The Consumer Financial Protection Bureau (CFPB) found that mortgage lenders violated the Equal Credit Opportunity Act (ECOA) and its implementing rule, Regulation B, in a variety of ways, according to the most recent release of its Supervisory Highlights report.
In a previous edition of the report published in the fall of 2021, CFPB examiners found that mortgage lenders had “violated ECOA and Regulation B by discriminating against African American and female borrowers in the granting of pricing exceptions based upon competitive offers from other institutions,” the new report said.
Additional examinations since then have shown that lenders “violated ECOA and Regulation B by discriminating in the incidence of granting pricing exceptions across a range of ECOA-protected characteristics, including race, national origin, sex, or age,” the report explained.
In the realm of fair lending, CFPB examiners found that certain lenders had granted pricing exceptions for consumers, including for competitive offers, based on prohibited bases, the report said.
“Examiners identified lenders with statistically significant disparities for the incidence of pricing exceptions at differential rates on a prohibited basis compared to similarly situated borrowers,” it said. “Weaknesses in the lenders’ policies and procedures with respect to pricing exceptions for competitive offers, the failure of mortgage loan officers to follow those policies and procedures, the lenders’ lack of oversight and control over their mortgage loan officers’ discretion in connection with and use of such exceptions, or managements’ failure to take appropriate corrective action risks contributed to the observed disparities in the incidence of granting pricing exceptions.”
Examiners did not identify evidence of “legitimate, nondiscriminatory reasons that explained the disparities observed in the statistical analysis,” the report added.
Examiners also identified a lack of policies or procedures that were designed to mitigate potential ECOA or Regulation B violations or manage the potential risk of harm to consumers related to that lack of policies. Other identified weaknesses in this area include training programs, and that “management and board oversight at lenders was not sufficient to identify and address risk of harm to consumers from the lender’s pricing exceptions practices,” the report said.
CFPB also said that the consideration of an applicant’s history of interacting with the criminal justice system could lead to disparities.
“Regarding prior contact with the criminal justice system, both national data and the history of discrimination in the justice system suggest that restrictions on lending based on criminal history are, in many circumstances, likely to have a disparate impact based on race and national origin,” the Bureau said. “Thus, the use of criminal history in credit decisioning may create a heightened risk of violating ECOA and Regulation B.”
The report also took a closer look at mortgage servicing, and “identified [unfair, deceptive or abusive acts or practices (UDAAP)] and regulatory violations at mortgage servicers, including violations during the loss mitigation and servicing transfer processes, as well as payment posting violations.”
These included violations related to the timing of loss mitigation policies, misrepresenting loss mitigation response times, and missing information from Spanish-language acknowledgment notices. In certain instances, examiners also found that servicers failed to credit payment sent to a prior servicer after a loan’s transfer.
