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Showing posts with label HMDA. Show all posts
Showing posts with label HMDA. Show all posts

Monday, June 23, 2014

The Bureau’s Pursuit of Fair Lending

By now it is a known fact that one of the most important features of an examination conducted by the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) is a rigorous review of fair lending compliance. So, given its importance, it behooves us to learn about what the CFPB has found out about fair lending and what actions are needed to ensure its compliance. In this article, I provide an analysis of the CFPB’s most recent findings in the mortgage space as well as practical actions to be taken that help to build a vibrant fair lending initiative, gleaned from both the Bureau’s own issuances and actions, as well as my firm’s experience in assisting institutions with their CFPB fair lending examinations.

On April 30, 2014, the Bureau issued an Annual Report, entitled “Fair lending Report of the Consumer Financial Protection Bureau” (“Report”).[i] Richard Cordray, Director of the CFPB, stated in the Report’s preamble:
“Far too many consumers still must navigate a financial marketplace laden with deceptive marketing, debt traps, dead ends, and discrimination. At the Consumer Bureau, we are fierce advocates for a consumer financial marketplace that allows all Americans to pursue a path to greater opportunity. To that end, we are working to remove the unnecessary obstacles too many Americans face in the consumer financial marketplace. This includes ferreting out discrimination in credit markets, including the markets for home mortgages and auto lending.”[ii]
The Report generally covers the period from July 21, 2012 through December 31, 2013. In addition, there is Interagency Reporting on ECOA and HMDA contained therein, which conveys information on the Bureau’s and other administrative agencies’ functions under ECOA and HMDA, as required by those statutes, for the period of January 1, 2012 to December 31, 2013.

Patrice Alexander Ficklin, the Bureau’s Director of Fair Lending and Equal Opportunity, offered this overview of the Report:
“In this report we describe our steady focus on ensuring that consumers have fair, equitable, and nondiscriminatory access to credit by using all of the tools at our disposal – including research, supervision, enforcement, consumer education and outreach, rulemaking, and interagency engagement.”[iii]
The Bureau issued the Report to Congress “in fulfillment of its statutory obligation and continued commitment to accountability and transparency.”[iv] In this regard, the Bureau is relying on its claimed efforts to fulfill its fair lending monitoring mandate, and provides additional reporting required by the Equal Credit Opportunity Act (ECOA) and the Home Mortgage Disclosure Act (HMDA).[v]

Dodd-Frank established the Office of Fair Lending and Equal Opportunity (the “Office of Fair Lending”) within the CFPB, and charged it with “providing oversight and enforcement of Federal laws intended to ensure the fair, equitable, and nondiscriminatory access to credit for both individuals and communities that are enforced by the Bureau,” including ECOA and HMDA.[vi] The Office of Fair Lending is required to coordinate “fair lending efforts of the Bureau with other Federal agencies and State regulators, as appropriate, to promote consistent, efficient, and effective enforcement of federal fair lending laws,” and works “with private industry, fair lending, civil rights, consumer and community advocates on the promotion of fair lending compliance and education.”[vii]

Since the Bureau’s last report to Congress in December 2012, the Bureau has built fair lending tools and materials and engaged in public dialogue in order to educate, inform, and learn from consumers, advocates, and industry. It introduced a Home Mortgage Disclosure Act Database, which allows the public to study trends in the mortgage market across the nation and in their own communities. Additionally, the Bureau has published a bulletin on lending discrimination to help consumers and industry stakeholders recognize fair lending and access to credit risks in the home mortgage and auto lending markets.[viii]

REPORT’S CONCLUSIONS 

We can derive certain salient observations about the Report’s findings.

