CFPB and DOJ Collaborate on Fair Lending: 3 Key Areas Defined
Last week (December 6th), the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) agreed to strengthen the coordination on fair lending enforcement and avoid duplication of efforts of their federal law enforcement efforts through a Memo of Understanding (MOU). In addition, the CFPB published its first annual Fair Lending Report to Congress, highlighting the Bureau’s recent accomplishments in fair lending. The release of the two documents remind us of Washington’s continued focus and commitment towards fair lending. At the bottom of the article, we provide a self-analysis tool to help you quickly guage your institution's status in regards to your team's Fair Lending compliance journey.
Below are the highlights of both Memo of Understanding and the Fair Lending Report below.
1. Memo of Understanding Between CFPB and DOJ (Fair Lending Coordination) – 12/06/12
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB works with the DOJ and other regulators to promote consistent, efficient and effective enforcement of federal fair lending laws. The Dodd-Frank Act also expressly authorizes the CFPB to conduct joint investigations with the department in matters relating to fair lending.
Both the CFPB and the DOJ have authority to protect against discriminatory lending under the Equal Credit Opportunity Act (ECOA). The ECOA makes it illegal for creditors to discriminate against applicants in credit transactions because of race, color, religion, national origin, sex, marital status, age, income coming from a public assistance program or an applicant’s exercise of certain consumer protection rights.
The DOJ has the authority to bring federal lawsuits to enforce the ECOA against any creditor that engages in a pattern or practice in violation of the ECOA or based on referrals of ECOA violations from federal bank regulators including the CFPB. The CFPB is authorized to bring public enforcement actions against any person subject to the CFPB’s supervisory or enforcement authority for violations of the ECOA. The CFPB is also required to refer certain violations of the ECOA to the DOJ for possible enforcement actions.
The agencies are committed to cooperation and avoiding duplicative efforts. The MOU outlines the general framework for:
- Sharing information and preserving its confidentiality: The agencies will be sharing information in matters that the CFPB refers to the DOJ, in joint investigations under the ECOA, and in order to coordinate fair lending enforcement. The MOU establishes strict confidentiality protections for this shared information.
- Joint investigations and coordination: The MOU provides for collaboration in investigations as well as coordination in joint investigations. The agencies will also meet regularly to discuss pending fair lending investigations and opportunities for coordination.
- Referrals and notifications between the agencies: Like other federal bank regulators, the CFPB will refer matters to the DOJ when it has reason to believe that a creditor has engaged in a pattern or practice of lending discrimination. Because a referral to the DOJ does not affect the CFPB’s authority to pursue its own supervisory or enforcement action, the CFPB and the DOJ will coordinate their efforts to avoid unnecessarily duplicative actions. The agencies have also agreed to notify each other at key stages of their enforcement work, such as the opening of an investigation or filing of a lawsuit.
The agencies will periodically assess the implementation of this agreement and are committed to finding ways to further strengthen their coordination efforts.
“The Department of Justice welcomes the new tools and resources the CFPB can bring to the fight against lending discrimination,” said Thomas E. Perez, Assistant Attorney General for the Civil Rights Division. “Cooperation between our two agencies promotes strong and effective civil rights enforcement, and today’s agreement will further our ongoing collaborative efforts.”
“Discrimination undermines equal access to credit,” said Richard Cordray, Director of the CFPB. “Today’s agreement is a critical step to better protecting consumers from illegal and discriminatory lending practices. We look forward to continuing our partnership with the Justice Department under this new framework.”
Bottom Line: The CFPB and the DOJ remain committed to Fair Lending. This MOU simply provides the framework for the two agencies to coordinate their efforts as they improve their coordination on fair lending and reduce duplication of efforts.
2. First Annual Fair Lending Report of the CFPB (2012)
The CFPB also released a consumer friendly, annual report to Congress regarding fair lending that describes the Bureau’s efforts to build and implement their fair lending program. The report starts with an overview of Dodd-Frank (which gave the CFPB supervisory, enforcement and rulemaking authority), established the Office of Fair Lending and Equal Opportunity, explains the rulemaking authority (ECOA, HMDA, TILA), and the mandate to provide reports to Congress.
First year accomplishments include:
- Establishment of the Office of Fair Lending and Equal Opportunity
- Commencement of CFPB’s fair lending supervision program (banks and nonbank institutions)
- Commencement of CFPB’s fair lending enforcement program (initiation of investigations)
- Work on amendments to the regulation that implements HMDA, and planning for the amendments to regulations that implement ECOA and TILA
- Completion of an empirical study and report to Congress on private education lending
- Ongoing collaboration with federal and state partners and outreach to private industry, fair lending, civil rights, consumer and community advocates
Bottom Line: It is clear that the CFPB will continue to prioritize fair lending and the bureau's mission of promoting fair and equal access to credit by using all the tools at its disposal (including supervision of large bank and nonbank compliance, consumer engagement, study of consumer financial markets, empirical research and analysis, and rulemaking). The report further confirms that the CFPB will continue to be a data driven organization and will be transparent with their reporting and financial instittuion expectations. The CFPB states, “We also expect that regulated entities under the CFPB’s jurisdiction will have effective compliance management systems, including effective fair lending compliance management systems, which are adapted to the institution’s business strategy and operation.”
Gain Control with TRUPOINT Partners: As Washington continues to focus upon fair lending, TRUPOINT Partners can help your team efficiently manage your fair lending regulatory compliance. A 5 minute self-review of your program can help make sure you are ready for 2013 (CLICK HERE FOR INSTANT ACCESS).