Next Thursday, Nov. 28 — Thanksgiving Day — marks one year since the Consumer Finance Protection Bureau (CFPB) ordered Bank of America to pay a $12 million penalty for “submitting false mortgage lending information to the federal government.”
An American Credit News analysis of how such data is reported, and subsequent outreach to the CFPB, raised questions about how and when the bureau chooses to enforce such rules.
The Bank of America penalty levied by the CFPB was centered on the Home Mortgage Disclosure Act (HMDA).
Enacted in 1975, the HMDA requires financial institutions to collect and report data on mortgage lending activity. Institutions must gather information on loan applications, including borrower demographics such as race, ethnicity, sex, and income, as well as details about the loan and its outcome. The data is submitted annually to the Consumer Financial Protection Bureau (CFPB), which makes it publicly available to monitor compliance with fair lending laws and assess access to credit in different communities.
The CFPB said in its statement announcing enforcement against Bank of America that the bank “falsely reported that applicants declined to provide” demographic information and that the bank “did not ensure that its mortgage loan officers accurately collected and reported the demographic data required under HMDA.”
Are there any situations in which a lending institution would be exempt from these HMDA reporting requirements?
CFPB spokesman Tia Elbaum referred American Credit News to the bureau’s “Small Entity Compliance Guide” for “more detailed information about the requirements for reporting ethnicity and race data.
Elbaum specifically referenced the excerpts from page 57 of that guide.
“A Financial Institution may, but is not required to, report an applicant’s ethnicity, race, and sex for purchased Covered Loans,” says the guide. “If a Financial Institution chooses not to report the applicant’s ethnicity, race, and sex for a purchased Covered Loan, the Financial Institution reports that the data points are not applicable. Appendix B to Part 1003.”
“If an applicant is not a natural person (e.g., a corporation, partnership, or trust), a Financial Institution reports that the requirement to report ethnicity, race, and sex information is not applicable,” continues the guide. “However, if an applicantis a natural person and a beneficiary of a trust (for example, the natural person might be relying on income from or collateral owned by a trust), the Financial Institution reports the applicant’s ethnicity, race, and sex information. Appendix B to Part 1003.”
When asked how the CFPB ensures those reporting exemptions do not create loopholes for lenders to engage in discriminatory practices while avoiding detection, the Elbaum told American Credit News that the bureau “does generally look at a number of different factors, including trends in HMDA data.”
An American Credit News analysis of such trends in reported HMDA data for various lending institutions showed, for example, that Durham, NC-based Self Help Credit Union and Self-Help Federal Credit Union combined to report “Not Applicable” (N/A) for race and ethnicity data on more than 70% of its loans in 2022.
Does such a high number of “N/A” entries signal one of the reporting exemptions cited by Elbaum, and would such a reporting trend trigger an investigation by CFPB?
“The CFPB cannot comment on specific companies or the specific data noted,” said Elbaum.
“The agency also considers other factors and is interested in hearing from the public, including industry whistleblowers, if they think any lenders may be engaging in discriminatory or otherwise unlawful practices within the CFPB’s authority,” she said.
Uncertainty in how the bureau chooses to enforce certain guidelines led the American Financial Services Association (AFSA) in March 2024 to ask the CFPB to provide “clear rules to follow” to lenders in order to create “clarify, not confusion.”
“Over the past year, the CFPB has launched enforcement actions that cite business practices it alleges are violations, but which are legal under state laws,” said AFSA President Bill Himpler, reported Federal Newswire. “The agency is also punishing creditors for not asking about such costs as groceries or childcare before making a loan, and requiring for the first time that certain lenders ask customers for such information a s sexual orientation, and to report it to the agency.”
“Instead of attempting to set rules through one-off and nontransparent enforcement proceedings or overly broad and unclear guidance, AFSA and its members want the CFPB to use the well-accepted administrative rulemaking process when needed so that all players – consumers, businesses, advocacy groups and policymakers – can provide input,” said Himpler.
When it comes to the CFPB’s enforcement proceedings over how financial institutions collect and report demographic data, Elbaum’s responses to American Credit News leave unanswered questions about the potential loopholes to reporting requirements, as well as what “trends in HMDA data” would spark an investigation by the bureau.
CFPB’s enforcement policies are likely to change in 2025, with the incoming Trump Administration and the expected resignation of current CFPB Director Rohit Chopra.
“While President-elect Trump did not discuss in any great detail his plans for the CFPB during his campaign, the CFPB’s current rulemaking, enforcement, and supervision strategies likely will not survive past early 2025,” wrote James Sandy, a member at the law firm McGlinchey Stafford, in a Nov. 6 blog post.
Sandy wrote that “there is no chance” that Chopra will remain director of the CFPB under Trump.
“It is also nearly certain that President-elect Trump’s new CFPB director will look to rescind or revise interpretive rules, policy statements, and other non-rulemaking guidance issued by Director Chopra,” Sandy wrote.
The CFPB was established in 2011 following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It operates as an agency of the United States government with the primary mission to enforce federal consumer financial laws and protect consumers in the financial sector.
The bureau's jurisdiction encompasses banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, foreclosure relief services, debt collectors, and other financial companies operating in the United States. The bureau spent $2.75 billion in FY 2023, according to the Government Accounting Office (GAO).