Docket No. CFPB-2018-0004
Effectiveness and Efficiency of Supervision Program
To Whom it May Concern:
The National Community Reinvestment Coalition (NCRC), a coalition of more than 600 community-based organizations, urges the CFPB to make the fair lending review process more transparent and to better facilitate community group input in the process. This letter represents the views of NCRC, member organizations, and allies who are undersigned to the letter. The CFPB and the federal bank agencies currently engage in an opaque fair lending review process. The opaqueness does not serve any apparent public policy purpose and only frustrates timely public input.
The fair lending review process must include publication of schedules displaying in which quarter banks and non-depository institutions will undergo fair lending reviews. The schedules should also indicate when and to whom any comments must be sent. In contrast to fair lending reviews, the federal bank agencies publish Community Reinvestment Act (CRA) exam schedules in advance for the next two calendar quarters. This public notice enables community-based organization and members of the public to comment in a timely manner regarding the CRA performance of banks. Likewise, schedules for fair lending reviews would enable public participation. As far as NCRC can determine, there is no compelling reason not to publicly post schedules of fair lending reviews.[i] At the same time, fair lending schedules would increase the accountability of lending institutions to fair lending compliance by enabling the public to comment.
Public comment opportunities must be clearly advertised with indications of how the agencies will consider comments. Currently, the federal agencies invite comments on CRA exams but the communication about to whom comments should be sent and whom to ask questions regarding comment time periods and other exam matters could be improved. The federal agencies also consider comments on fair lending matters for the fair lending review that accompanies the CRA exam. However, it is not as clear how the agencies consider these comments or whether they consider them because the public portion of the fair lending review section of the CRA exam usually consists of just one or two sentences. The federal agencies and the CFPB must clearly indicate that they will consider comments on fair lending matters and that these comments will be considered thoughtfully during fair lending reviews.
The federal bank agencies and the CFPB should likewise publish documents that describe the frequency of examination of various institutions. The Treasury Department recently issued a memorandum of recommendations regarding updates to CRA. One of the recommendations urged the federal bank agencies to publish a chart describing frequency of CRA examinations of banks of various asset sizes.[ii] This chart would hold the federal agencies accountable to Congress and the public for adhering to their promised examination frequency. It would also enable managers in the agencies themselves to advocate for adequate staffing and resources to attain the frequency targets. Likewise, the federal bank agencies in the case of banks with assets of under $10 billion and the CFPB in the case of banks with assets of over $10 billion and independent mortgage companies must create charts outlining frequency targets for fair lending reviews. In the absence of these public commitments to regular examination schedules, frequency of examination can ebb and flow over the years. When exams become less frequent, lending institutions are tempted to believe that they have less accountability for treating consumers fairly and in compliance with the law.
A particularly important issue regarding frequency is coordination between CRA exams and fair lending reviews. In the case of banks with assets of less than $10 billion, the federal bank agencies must ensure that fair lending reviews are conducted concurrently with CRA exams in order to ensure timely completion of CRA exams. In the case of banks with assets over $10 billion, the federal agencies must ensure that they are coordinating with the CFPB to ensure that CFPB fair lending reviews are coordinated with federal agencies’ CRA exams. The Offices of Inspector General in a June 2015 report found that the federal banking agencies and the CFPB are conducting simultaneous exams in just a few cases (with the CFPB conducting a HMDA or fair lending exam and the federal bank agencies conducting a CRA evaluation). As of October 2014, the CFPB and FDIC had conducted simultaneous exams in five cases and the CFPB and Federal Reserve Board had done so in thirteen cases.[iii]
The few instances of simultaneous exams is disappointing considering that the CFPB and the federal bank agencies executed an interagency memorandum on supervisory coordination in 2012. The memo states that to minimize regulatory burden, the CFPB and the federal bank agencies are to “conduct simultaneous examinations of insured depository institutions with more than $10 billion in assets and their insured depository institution affiliates.”[iv] The memo also states that the federal bank agencies will share CRA examination schedules with the CFPB as input for the CFPB when the CFPB develops annual schedules for their fair lending evaluations. The memo further states that the federal bank agencies and the CFPB “may mutually agree” to conduct simultaneous exams.[v] NCRC would urge the federal agencies to replace “may” with “make every effort to” conduct simultaneous exams.
The CFPB and the federal banking agencies must significantly increase their simultaneous CRA and fair lending reviews. When fair lending reviews and CRA exams are not coordinated, the CRA exam release can be significantly delayed. This results in less accountability on the part of the banks because the CRA exams can be released many years after completion with data that is several years old. It then becomes difficult for the public and the agencies to hold banks accountable for recent past performance, particularly when the banks have applied to federal bank agencies to acquire other banks. CRA performance and exams are reviewed during merger applications, but when CRA exams are dated, they are no longer effective in describing recent past performance.
Another means of increasing the effectiveness of CRA and fair lending reviews in maintaining the integrity and robustness of the Home Mortgage Disclosure Act (HMDA) data. The Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 significantly improved the HMDA data by including loan terms and conditions so that it can be more effective as a screening device for identifying institutions that could be offering abusive loan terms and conditions in violation of the fair lending laws. If the CFPB significantly rolls back the Dodd Frank enhancements to the HMDA data, its fair lending reviews and enforcement will become considerably less effective, frustrating the CFPB’s mission in protecting consumers.
Like HMDA data, Section 1071 data on the demographic characteristics of applicants for small business loans would be instrumental for improving the ability of fair lending reviews to monitor bank compliance with fair lending law. The CFPB must expeditiously proceed on Section 1071 rulemaking so the data reporting requirements can be finalized and the data be made publicly available.
