In This Issue:
- CFPB Issues Statement on Juneteenth Bill Truth in Lending Act Issue
- Juneteenth Bill Creates Truth in Lending Act Issue
- CFPB Will Assess the 2015 HMDA Rule and Not Pursue Other HMDA Rulemakings
- CFPB’s Spring 2021 Rulemaking Agenda Discards Kraninger-Era Rulemaking Plans
- GAO Issues Report Finding that CFPB Needs to Assess the Impact of Recent Changes to Its Fair Lending Activities
- This Week’s Podcast: Should the Office of the Comptroller of the Currency (OCC) Be Abolished? A Conversation With Special Guest Carter Dougherty, Financial Reform Advocate and Author of “The Money Trust” Newsletter
- Second Circuit Rules Debt Collector Did Not Violate FDCPA by Sending Settlement Offer Without Disclosing Interest Would Continue to Accrue if Consumer Did Not Meet Payment Deadline
- Petitioners in FAA Preemption Case Receive Support of Industry Groups in Brief Filed by Ballard Spahr With Supreme Court
- CFPB Fair Lending Leaders Publish Article Promoting Broader Use of Special Purpose Credit Programs
- This Week’s Podcast: Websites as “Places of Public Accommodation” Under Title III of the Americans With Disabilities Act (ADA): A Deep Dive Into the Legal and Regulatory Issues Facing Businesses
- Did You Know?
For the latest updates on the Coronavirus COVID-19 pandemic visit the Ballard Spahr COVID-19 Resource Center
CFPB Issues Statement on Juneteenth Bill Truth in Lending Act Issue
As previously reported, the bill signed into law by President Biden on June 17, 2021 to create the Juneteenth National Independence Day results in an important change under the Truth in Lending Act (TILA) and Regulation Z. There is a specific definition of “business day” under Regulation Z for certain purposes, including the waiting periods that apply to the TRID rule disclosures and right of rescission, the date that private education loan disclosures mailed to the consumer are deemed to be received, and the date that the right to cancel a private education loan expires. Under the specific definition, a “business day” is “all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a) . . . .”
The bill amends 5 U.S.C 6103(a) to add “Juneteenth National Independence Day, June 19” as a specified legal public holiday. As a result, without further action, under the specific definition of “business day” in amended 5 U.S.C. 6103(a), Saturday June 19 was not a business day. (Although the federal government was closed on Friday June 18 in observance of the new legal public holiday, under the specific definition of “business day” in amended 5 U.S.C. 6103(a), June 18 was a business day.)
Industry representatives urged the CFPB to provide guidance. Later in the day on June 18, Acting CFPB Director Uejio issued a statement that first addresses the significance of the new holiday, and then addresses the TILA issue as follows:
The CFPB, along with the other Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) regulators, is aware of concerns regarding implementation of the new Juneteenth Federal holiday, particularly as it relates to mortgage lender compliance with the Truth in Lending Act and TILA-RESPA Integrated Disclosure (TRID) timing requirements. The CFPB recognizes that some lenders did not have sufficient time after the Federal holiday declaration to consider whether and how to adjust closing timelines. The CFPB understands that some lenders may delay closings to accommodate the reissuance of disclosures adjusted for the new Federal holiday. The CFPB notes that the TILA and TRID requirements generally protect creditors from liability for bona fide errors and permit redisclosure after closing to correct errors. Any guidance ultimately issued by the CFPB would take into account the limited implementation period before the holiday and would be issued after consultation with the other FIRREA regulators and the Conference of State Bank Supervisors (CSBS) to ensure consistency of interpretation for all regulated entities.
Industry members likely will find the initial guidance to be unhelpful.
Pursuant to the bona fide error defense under TILA, a creditor or assignee may not be held liable in any action brought under the civil liability or right of rescission provisions for a TILA violation if the creditor or assignee shows by a preponderance of evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error. In practice, the usefulness of the defense is limited. The defense is just that—a defense that is available to a creditor or assignee to assert in an action based on a TILA compliance issue. The defense does not provide for a cure of the underlying issue. As a result, if there is a TILA compliance issue with a loan of a type that typically affects the loan’s salability, investors typically will not agree to purchase the loan even if the lender asserts that the bona fide error defense is available.
