CFPB Publishes 2021 Annual Fair Lending Report

The report highlights that CFPB will focus on the future of financial services markets, which will be increasingly shaped by predictive analytics, algorithms, and machine learning. CFPB will also sharpen its focus on digital redlining and algorithmic bias amid the growing influence of technology platforms, including big tech firms, in the financial services marketplace. The report states that CFPB will identify emerging risks and develop appropriate policy responses and further analyze how unfair and discriminatory practices harm specific population segments. The Bureau will continue its cooperation with other regulators and law enforcement agencies with responsibilities to ensure fair lending and equal opportunity. In addition, CFPB will further assess small business lending to ascertain whether there are disparities in application, underwriting, and pricing processes and whether there are weaknesses in fair lending-related compliance management systems.

In relation to the regulatory activity, CFPB issued a notice of proposed rulemaking on Section 1071 of the Dodd-Frank Act to collect small business lending data. The report also highlighted the CFPB participation in the interagency rulemaking processes with the Federal Reserve Board (FED), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Federal Housing Finance Agency (FHFA) to develop regulations to implement the amendments made by the Dodd-Frank Act to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) concerning automated valuation models. To address potential fair lending risk in models, CFPB is considering proposing a requirement that covered institutions establish policies, practices, procedures, and control systems to ensure that their automated valuation models comply with the applicable non-discrimination laws.

In addition, CFPB published an advisory opinion to affirm that the Equal Credit Opportunity Act (ECOA)—a landmark federal civil rights law protecting individuals and businesses against discrimination in accessing and using credit—bars lenders from discriminating against customers after they have received a loan, not just during the application process. ECOA bans credit discrimination on the basis of race, color, religion, national origin, sex, marital status, and age. It also protects those who are receiving money from any public assistance program or exercising their rights under certain consumer protection laws. The advisory opinion states that the ECOA will continue to protect borrowers after they have applied for and received credit; and requires lenders to provide “adverse action notices” to borrowers with existing credit.

Related Links

• Press Release on Fair Lending Report
• Fair Lending Report (PDF)
• Federal Register Fair Lending Report
• Press Release on Advisory Opinion
• Advisory Opinion (PDF)

Keywords: Americas, US, Banking, Lending, Credit Risk, Predictive Analytics, Machine Learning, Big Tech, Regtech, SME, Suptech, US Agencies, Dodd Frank Act, Automated Valuation Models, ECOA, Reporting, Algorithmic Bias, CFPB