The CFPB supervision and examination manual should be clearer on fair lending examination methodology in order to increase public confidence regarding the robustness of fair lending examinations. For example, the CFPB examination procedures regarding the Equal Credit Opportunity Act briefly discusses that most exams will focus on comparative file reviews instead of statistical analyses. The manual does not explain why this is the case. Would this apply for all types of lending or is the methodological choice different for home lending, small business lending, or consumer lending? Is the methodological choice also influenced by sample size? Finally, why does the Manual make a distinction between comparative file review and statistical analysis? It would seem that comparative file review would involve statistical analysis since a large enough sample size would be necessary to review underwriting and conclude whether differences in loan terms and conditions are due solely to race and gender instead of other borrower or loan characteristics.[vi]
Presently, the fair lending review section of CRA exams is opaque regarding methodology and whether the agencies considered any public comment. However, providing more detailed descriptions of fair lending reviews should be straightforward. The agencies used to provide detailed descriptions in the fair lending section of CRA exams in the mid-1990s. For example, the Federal Reserve Bank of Richmond conducted matched file reviews of more than 300 loan applications in a CRA exam dated January 1996 of Signet Bank. The exam also described regression analysis, which sought to determine if race was a factor in loan rejections. The analysis considered variables not available in the HMDA data such as credit histories, the stability of employment, and applicant debt obligations.[vii] This type of substantive fair lending review provides the general public with confidence that the regulatory agency performed a detailed anti-discrimination analysis. Ironically, it was after the CRA regulations were reformed during the mid-1990s in an effort to improve the rigor of the exams that these descriptions of fair lending reviews disappeared from the CRA exams.
NCRC’s suggestions for improving fair lending supervision and coordination of CRA and fair lending exams could be difficult to implement if the CFPB’s restructuring of the Office of Fair Lending and Equal Opportunity (OFLEO) results in substantially fewer resources for fair lending supervision. In the first part of this year, the CFPB’s Acting Director announced a reorganization in which OFLEO would move from the Division of Supervision, Enforcement, and Fair Lending into the Office of the Director. Within the Office of the Director, OFLEO will be moved to the Office of Equal Opportunity and Fairness. The Office of Equal Opportunity and Fairness concerns itself with employment and diversity initiatives within the CFPB whereas OFLEO is involved in fair lending supervision, examination, and enforcement. It would seem that OFLEO will be significantly hamstrung since it is now in the part of the CFPB that does not directly involve supervision and examination of financial institutions. Moreover, news articles in general newspapers and trade publications report that the OFLEO will conduct significantly fewer fair lending exams under the re-structuring.[viii] It is hard to understand how this re-structuring will enable OFLEO to undertake its important mission of fair lending supervision and enforcement let alone improve coordination with the federal bank agencies in the case of CRA and fair lending reviews.
NCRC appreciates the opportunity to comment on this important matter. NCRC believes that the improvements must be made in the transparency and frequency of fair lending reviews. Moreover, fair lending reviews must be coordinated with CRA exams. Despite a 2012 interagency memo, it does not appear that fair lending reviews have been regularly coordinated with CRA exams.
If you have any questions about this comment letter, please contact myself or Josh Silver, Senior Advisor at NCRC. This letter represents the views of NCRC, its member organizations, and allies signing onto this letter.
Jesse Van Tol
Association for Neighborhood and Housing Development, NY
Birmingham Business Resource Center, AL
Building Alabama Reinvestment
CASA of Oregon
California Reinvestment Coalition
Chicanos Por La Causa, AZ
Community Reinvestment Alliance of South Florida
Fair Finance Watch, Bronx NY
Greater New Orleans Housing Alliance, LA
Hawai’i Alliance for Community-Based Economic Development
Housing NOLA, LA
Long Island Housing Services, Inc., NY
Maryland Consumer Rights Coalition
Metropolitan Milwaukee Fair Housing Council
Metropolitan St. Louis Equal Housing and Opportunity Council
Michigan Community Reinvestment Coalition
New Jersey Citizen Action
Northwest Indiana Reinvestment Alliance
Pittsburgh Community Reinvestment Group
Woodstock Institute, IL
[i] Financial institutions usually alert investors in public announcements when a pending fair lending matter may result in a penalty. Since institutions voluntarily make these announcements already, merely posting fair lending examination schedules would not appear to have unintended adverse impacts.
[ii] Memorandum for the OCC, FRB, FDIC on CRA – Facts and Recommendations, April 3, 2018, https://home.treasury.gov/sites/default/files/2018-04/4-3-18%20CRA%20memo.pdf
[iii] Offices of Inspector General, Coordination of Responsibilities Among the Consumer Financial Protection Bureau and the Prudential Regulators-Limited Scope Review, June 2015, accessed via
[iv] Memorandum of Understanding on Supervisory Coordination, May 2012, p. 2, see https://files.consumerfinance.gov/f/201206_CFPB_MOU_Supervisory_Coordination.pdf
[v] Memorandum of Understanding, p. 10.
[vi] CFPB Supervision and Examination Manual, CFPB Examination Procedures – ECOA, in the Procedures page 4 section, available via https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201510_cfpb_ecoa-narrative-and-procedures.pdf
[vii] See page 19 of the exam available via http://www.federalreserve.gov/dcca/cra/1996/460024.pdf.
[viii] Law 360, An Uncertain Future for Fair Lending Enforcement at the CFPB, March 2018, https://www.law360.com/articles/1016676/an-uncertain-future-for-fair-lending-enforcement-at-cfpb