The reference in Acting Director Uejio’s statement to the TRID rule permitting redisclosure after closing to correct errors likely is intended to address the possibility that because the Juneteenth bill changed the calculation of the TRID rule three business day waiting period between the date when a consumer receives the initial Closing Disclosure and the date of closing, the closing might need to be delayed and thereby cause items in that disclosure to become inaccurate. However, instead of the ability to redisclose, the more significant issue is that the change in the calculation of the three business day waiting period will likely make it necessary in many cases to in fact delay the closing date. In many cases, the creditor will be able to reflect any applicable changes in a revised Closing Disclosure provided on the delayed closing date.
Juneteenth Bill Creates Truth in Lending Act Issue
The bill signed into law by President Biden on June 17, 2021 to create the Juneteenth National Independence Day results in an important change under the Truth in Lending Act (TILA) and Regulation Z.
Under TILA and Regulation Z, there are two definitions of “business day.” One definition is “a day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions.” There is a specific definition for certain purposes, including the waiting periods that apply to the TRID rule disclosures and right of rescission, the date that private education loan disclosures mailed to the consumer are deemed to be received, and the date that the right to cancel a private education loan expires. Under the specific definition, a “business day” is “all calendar days except Sundays and the legal public holidays specified in 5 U.S.C. 6103(a), such as New Year’s Day, the Birthday of Martin Luther King, Jr., Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans Day, Thanksgiving Day, and Christmas Day.”
The Juneteenth bill amends 5 U.S.C. 6103(a) to add “Juneteenth National Independence Day, June 19” as a specified legal public holiday. As a result, without further action, under the specific definition of “business day” in amended 5 U.S.C. 6103(a), Saturday June 19 is not a business day. Although the federal government will be closed on Friday June 18 in observance of the new legal public holiday, under the specific definition of “business day” in amended 5 U.S.C. 6103(a), June 18 is a business day.
Apparently, the CFPB will be providing guidance to the industry regarding this development.
- Richard J. Andreano, Jr. & John L. Culhane, Jr.
CFPB Will Assess the 2015 HMDA Rule and Not Pursue Other HMDA Rulemakings
In connection with the release of its latest semi-annual regulatory agenda, the CFPB announced that it will assess the October 2015 significant amendments to Regulation C under the Home Mortgage Disclosure Act (HMDA), and that it will not pursue other HMDA rulemakings.
The Dodd-Frank Act requires that the CFPB conduct an assessment of each significant rule or order it has adopted under federal consumer financial law and publish a report of each assessment no later than five years after the effective date of the rule or order. The CFPB advises that it recently decided to assess the October 2015 amendments, most of which became effective on January 1, 2018. Significantly, the CFPB also announced that “in light of our other rulemaking priorities, we are no longer pursuing two HMDA rulemakings that were listed in the proposed rule stage in previous agendas–one that concerns the data points that lenders must report and another related to the public disclosure of HMDA data.” As a result, for the meantime, the CFPB will no longer pursue the advance notice of proposed rulemaking issued in May 2019 regarding HMDA data points, or its consideration of replacing its guidance on the public issuance of HMDA data with a formal rule.
CFPB’s Spring 2021 Rulemaking Agenda Discards Kraninger-Era Rulemaking Plans
The CFPB has published its Spring 2021 rulemaking agenda as part of the Spring 2021 Unified Agenda of Federal Regulatory and Deregulatory Actions. It represents the “new CFPB’s” first rulemaking agenda during the Biden Administration. The agenda’s preamble indicates that the information in the agenda is current as of April 26, 2021 and identifies the regulatory matters that the Bureau “reasonably anticipates having under consideration during the period from May 1, 2021 to April 30, 2021.”
Three significant items that were listed as “long-term actions” in the Bureau’s Fall 2020 rulemaking agenda, the last agenda issued under former Director Kraninger, no longer appear in the Spring 2021 agenda. First, there is no longer any reference to possible rulemaking to define the meaning of “abusive” under Dodd-Frank. Second, there is no longer any reference to possible rulemaking on payday loan disclosures. Third, the new agenda contains no reference to a possible rulemaking to address concerns that the Bureau’s current rule on loan originator compensation may be unduly restrictive.
The new agenda lists the following two items as in the “final rule stage”:
- Debt collection. In April 2021, the CFPB issued a proposal that would extend by 60 days the effective date of Part I and Part II of its final debt collection rule issued in, respectively, October 2020 and December 2020. The comment period closed on May 19, 2021. The debt collection rule (Parts I and II) is scheduled to take effect on November 30, 2021. The CFPB’s proposal would extend the effective date to January 29, 2022. The Bureau indicates in the agenda that its next action will be a final rule as to the effective date.
