Note: This blog is the second in a three-part series exploring the Consumer Finance Protection Bureau’s 2015 Fair Lending Report.
The recently released Consumer Finance Protection Bureau’s 2015 report contained detailed insights into settlements and actions that resulted in approximately $108 million in payments to consumers and advocacy groups by lenders.
In Part I of Preiss&Associates’ look at this report, we discussed the methods by which the CFPB identified (and continues to identify) the cases it reviews.
In this second part of our look at the report, we’ll delve into what compliance and fair lending professionals can learn from how the Bureau went about enforcing actions against lenders who appeared to be engaged in discriminatory practices.
These actions fell into four categories in 2015:
- Mortgage and auto loan public enforcement actions
- Implementing public consent orders
- Referrals to the Department of Justice
- Pending fair lending investigations
Public Enforcement Actions
Readers of the Preiss&Associates’ blog will likely be familiar with many of the public enforcement actions the CFPB took 2015 including Hudson City Savings Bank, Fifth Third Bank and American Honda Finance Corporation.
In 2015, the Bureau took four public actions – two of which targeted mortgage lenders and two of which were in response to indirect auto lending and discretionary pricing. All four of the actions taken alleged that lenders engaged in unfair practices toward minority borrowers either by excluding customers with their marketing plans or business areas or by charging higher prices or interest rates.
These four actions alone resulted in nearly $85 million that will be paid out between the four banks. These actions serve to reinforce the importance of thorough monitoring and the need to stay ahead of discrepancies in your own institution’s fair lending data.
Implementing Public Consent Orders
In addition to the new enforcement actions implemented in 2015, the Bureau also spent significant time and resources ensuring lenders who had signed consent orders in previous years were keeping up with their agreements.
In 2015, the Bureau worked closely with three institutions:
- Synchrony Bank (formerly known as GE Capital Retail Bank)
- PNC Bank (successor to National City Bank)
- Ally Financial Inc. and Ally Bank
The takeaway here is that whether an institution finds itself in a settlement because of direct action by the CFPB or through a consent order with another complainant, the consequences can be long, complicated and expensive. PNC and Ally both signed their consent orders in 2013, but were still working with the CFPB to pay out money owed in settlements and penalties last year.
Referrals to the Department of Justice
Demonstrating just how closely the Bureau and Department of Justice are working together, in addition to the joint actions the two agencies took last year, the CFPB also says it referred eight matters to the DOJ for review in 2015.
The report says these referrals “covered a variety of practices, specifically discrimination in mortgage lending on the bases of the receipt of public assistance income, sex, marital status, race, color, and national origin, and discrimination in auto lending on the bases of age, receipt of public assistance income, sex, marital status, race, and national origin.”
Pending Fair Lending Investigations
Lastly, the report notes that at the close of 2015, a number of investigations were still pending – including several cases in which enforcement actions have already been authorized and settlement negotiations are underway.
In particular the report noted that a number of pending actions pertained specifically to the practice of redlining. Indirect auto lending and discretionary pricing also remained a focus – as did investigations into “other areas of potential discrimination” including credit cards.
It’s likely we’ll hear more about these cases once settlements and consent orders are finalized. It also seems likely that the Bureau has no intention of slowing down any time soon.
What can your institution do in the meantime?
Ensuring you have a comprehensive monitoring program in place is essential. Perform intra-bank and inter-bank redlining analyses (You can read more about these here) and a fair lending regression analysis (Learn more here).