On December 6, 2012, the Bureau of Consumer Financial Protection ("CFPB") and the Department of Justice ("DOJ") announced that the two agencies had signed a memorandum of understanding ("MOU") regarding coordination on the oversight and enforcement of federal fair lending laws, including the Equal Credit Opportunity Act ("ECOA"), Fair Housing Act ("FHA"), and the Home Mortgage Disclosure Act ("HMDA")1 The MOU is intended to "strengthen coordination on fair lending enforcement and avoid duplication" of law enforcement efforts by the two agencies.2

I. Background

The Dodd-Frank Wall Street Reform and Consumer Protection Act ("DFA") provides the CFPB independent authority to implement and enforce various consumer financial protection laws, including the ECOA and the HMDA.3 To enable the CFPB to enforce these laws, the DFA authorizes the CFPB to conduct hearings and adjudication proceedings and commence civil actions. Similarly, the DOJ has authority to bring suits to enforce federal civil rights laws, "including those pertaining to housing and credit,"4 which provides it with overlapping jurisdiction with the CFPB with respect to fair lending enforcement, generally, and specifically with respect to the ECOA.5

DFA § 1013(c) established the CFPB's Office of Fair Lending and Equal Opportunity to oversee and enforce federal fair lending laws, as well as to coordinate the agency's efforts with other agencies to "promote consistent, efficient, and effective enforcement" of fair lending laws, including the ECOA and the HMDA.6 DFA § 1052 authorizes the CFPB to engage in joint fair lending investigations with the DOJ,7 pursuant to which the agencies are expected to cooperate where appropriate on enforcement of fair lending laws. For example, the DFA amended the ECOA to require the CFPB, which has enforcement responsibilities under the Act, to refer certain ECOA violations to the DOJ.8

Provisions of the MOU

The MOU creates a general framework for cooperation between the CFPB and DOJ, including the following specific areas:

  • Information Sharing and Confidentiality. The MOU establishes confidentiality protections for information shared with respect to matters referred to the DOJ by the CFPB.9
  • Joint Investigation and Coordination. The DOJ and CFPB agreed to collaborate on investigations and conduct joint investigations, and pledged to meet at least quarterly to discuss current investigations.10 The agencies further pledged to avoid unnecessarily duplicative actions, although each agency will maintain its independent authority to proceed in any manner it determines appropriate.11
  • Referral and Notice Procedures. The CFPB will, consistent with the established practices of other bank regulators, refer a matter to the DOJ where it has reason to believe a creditor has engaged in a pattern or practice of lending discrimination.12 The agencies will coordinate where they each take action under their own respective authorities.13
  • Liaison. Each agency appointed a liaison for communicating with the other agency.14

CFPB's First Annual Fair Lending Report

In the press release announcing the MOU with DOJ, CFPB also announced the publication of its first annual Fair Lending Report,15 discussing the CFPB's "efforts to fulfill its mandate to ensure fair, equitable, and nondiscriminatory access to credit for American consumers."16 The report highlighted, among other items, the CFPB's establishment of the Office of Fair Lending and Equal Opportunity; the completion of various fair lending reviews at numerous banks and nonbank financial firms; the agency's fair lending enforcement activities and investigations; regulatory revisions and updates; a report on the use of cohort default rates in private education lending; and outreach efforts to private industry groups and consumer advocates.17

The report also outlined what the CFPB intends to accomplish in its next year, noting:

The CFPB is committed to ensuring that all consumers and communities have fair and equal access to credit. We are still in the process of building our fair lending program and expect the CFPB's contribution to the work of ensuring compliance with fair lending laws and promoting access to credit will grow as our program progresses. We are also developing risk-based approaches to our fair lending supervision and enforcement work to efficiently allocate the CFPB's resources in a manner that provides the greatest benefit to consumers. As the CFPB and the Office of Fair Lending and Equal Opportunity mature, we pledge to continue to promote fair, equal, and nondiscriminatory access to credit and fair lending for all consumers and communities.18

Action Items

The MOU draws important attention to the overlapping jurisdiction of the CFPB and DOJ with respect to fair lending oversight and enforcement. In so doing, it provides an important reminder to lenders about the necessity of evaluating and continually reevaluating their lending activities for compliance with federal (and state) fair lending laws and requirements. Failing to do so presents significant risks to financial institutions from a regulatory compliance, enforcement, private litigation, and a reputational perspective, and also invites similar state investigations and action – as well as action by the primary federal banking agency, if the target is a bank – to address existing problems and related issues. Accordingly, financial institutions should take steps to ensure that they have programs in place to remain compliant with the requirements of federal fair lending laws, including the ECOA, FHA, and HMDA, as well as related federal and state laws such as the Servicemembers Civil Relief Act.

Paul Hastings attorneys are actively assisting clients with a variety of matters involving CFPB regulatory and supervisory matters and are available to address any questions or issues related to federal or state fair lending law compliance and related program risks, as well as enforcement issues arising under such laws.

Footnotes

1See Press Release, Consumer Financial Protection Bureau, Consumer Financial Protection Bureau and Justice Department pledge to work together to protect consumers from credit discrimination (Dec. 6, 2012) (available at http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-and-justice-department-pledge-to-work-together-to-protect-consumers-from-credit-discrimination/), and Press Release, Department of Justice, Justice Department and Consumer Financial Protection Bureau Pledge to Work Together to Protect Consumers from Credit Discrimination (Dec. 6, 2012) (available at http://www.justice.gov/opa/pr/2012/December/12-crt-1460.html).

2Id.

3Memorandum of Understanding between the CFPB and the DOJ Regarding Fair Lending Coordination, Dec. 6, 2012 (available at http://files.consumerfinance.gov/f/201212_cfpb_doj-fair-lending-mou.pdf) at 1.

4Id.

5Id.

6Id.

7Id.

8Id. at 2.

9Id. at 2 – 6; CFPB Press Release, supra n. 1.

10Id. at 7.

11Id.

12Id.

13Id.

14Id. at 9.

15Fair Lending Report of the Consumer Financial Protection Bureau, December 2012 (available at http://files.consumerfinance.gov/f/201212_cfpb_fair-lending-report.pdf)

16CFPB Press Release, supra note 1.

17Fair Lending Report, supra, n. 16 at 10.

18Id. at 11.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.