- LIBOR. In June 2020, the CFPB proposed amendments to Regulation Z to address the discontinuation of the London Inter-Bank Offered Rate (LIBOR) that is currently used by many creditors as the index for calculating the interest rate on credit cards and other variable-rate consumer credit products. In 2017, the United Kingdom’s Financial Conduct Authority, the regulator that oversees the panel of banks on whose submissions LIBOR is based, announced that it would discontinue LIBOR sometime after 2021. The comment period closed on August 4, 2020. In the agenda, the Bureau indicates that it expects to issue a final rule in January 2022.
The items identified in the agenda as in the “proposed rule stage” are:
- Business Lending Data (Regulation B). Section 1071 of Dodd-Frank amended the ECOA, subject to rules adopted by the Bureau, to require financial institutions to collect and report certain data in connection with credit applications made by women- or minority-owned businesses and small businesses. The Bureau issued a SBREFA outline in September 2020 and convened a SBREFA panel in October 2020. In December 2020, the Bureau released the final report of the SBREFA panel. The Bureau’s next step will be the issuance of a Notice of Proposed Rulemaking (NPRM) for which the agenda gives a September 2021 estimated date.
- Amendments to FIRREA Concerning Appraisals (Automated Valuation Models). The Bureau is participating in interagency rulemaking with the Federal Reserve, OCC, FDIC, NCUA and FHFA to develop regulations to implement the amendments made by the Dodd-Frank Act to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) concerning appraisals. The FIRREA amendments require implementing regulations for quality control standards for automated valuation models. The Bureau estimates in the agenda that the agencies will issue an NPRM in December 2021.
- Mortgage Servicing COVID-19 Relief. In April 2021, the Bureau issued an NRPM to amend Regulation X in various ways to address the COVID-19 national emergency. The proposal would amend aspects of the early intervention requirements, loss mitigation procedures, and foreclosure protections. The comment period on the NPRM closed on May 10, 2021 and the Bureau estimates in the agenda that it will issue a final rule in July 2021.
The items identified in the agenda as in the “pre-rule” stage are:
- Consumer Access to Financial Information. Section 1033 of Dodd-Frank addresses consumers’ rights to access information about their own financial accounts, and permits the CFPB to prescribe rules concerning how a provider of consumer financial products or services must make a consumer’s account information available to him or her, “including information related to any transaction, or series of transactions, to the account including costs, charges, and usage data.” In November 2016, the Bureau issued a request for information (RFI) about market practices related to consumer access to financial information and, after holding a symposium in February 2020, the Bureau issued an Advance Notice of Proposed Rulemaking in connection with its Section 1033 rulemaking in November 2021. In the agenda, the Bureau gives an estimated April 2022 date for its next pre-rule steps.
- Property Assessed Clean Energy Financing. In March 2019, the CFPB issued an Advance Notice of Proposed Rulemaking to extend Truth in Lending Act ability-to-repay requirements to PACE transactions. The Bureau gives an October 2021 estimate in the agenda for pre-rule activity.
The items identified in the agenda as “long-term actions” for which no estimated dates for further action are given are:
- Mortgage Servicing Rules. The Bureau is considering whether to propose additional amendments to the servicing rules, including, for example, loss mitigation-related provisions.
- Artificial Intelligence. In February 2017, the CFPB issued an RFI concerning the use of alternative data and modeling techniques in the credit process. The Bureau states that it recognizes the importance of continuing to monitor the use of AI and machine learning and is evaluating “whether rulemaking, a policy statement, or other Bureau action may become appropriate.”
Pursuant to Dodd-Frank Section 1022(d), the Bureau is required to conduct an assessment of each significant rule or order it adopts under a Federal consumer financial law and publish a report of each assessment not later than 5 years after the rule’s or order’s effective date. In connection with the release of the Spring 2021 agenda, the CFPB announced that it will assess the October 2015 significant amendments to Regulation C under the Home Mortgage Disclosure Act.
