On the heels of the Fall 2016 semi-annual agenda, the CFPB’s Director of Fair Lending announced the areas the department will be focused on in the upcoming New Year. Three areas of interest for this department of the Bureau in 2017 will be:
- Redlining – the Bureau will continue to evaluate whether lenders have intentionally avoided lending in minority neighborhoods.
- Mortgage and Student Loan Servicing – the CFPB will determine whether borrowers who are behind on their mortgage or student loan payments may have more difficulty working out a new solution with the servicer because of their race or ethnicity.
- Small Business Lending – the Bureau is acting on the concerns expressed by Congress regarding women-owned and minority-owned businesses experiencing discrimination when applying for credit, and has required the CFPB to take steps to ensure their fair access to credit.
The CFPB has identified these to be areas that have emerged as providing the greatest risk of credit discrimination for consumers. As the Bureau pointed out in the release, over the past year the focus has primarily been in areas of large auto lenders and the credit card markets; however, the area of focus will be shifting in 2017. While you are likely not a financial institution that is directly regulated by the CFPB, the “hot topics” of the CFPB typically trickle down to your bank’s primary federal financial regulator, i.e. FDIC, OCC, Board, etc.
All three of these topics identified by the CFPB should be topics that you are familiar with and have policies and practices in place to avoid any fair lending discriminatory activity. That being said, we have seen an onslaught of redlining cases throughout the past few years, with one of the most egregious cases settled in 2016 against Bancorp South Bank (see link to blog article from July 1, 2016).
Redlining is the practice of denying a creditworthy applicant a loan for housing in a certain neighborhood even though the applicant may otherwise be eligible for the loan. It is an unlawful practice under the Fair Housing Act when done on a prohibited basis, i.e. race, color, religion, national origin, etc. It is a practice that started in the 1930’s when the government-sponsored New Deal’s Home Owners’ Loan Corporation drafted maps of American communities to determine which ones were worthy of mortgage lending. Unfortunately, this practice was adopted by private banks back in the 30’s as well and still exists today as seen through the most recent cases.
If the topic of redlining has not been a priority for your financial institution, now is the time to investigate, research, analyze your loan data, and determine the story your lending policies, practices, and portfolio is telling about your financial institution. The CFPB and your primary federal regulator will be anxious to hear your story, make it a good one!