report covers a wide range of topics, from enforcement actions and supervision activities to rulemaking and the Bureau's focus on combating digital discrimination.
Uncovering the Trends: CFPB's Fair Lending Enforcement and Supervision Efforts
Mortgage Origination: Redlining, Appraisals, and HMDA Data Integrity
The CFPB's risk-based prioritization process has led the agency to focus its supervision efforts on several key areas within the mortgage origination landscape. Redlining, appraisal practices, and the integrity of Home Mortgage Disclosure Act (HMDA) data have been identified as areas of particular concern. The report delves into the Bureau's enforcement actions and referrals to the Department of Justice (DOJ) related to these issues, highlighting the CFPB's commitment to addressing discrimination in the mortgage market.
Credit Card Marketing and Alternative Data Usage
The CFPB has also trained its sights on the credit card industry, scrutinizing the use of alternative data in digital marketing and the potential for discriminatory practices. The report discusses the Bureau's supervision activities in this domain, underscoring the importance of fair and responsible lending practices in the credit card market.
Automated Systems and Models in Credit Card Originations
Another area of focus for the CFPB has been the use of automated systems and models in credit card originations. The report delves into the Bureau's efforts to ensure that these technologies do not perpetuate or exacerbate discrimination, emphasizing the need for robust fair lending testing and the exploration of less discriminatory alternatives.
Enforcement Actions and Referrals to the DOJ
The report reveals a significant increase in the number of ECOA-related referrals made by the CFPB and other agencies to the DOJ, reflecting the Bureau's heightened enforcement efforts. This surge in referrals underscores the CFPB's commitment to holding financial institutions accountable for fair lending violations and collaborating with other regulatory bodies to address systemic issues.
Rulemaking and Interagency Collaboration
The CFPB's fair lending-related rulemaking activities, including the finalization of the Section 1071 data collection rule for small business lenders and the interagency rulemaking on automated valuation models (AVMs), are also highlighted in the report. These initiatives demonstrate the Bureau's proactive approach to addressing emerging fair lending challenges and its willingness to work collaboratively with other regulatory agencies.
Appraisal Bias: A Key Fair Lending Priority
The report emphasizes the CFPB's focus on addressing appraisal bias, a critical fair lending issue. The Bureau's collaboration with the Federal Financial Institutions Examination Council (FFIEC) Appraisal Subcommittee and its involvement in legal proceedings related to discriminatory home appraisals underscore the importance the CFPB places on this matter.
Combating Digital Discrimination
The final section of the report highlights the CFPB's commitment to addressing "digital discrimination" by scrutinizing the use of data that may serve as proxies for prohibited bases, the implementation of fraud screens that could circumvent fair lending laws, and the need for robust fair lending testing of models, including the exploration of less discriminatory alternatives.Under the leadership of Director Chopra, the CFPB has demonstrated a resolute determination to combat credit discrimination in all its forms. The 2023 Fair Lending Report serves as a testament to the Bureau's ongoing efforts to push the fair lending envelope and ensure that the financial services industry upholds its obligations to provide equitable access and opportunity for all consumers.