GAO Issues Report Finding that CFPB Needs to Assess the Impact of Recent Changes to Its Fair Lending Activities
During May 2021, the federal Government Accountability Office (“GAO”) issued a report (GAO-21-393) containing findings from its review of issues related to the CFPB’s oversight and enforcement of the Equal Credit Opportunity Act (“ECOA”) and the Home Mortgage Disclosure Act (“HMDA”). Specifically, the report examines how the CFPB has (i) managed the reorganization of its Office of Fair Lending and Equal Opportunity and related risks during 2018, (ii) monitored and reported on its fair lending performance, and (iii) used new HMDA data fields to analyze and support its fair lending activities. The report was requested by two Democratic members of the Senate Banking Committee, Chairman Sherrod Brown (D-OH) and Elizabeth Warren (D-MA).
In conducting the study, the GAO reviewed CFPB documents related to its fair lending activities (such as strategic and performance reports, policies and procedures) and the reorganization. The GAO evaluated implementation of the reorganization against relevant key practices identified in a prior GAO 2018 report (GAO-18-427). The GAO also interviewed CFPB staff.
The report notes that the Dodd-Frank Act of 2010 required the CFPB to establish an Office of Fair Lending and Equal Opportunity (“OFLEO”), with such powers and duties as its Director may delegate. Those powers included providing oversight and enforcement of federal fair lending laws enforced by the CFPB, and coordinating the Bureau’s efforts with other federal and state agencies. In 2011, the CFPB established OFLEO under the Division of Supervision, Enforcement and Fair Lending (“SEFL”).
In January 2018, the CFPB announced a reorganization of OFLEO, which was completed one year later in January 2019. As we previously reported, the rationale provided for the move at that time–orchestrated under then-Acting CFPB Director Mick Mulvaney–was that the new organizational structure was designed to best enable the Bureau to fulfill its statutorily mandated activities in a way that avoids redundancy and makes the best use of the CFPB’s resources. The reorganization chiefly involved transferring OFLEO from SEFL to the CFPB Director’s Office under the Office of Equal Opportunity and Fairness.
The GAO report indicates that the reorganization also delegated some of OFLEO’s previous responsibilities, staff and budget to other offices within SEFL. The 38 OFLEO staff positions authorized for fiscal year 2018 were redistributed within SEFL; five were transferred to SEFL’s “front office,” eight to the Office of Enforcement, six to the Office of Supervision Examinations, and nine to the Office of Supervision Policy. At the end of the reorganization, only 10 positions were left in OFLEO.
Key changes in the CFPB’s fair lending responsibilities under the reorganization included the following:
- Enforcement: Shifted responsibility from specialist attorneys in OFLEO to generalist attorneys in the Office of Enforcement.
- Supervision: Shifted subject matter expertise and examination support from dedicated supervision staff in OFLEO to a new team in the Office of Supervision Policy.
- Prioritization: Shifted responsibility for selecting institutions for fair lending examination and identifying enforcement priorities from OFLEO to Supervision offices and the Office of Enforcement.
The GAO report notes that some duties remained unchanged after the reorganization. Specifically, the Office of Supervision Examinations continues to be responsible for scheduling and conducting fair lending examinations, and OFLEO for orchestrating fair lending outreach and education (speaking events, webinars and roundtables). OFLEO also continues to write the Fair Lending Annual Report to Congress on the CFPB’s fair lending activities and serves as the primary point of contact for the U.S. Department of Justice (with the notable exception of enforcement investigations) and other federal and state agencies on fair lending issues.
GAO Findings and Recommendations
Key findings of the GAO report were two-fold as it relates to the CFPB’s OFLEO reorganization:
- As the CFPB planned and implemented the reorganization, the Bureau did not “substantially incorporate” key practices for agency reform efforts that the GAO had identified in its prior work, such as using employee input for planning or monitoring implementation progress and outcomes.
- The GAO identified specific challenges related to the reorganization (including loss of fair lending expertise and specialized data analysts) that “may have contributed to a decline in enforcement activity in 2018.” In particular, the GAO noted that the CFPB “has not assessed how well the reorganization met its goals or how it affected [its] fair lending supervision and enforcement efforts.”
The GAO also noted that, as of February 2019 when the reorganization was completed, the CFPB stopped reporting on performance goals and measures specific to fair lending supervision and enforcement. Those metrics included tracking the number of completed fair lending examinations and the percentage of enforcement cases successfully resolved, among others. The GAO stated that “[w]ithout those goals and measures, CFPB is limited in its ability to assess and communicate progress on its fair lending supervision and enforcement efforts, key components of CFPB’s mission.”
