Fair Lending Developments Related to Student Loans Vaishali Rao Partner, Hinshaw & Culbertson, LLP
ECOA • 15 USC § 1691-1691(f) • Implemented by CFPB's Regulation B • 12 CFR § 1002.1 et seq. • Applies to all credit transactions • Applies to an "applicant" for credit • Applies in an extension, renewal or continuation of credit • Applies indirectly by use of an existing credit plan for an amount exceeding previously established credit limit • Section 1002.2(n) of Reg. B – To discriminate against an applicant means to treat an applicant less favorably than other applicants.
Who Can Enforce ECOA? • Individuals (or entities) qualifying as applicants • CFPB • Federal Trade Commission • Department of Justice • State Attorneys General • Other federal and state regulators like the banking regulators
CFPB • August 2012 – identify fair lending as an issue. Discussion of CDRs by PSLs in underwriting • Eligibility, underwriting, and pricing – disparate impact • Summer, 2014 – Supervisory Highlights – Bayesian Improved Surname Geocoding (BISG) proxy methodology for race and ethnicity • April, 2017 – As of April, 2017 exam teams are relying on updated proxy methodology that reflects newly available surname data from the Census bureau.
CFPB • April, 2017 – Student loan servicing identified as "substantial risk of credit discrimination" • "Whether loan servicing companies are making it difficult for people with past-due student debt to work out a solution because of their race, ethnicity, gender or age." • “We’re looking at disparities in outcomes … and we believe there may be some" • Where does this stem from?
ECOA Theories & Applicability • Intentional Discrimination • Disparate Treatment • Disparate Impact • Texas Department of Community Affairs et al v. Inclusive Communities Project – Supreme Court 2015 • Burden Shifting • Hawkins v. Community Bank – spousal guarantor not an applicant under ECOA. SCOTUS, 4-4.
Examples • Honda - $24M to settle w/ DOJ and CFPB – July, 2015 • Dealer markup on buy rate - (2-3%) • 36 basis points on average more. • No penalties because of proactive change! • Ally - $98M – 2013
What Does Fair Lending Compliance Mean Today? • Risk Assessments (including marketing of products) • Third Party Oversight • TESTING • Quality control and internal audit • Proactive fair lending statistical analysis • Disparate treatment in Underwriting, pricing, price exceptions, modifications (including fees and fee waivers), servicing • Disparate impact testing • Complaint management • Remediation and other corrective action (potentially reporting?)
Vaishali S. Rao Hinshaw & Culbertson LLP firstname.lastname@example.org BLOG: www.hinshawcfs.com