In the first place, the Bureau has noted increasing efficiencies in fair lending activity. Thus, they have “created, refined, and implemented a risk-based fair lending prioritization process” to ensure that their supervisory procedures focus on the “areas presenting the greatest fair lending risk to consumers.” The approach, dubbed “risk-based prioritization” by the Bureau, uses the collection of both quantitative and qualitative data to assess fair lending risk to consumers as well as assessments of risk in order to prioritize enforcement actions.[ix]

Wednesday, November 7, 2012

CFPB: Mortgage Originator Violations

Yesterday, I outlined for you the features of the CFPB's requisites of a Compliance Management System (CMS). My observations were based on the CFPB's newsletter, entitled Supervisory Highlights: Fall 2012, an issuance to the public and the financial services industry about its examination program, including the concerns that it finds during the course of its completed work, and the remedies that it has obtained for consumers who have suffered financial or other harm.

There are other important areas covered in the newsletter that I would now like to briefly discuss: 

Violations relating to Credit Reporting, and

Violations by Mortgage Originators

Fair Lending Compliance 

These subjects are very nuanced and complex, involving many aspects of regulatory compliance mandates. Necessarily, my remarks will be limited to the kinds of observations that the CFPB has indicated as principal concerns with respect to these matters.
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IN THIS ARTICLE

Violations relating to Credit Reporting
Violations by Mortgage Originators
Fair Lending Compliance
Library
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Violations relating to Credit Reporting

The Fair Credit Reporting Act (the FCRA) regulates the collection, use, and dissemination of consumer report information, and promotes the accuracy, fairness, and privacy of information held by the nation’s credit bureaus.

As you many know, the CFPB examines financial institutions for their compliance with the FCRA’s requirements for handling consumers’ credit information. Among other things, the FCRA and its implementing regulation, Regulation V, generally require entities that provide consumer information to credit bureaus to establish and implement reasonable written policies and procedures regarding the accuracy and integrity of the consumer information they furnish to these entities.

A party’s failure to comply with the FCRA may cause significant consumer harm.

According to the CFPB's most recent announcement on its examination findings, its examiners have discovered one or more instances in which a financial institution’s employees did not have sufficient training or familiarity with the requirements of the FCRA to implement it properly.

Such deficiencies resulted in a failure implement the following actions:

- Communicate appropriate and accurate account information to the credit bureaus.

- Indicate when account information had been disputed by consumers.

- Determine whether disputes had been fully investigated.

Findings by the CFPB noted that companies were unaware of the potential and actual violations of the FCRA, and, therefore, they repeatedly failed to respond to communications from consumers about their accounts.

The remedial actions mandated by the CFPB included (1) implementing procedures for properly reporting consumer credit disputes to all credit bureaus, (2) taking action on all disputes reported directly to the financial institution and correcting errors where appropriate, and (3) deleting information regarding customers, as appropriate, upon completion of their credit dispute investigations.
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Violations by Mortgage Originators

CFPB examiners have found significant violations of Real Estate Settlement Procedures Act (RESPA) and Truth in Lending Act (TILA).

Violations under RESPA have included failures to make proper and complete disclosures to consumers of costs and other terms of a transaction due to inadequate or improper completion of the Good Faith Estimate and the HUD-1 settlement statement.

Violations under TILA have included failures to provide accurate interest rate disclosures, and payment amounts and schedules, as well as disclosures regarding late payments, security interests, and assumption policies.

One aspect of the CFPB's examination, it should be mentioned, is to review a company's policies and procedures with respect to RESPA and TILA. Those financial institutions that do not maintain an accurate and current set of such policy statements should expect to receive an adverse finding.

Specifically, where financial institutions have violated RESPA and/or TILA, they have been directed to implement appropriate policies, procedures, and monitoring to prevent recurrence of the violations, and to ensure that any third-party vendors, including mortgage brokers, are identified and included in the company’s oversight program. The relevant policies and procedures should provide guidelines to ensure that proper Good Faith Estimate and HUD-1 disclosures are provided to consumers, and that consumers are not improperly charged. In fact, where appropriate, the CFPB has actually directed that consumers receive a corrected HUD-1, and, just as in state banking examinations, where customers are improperly charged, a financial institution will be directed to provide reimbursement to the consumer.
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Fair Lending Compliance

Another area of concern is compliance with the Home Mortgage Disclosure Act (HMDA), and its implementing regulation, Regulation C.