The GAO report made two recommendations, both of which the Bureau agreed to:
- The CFPB Director should collect and analyze information on the outcomes of its 2018-2019 fair lending reorganization and use that assessment to address any “challenges or unintended consequences resulting from that change;” and
- The CFPB Director should develop and implement performance goals and measures specific to its efforts to supervise and enforce fair lending laws.
We will now have to wait and see what CFPB leadership (under either Acting Director Dave Uejio or a permanent Director) concludes in its assessment of its fair lending reorganization and whether that assessment will be made publicly available.
Another very interesting aspect of the GAO report is a section on the CFPB’s use of new HMDA data fields that mortgage lenders were required to begin reporting as of January 1, 2018 under the 2015 HMDA final rule (Regulation C). The GAO report states that the CFPB has used the additional HMDA data to support its supervisory and enforcement activities and fair lending analyses. Specifically, the CFPB incorporated the new loan-level data into its efforts to identity and prioritize fair lending risks for potential discriminatory lending activity (such as lending patterns that suggest potential discrimination), support fair lending examinations and investigations, and improve efficiency. As an example, the GAO cites several examples of the Bureau’s use of the new HMDA data fields:
- An informal CFPB analysis found that the new HMDA data reduce “false positives.” This term is used by the CFPB and other regulators to refer to cases in which lenders are incorrectly identified as presenting high fair lending risk.
- CFPB officials noted that the new HMDA data allows them to further segment lending data by geographic area, race, demographics and other variables to support fair lending examination and investigations. For example, the new data allows the CFPB to differentiate loan type (consumer v. business loans) and new data on credit scores, interest rate spread, and total loan cost improve the Bureau’s ability to compare how institutions price loans, which helps its staff identify potentially discriminatory lending practices. The new HMDA data providing property addresses has also improved the CFPB’s ability to identify redlining risks in specific geographic areas by providing more detailed local market data.
- The CFPB shared examples of how the new HMDA data may improve the efficiency of their fair lending work. As one illustration, officials in the Office of Enforcement stated that the new data allow them to investigate fair lending issues in greater detail before officially opening an investigation and subpoenaing additional data.
The report also notes that the Dodd-Frank Act requires the CFPB to retroactively assess the effectiveness of “significant rules” it adopts and then publish an assessment report within five years after the rule’s effective date. While the GAO report stated that CFPB officials were considering whether the 2015 HMDA final rule qualifies as “significant” within the meaning of that requirement, on June 11, 2021 the CFPB published its Spring 2021 semi-annual regulatory agenda, in which the Bureau announced that it will indeed assess it. The Bureau also noted that it will not pursue other HMDA rulemakings – one that concerns the data points that lenders must report and another related to the public disclosure of HMDA data. See our separate blog post on this development.
- Richard J. Andreano, Jr. & Lori J. Sommerfield
This Week’s Podcast: Should the Office of the Comptroller of the Currency (OCC) Be Abolished? A Conversation With Special Guest Carter Dougherty, Financial Reform Advocate and Author of “The Money Trust” Newsletter
Mr. Dougherty recently authored an article calling for the OCC’s abolishment and merger into the Federal Deposit Insurance Corp. After reviewing the history of the creation of the OCC and Federal Reserve Banks, we examine and debate Mr. Dougherty’s arguments in support of his position. We also discuss and respond to Mr. Dougherty’s criticism of the OCC’s “true lender,” Community Reinvestment Act, and fair access rules.
Ballard Spahr Senior Counsel Alan Kaplinsky hosts the conversation, joined by Scott Coleman, a partner in the firm’s Business and Transactions Department.
Click here to listen to the podcast.
- Alan S. Kaplinsky, Scott A. Coleman & Christopher J. Willis
Second Circuit Rules Debt Collector Did Not Violate FDCPA by Sending Settlement Offer Without Disclosing Interest Would Continue to Accrue if Consumer Did Not Meet Payment Deadline
The U.S. Court of Appeals for the Second Circuit has ruled that a debt collector did not violate the Fair Debt Collection Practices Act by sending the plaintiff a settlement offer that did not disclose that his balance could increase due to interest and fees.
