How Does The CFPB Figure Out Who’s Violating The Law, Anyway?

March 17, 2014 at 9:03 am Leave a comment

When it comes to the CFPB and the House Financial Services Committee, I have taken the Committee’s criticisms of the Bureau with two grains of salt: from an ideological perspective the Committee and the Bureau are cats and dogs in Washington. 

But, this morning the Bureau committed to openness is facing a justifiable heap of criticism for refusing to respond to a letter from the House Financial Services Committee asking it to explain how it determines which institutions are guilty of violating the Equal Credit Opportunity Act by engaging in indirect auto lending practices that have a disparate impact on minorities. Considering that this has been a point of emphasis since the Bureau released a Guidance on the issue and has subsequently brought enforcement actions against lenders for disparate impact violations, it seems more than reasonable that the Bureau should be willing and able to share this information.   It is more than a little troubling that it has not done so.

 Perhaps it is using the same public relations firm retained by the Malaysian government.

Why should credit union’s care?  Because every time your credit union makes a lending decision, it must comply with Regulation B and other similar laws.  From both a compliance and operational standpoint, the clearer disparate impact analysis is the better off all lenders are.  For example, if your credit union is  losing business to a car dealership down the street that always offers to beat your credit union’s financing terms, it makes perfect sense to have a policy in which you reserve the right to match or exceed that dealership’ s terms on a case-by-case basis.  Assuming that your credit union doesn’t engage in overt discrimination, the policy does not violate federal law. It is open to all persons who meet the credit union’s lending criteria.

However, let’s say a year into the policy you review your files and realize that African-Americans are less likely to get the benefit of the policy than are your white members.  The burden is still on your credit union to demonstrate why the statistical anomaly reflects reasons other than racial animus.  For example, the unfortunate reality may be that a disproportionate number of African-American members poorer credit than white members.

Which brings us back to the letter from Congressman Hensarling the response of which is forthcoming.  The Equal Credit Opportunity Act and other anti-discrimination statutes are crucial pieces of legislation and I am not for one minute questioning the need for federal legislation banning lending discrimination or the vigorous enforcement of those laws.  However, claims of discrimination should not be made lightly and lenders have the right to know the rules of the road. If the CFPB is hesitant to respond to the Congressman in part because disparate impact enforcement is as much an art as it is a science, then perhaps it’s time to have a mature public debate in this country about anti-discrimination laws and their limits.  


Entry filed under: Compliance, Legal Watch, Regulatory. Tags: , , , .

Rich Man; Poor Man in New York Just How Much Is Compliance Costing Your Credit Union?

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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