In our newsletter yesterday, I discussed deficiencies of fair lending compliance programs and some "common features" of well developed programs. The CFPB utilizes HMDA data in the course of its review of such programs, and it may seek corrective action or relief, as appropriate, in cases that demonstrate fair lending violations.

Monday, October 17, 2011

CFPB Issues Supervision and Examination Manual

On October 13, 2011, the Consumer Financial Protection Bureau (CFPB) issued its Supervision and Examination Manual - Version 1.0 (Manual). This is first edition of a guide devoted to how the CFPB will supervise and examine consumer financial service providers under its jurisdiction for compliance with Federal consumer financial law.

The Manual is divided into three parts: 

Part 1: Describes the supervision and examination process. 

Part 2: Contains examination procedures, including both the general instructions and the procedures for determining compliance with specific regulations. 

Part 3: Provides templates for documenting information related to supervised entities and the examination process, including examination reports.

Unfortunately, at this time Part 1 and Part 2 are only available as website pages. Part 3 is available in PDF.

However, we have created a Directory and Compendium.

Compendium-1

At this time, Part 1 and Part 2 are only available as website pages.

Part 3 is available in PDF.

In preparing our Audit and Due Diligence procedures for our clients, we have combined all three parts into a single Directory with links to both each section's text and website links. There are over 700 pages in this compendium. 

Our compendium provides:
  • Directory: All Sections
  • Contents: Links to Compendium Text
  • Contents: Links to CFPB Website Text
We are pleased to share this compilation with you for free.

Due to the huge size of the compendium - over 13 MBs - it must be downloaded from our secure Extranet. If you are interested in obtaining this compendium, please request it and we'll send you the download instructions.

Compendium-1

Supervision and Examination Manual - Version 1.0 
OUTLINE

Part I - Compliance Supervision and Examination
Supervision and Examination Process     
Overview     
Examinations 

Part II - Examinations Procedures 
Compliance Management Review

Unfair, Deceptive or Abusive Acts or Practices     
Narrative     
Examination Procedures

Equal Credit Opportunity Act     
Narrative     
Examination Program     
Interagency Fair Lending Examination Procedures     
Interagency Fair Lending Examination Procedures – Appendix

Home Mortgage Disclosure Act     
Narrative     
Examination Procedures     
Home Mortgage Disclosure Act Checklist

Truth in Lending Act     
Narrative     
Examination Procedures     
Appendix A: High-Cost Mortgage (§ 226.32) Worksheet

Real Estate Settlement Procedures Act     
Narrative     
Examination Procedures     
Checklist 

Homeowners Protection Act     
Narrative     
Examination Procedures

Consumer Leasing Act     
Narrative     
Consumer Leasing Act Examination Procedures     
Consumer Leasing Act Checklist

Fair Credit Reporting Act     
Narrative     
Examination Procedures

Fair Debt Collection Practices Act     
Narrative     
Examination Procedures

Electronic Fund Transfer Act     
Narrative     
Examination Procedures     
Checklist 

Truth in Savings Act     
Narrative     
Examination Procedures     
Checklist

Privacy of Consumer Financial Information (GLBA)     
Narrative     
Examination Procedures     
Examination Procedures Attachment     
Checklist

Mortgage Servicing Examination Procedures 

Part III - Examination Process Templates     
Templates     
Entity Profile     
Risk Assessment     
Supervision Plan     
Examination Scope Summary     
Examination Report     
Examination Report cover     
Examination Report cover letter

Compendium-1

LIBRARY

Law Library Image

Consumer Financial Protection Bureau

Supervision and Examination Manual 
Version 1.0 
Announcement

October 13, 2011