In Cortez v. Forster & Garbus, LLP, the debt collector sent a collection notice to the plaintiff offering various options for settling his account for less than the full balance owed if he made the payments indicated by the dates specified in the notice. The plaintiff alleged that the debt collector violated the FDCPA by failing to disclose that interest was continuing to accrue on his balance.
In its 2016 decision in Avila v. Riexinger & Associates, LLC, the Second Circuit held that a collection letter that states a debtor’s current balance but does not disclose whether interest and fees are accruing is misleading in violation of FDCPA Section 1692e. However, the Second Circuit also provided two safe harbors from liability under Section 1692e for failing to make such a disclosure. A debt collector would not be liable if the letter either (1) accurately informs the consumer that that the amount of the debt stated in the letter will increase over time, or (2) clearly states that the holder of the debt will accept payment in the amount set forth in the letter in full satisfaction of the debt if payment is made by the specified date.
In reversing the district court and directing it to enter summary judgment in favor of the debt collector, the Second Circuit disagreed with district court’s reasoning that a settlement offer could be misleading if it contained a payment deadline but did not disclose whether interest or fees would accrue if payment were tendered after the deadline. According to the district court, the least sophisticated consumer could interpret such an offer to imply either that interest and/or fees would accrue after the deadline or that the balance would remain the same after the deadline.
However, in the Second Circuit’s view:
Section 1692e does not require that a collection notice anticipate every potential collateral consequence that could arise in connection with the payment of a debt. Instead, the FDCPA merely requires that a collection notice, by its terms, not be susceptible of a reasonable but inaccurate interpretation. Therefore, a settlement offer need not enumerate the consequences of failing to meet its deadline or rejecting it outright so long as it clearly and accurately informs a debtor that payment of a specified sum by a specified date will satisfy the debt. (citations omitted, emphasis included).
Applying these principles, the Second Circuit held that the debt collector’s notice did not violate Section 1692e because “even when viewed from the perspective of the least sophisticated consumer, the [collector’s] notice could only reasonably be read one way: as extending an offer to clear the outstanding debt upon payment of the specified amount(s) by the specified date(s).” Since the only reasonable interpretation was accurate, there was no FDCPA violation.
Petitioners in FAA Preemption Case Receive Support of Industry Groups in Brief Filed by Ballard Spahr With Supreme Court
On June 11, the American Bankers Association and the Consumer Bankers Association, represented by Ballard Spahr, filed an amicus brief in support of a petition for certiorari asking the Supreme Court to review the Ninth Circuit’s ruling in HRB Tax Group, Inc. v. Snarr that the Federal Arbitration Act (FAA) does not preempt California’s McGill rule. The amicus brief argues that review should be granted to preserve consumer-friendly procedures for resolving disputes and to ensure that courts uniformly apply the FAA as interpreted by the Court in decisions such as Epic Systems Corp. v. Lewis, AT&T Mobility, LLC v. Concepcion and Lamps Plus, Inc. v. Varela.
The petition for certiorari, filed on May 10, argues that the McGill rule is inconsistent with fundamental precepts of the FAA and that a conflict has emerged in the federal courts on whether the FAA preempts the McGill rule. The respondent’s brief is due July 12.
We will keep you updated.
- Alan S. Kaplinsky & Mark J. Levin
CFPB Fair Lending Leaders Publish Article Promoting Broader Use of Special Purpose Credit Programs
Two leaders of the CFPB’s Fair Lending Office–Patrice Ficklin, Fair Lending Director, and Charles Nier, Senior Fair Lending Counsel–recently published an article advocating for broader use of special purpose credit programs (SPCPs) by creditors. The article, entitled “The Use of Special Purpose Credit Programs to Promote Racial and Economic Equity” and framed as an essay, can be found in the Poverty & Race Research Action Council’s (PRRAC) May 2021 edition of its series on new directions in racial justice in housing finance and is available here. PRRAC is a civil rights law and policy organization based in Washington, D.C.
The authors explain that in the aftermath of George Floyd’s death, which resulted in greater calls for racial equity and social justice as well as historic financial commitments by the banking industry to address those issues, there has been renewed interest in SPCPs. Although SPCPs have been available under ECOA for 45 years, financial institutions have been reluctant to use them because of regulatory uncertainty concerning compliance and the potential for examination criticism. The authors view SPCPs as a “significant and unheralded tool” to address “historical injustices,…systemic racism in the credit markets and, more broadly,…racial wealth inequity.”
