August 7, 2020
Authored by: Benjamin Saul and Ross Handler
On July 28, 2020, the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) issued a request for information (“RFI”) seeking public and industry input related to the Equal Credit Opportunity Act (“ECOA”) and Regulation B. The CFPB submitted this RFI in an effort to create a regulatory regime that expands consumer access to credit while ensuring that consumers remain protected from credit transaction discrimination. The RFI signals a renewed regulatory focus on fair lending in the wake of the broader societal focus on racial equality in the U.S.
The Bureau presented 10 questions in its RFI related to: disparate impact; Limited English Proficiency products, special purpose credit programs; affirmative advertising to disadvantaged groups; small business lending; sexual orientation and gender identity discrimination; scope of federal preemption of state law; public assistance income; the use of artificial intelligence and machine learning; and ECOA adverse action notices. We have chosen to highlight a select few below.
The CFPB’s first question asked whether the Bureau should “provide any additional clarity regarding its approach to disparate impact analysis under ECOA and Regulation B.” The Supreme Court’s decision in Texas Dept. of Housing and Comm. Affairs v. Inclusive Comm. Project, Inc., 135 S. Ct. 2507 (2015), in which the Court affirmed the cognizability of disparate impact theory under the Fair Housing Act (“FHA”), did not address ECOA. Likewise, the contours of the Court’s limits on the disparate impact claims left open questions for industry and regulators alike. Guidance on whether disparate impact theory is cognizable under ECOA and if so what limits might apply would have significant impacts on creditors’ fair lending obligations going forward.
The CFPB also sought comments related to ECOA’s prohibition on sex discrimination. In Bostock v. Clayton County, 590 U.S. __, 140 S. Ct. 1731 (2020), the Supreme Court held that the prohibition against sex discrimination in Title VII of the Civil Rights Act of 1964 extends to sexual orientation and gender identity. Although the majority opinion in Bostock did not address whether the Court extended these protections to ECOA, the Bureau has asked industry providers if the Supreme Court’s decision should affect how it interprets “ECOA’s prohibition of discrimination on the basis of sex,” and if so, how this reform might affect lending and enforcement practices.
The CFPB also asked how it should approach fair lending risks associated with Limited English Proficiency (“LEP”) products and using artificial intelligence (“AI”) in meeting the increased credit needs of a diverse consumer base. Expanding one’s consumer base, however, does not come without regulatory risks. Credit providers have noted that providing LEP products presents regulatory risks as languages spoken by consumers might correlate with prohibited bases under ECOA, such as national origin. Further guidance from the CFPB on its LEP standards could have the effect of encouraging more lenders to offer LEP solutions.
The RFI also asks about ways to manage ECOA risks associated with the use of AI and machine learning. These technologies increase the accuracy of underwriting decisions and expand access to credit, but can be opaque. This creates disparate impact risk, but also presents technical compliance challenges like crafting appropriate denial reasons in adverse action notices. Guidance around these issues could reduce the ECOA-related risks for lenders using such technologies. Other questions and topics not addressed in detail herein can be found in the Bureau’s published RFI. Through the Bureau’s RFI, industry providers have a real opportunity to potentially shape the parameters of ECOA and Regulation B fair lending enforcement. Comments and responses to the Bureau’s RFI must be received by October 2, 2020. Please let us at BCLP know how we might assist you in participating in this important process.