The article traces the historical underpinnings of racial wealth inequity, noting great disparities between wealth accumulation and homeownership between African American and non-Hispanic white households. The authors point out that since few people have the financial resources to purchase a home without obtaining financing, a critical step in achieving home ownership (and thus building wealth) is fair and equitable access to credit. By providing access to credit on favorable terms and conditions, the authors argue that SPCPs represent “one potentially powerful restorative tool in the struggle to redress credit discrimination and racial inequity.”
The article goes on to describe SPCP requirements under ECOA and Regulation B, and clarify the different requirements for SPCPs non-profit and for-profit organizations, as described in Regulation B. The CFPB leaders note that one of the most frequent SPCP questions the CFPB receives is how a creditor can determine that an SPCP “will benefit a class of persons who would otherwise be denied credit or would receive it on less favorable terms” under Regulation B. Regulation B indicates that the determination can be based on a broad analysis using the creditor’s own research or data from outside sources, including governmental reports and studies. As we previously reported, in December 2020, the CFPB issued an advisory opinion, which is an interpretive rule (“IR”), clarifying that for-profit organizations may rely on a wide range of research or data already in the public domain, such as HMDA data and other governmental or academic reports/studies exploring historical and societal causes and effects of discrimination to establish compliant SPCPs.
The article concludes by stating that SPCPS are a “central priority” for the CFPB’s efforts to address racial equity. The authors state that “[c]reditors implementing special purpose credit programs are encouraged to discuss this essay, the IR, or any aspect of these programs with the CFPB or other regulators.” The authors further state that the CFPB looks forward to advancing the use of SPCPs on behalf of economically disadvantaged groups and to address racial wealth inequity.
In our view, the article does not plow new ground, but its publication demonstrates that the CFPB is actively encouraging broader use of SPCPs, which are specifically authorized by ECOA and Regulation B. However, the article does not address the fact that the Fair Housing Act does not explicitly permit SPCPs, which creates regulatory uncertainty about whether such programs can be offered under the Fair Housing Act. (However, the authors’ reference to creditors potentially consulting “other regulators” about SPCPs seems to be a nod to HUD, which primarily administers and enforces the Fair Housing Act, or the prudential regulators.) As a result, any lender that wishes to develop and offer a mortgage product as an SPCP must carefully analyze the legal issues presented under the Fair Housing Act before doing so. Although it is our understanding that the federal regulators are beginning to look at this issue, there is certainly no regulatory resolution yet concerning whether SPCPs may be offered under the Fair Housing Act.
- Lori J. Sommerfield, Christopher J. Willis & Richard J. Andreano, Jr.
This Week’s Podcast: Websites as “Places of Public Accommodation” Under Title III of the Americans With Disabilities Act (ADA): A Deep Dive Into the Legal and Regulatory Issues Facing Businesses
After reviewing a brief history of the ADA and the U.S. Department of Justice’s (DOJ) interpretation that Title III’s public accommodation accessibility requirements apply to websites, we look at DOJ’s approach to enforcing the ADA during the Biden Administration. We also review recent ADA litigation trends, the 11th Circuit’s landmark Winn-Dixie decision and its likely impact on future ADA litigation, how businesses are approaching ADA compliance in the absence of clear DOJ guidance setting a technical accessibility standard, and the prospects for federal legislation that would create a safe harbor from litigation. We also share our thoughts on best practices businesses can implement to avoid ADA liability.
Ballard Spahr Senior Counsel Alan Kaplinsky hosts the conversation, joined by Lori Sommerfield, Of Counsel in the firm’s Consumer Financial Services Group, and Michelle McGeogh, a partner in the firm’s Real Estate and Construction Litigation Group. Both Lori and Michelle are members of Ballard Spahr’s Accessibility Team.
Click here to listen to the podcast.
- Alan S. Kaplinsky, Michelle M. McGeogh, Lori J. Sommerfield & Christopher J. Willis
Texas Eliminates Physical Office Requirement for Mortgage Loan Companies
Texas recently amended its licensing provisions under the Residential Mortgage Loan Company Licensing and Registration Act to eliminate the requirement for mortgage loan companies to maintain a physical office in Texas. This change comes in response to the work-from-home environment spurred by the COVID-19 pandemic as an effort to reflect the mobile workforce and the changes with new remote technologies used by the mortgage banking industry.
The amendments will become effective on September 1, 2021.