NCRC, Local Groups And City Of Toledo Sue CFPB To Overturn Rule That Undermines Detection Of Discrimination In Mortgage Lending
By Raising Reporting Thresholds, CFPB Rule Blocks Access to Data That is Critical to Uncovering Housing Discrimination
Lawsuit Against The CFPB To Overturn A New Rule That Protects Lending Discrimination Data
WASHINGTON, D.C. – Today, the National Community Reinvestment Coalition and a group of community organizations, represented by Public Citizen Litigation Group, filed a lawsuit against the U.S. Consumer Financial Protection Bureau (CFPB) to overturn a new rule that exempts thousands of financial institutions from reporting data that is key to uncovering housing discrimination.
The lawsuit, filed in the U.S. District Court for the District of Columbia, explains that the CFPB rule reverses transparency into housing discrimination required by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
In addition to NCRC, the other plaintiffs in the lawsuit are Montana Fair Housing, Texas Low Income Housing Information Service, the City of Toledo, Empire Justice Center and the Association for Neighborhood and Housing Development – groups that depend on the data for their research into illegal lending discrimination and advocacy to promote fair housing and lending.
“The CFPB used its rule-making power to undermine data reporting that’s essential for the public to detect and stop discrimination in lending and housing,” said Jesse Van Tol, NCRC’s CEO. “The CFPB should use its data-gathering powers and other tools for what the agency was designed to do – to ensure that consumers are treated fairly. This rule does the opposite – it helps a group of lenders hide data from the public.”
The Home Mortgage Disclosure Act (HMDA) requires financial institutions to publicly report data about mortgages and other home loans they extend. However, a May 2020 rule from the CFPB dramatically increased the threshold for required reporting.
CFPB's New Rule Makes Identifying Discrimination More Difficult
“CFPB’s new rule reduces the availability of data that the public and public officials have used to combat redlining and other fair lending and fair housing violations, and makes identifying such practices more difficult,” said Michael Kirkpatrick, the Public Citizen attorney serving as lead counsel on the case. “The loss of information will be felt most acutely in distressed urban areas, rural areas, tribal areas, communities of color and neighborhoods with a high number of immigrants. Raising the reporting thresholds will compromise enforcement work against unfair and predatory lending, because there will be less data publicly available to monitor such activity.”
Among other flaws, the CFPB’s new HMDA rule:
- Exempts 40% of financial institutions that currently report data about their closed-end mortgages from having to do so beginning in 2021
- Reflects the CFPB’s refusal to consider public comments on the impact of its 2020 rule on visibility into lending practices in traditionally underserved communities
- Cuts off the source of data that has fueled groundbreaking investigative reporting into redlining and housing discrimination, from the Atlanta Journal-Constitution’s Pulitzer Prize-winning 1988 “Color of Money” series to the 2018 “Kept Out” exposé in Reveal
- Reverses much of the increased transparency into housing discrimination that resulted from new disclosure provisions in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act
- Contradicts previous findings by the CFPB itself that higher thresholds would preclude effective monitoring of housing discrimination
The Enactment Of HMDA
Congress enacted HMDA in 1975 in response to widespread concerns about “redlining” and inadequate access to credit in certain urban areas, particularly urban areas inhabited predominantly by people of color. As a sunshine statute, HMDA seeks to hold lending institutions publicly accountable for making loans responsibly to traditionally underserved populations. HMDA requires certain financial institutions to collect, record and report specific information about their mortgage lending activity. Its main purposes are to provide the public with loan data to assess whether financial institutions are meeting the housing needs of their communities, to inform public-sector investment decisions, to identify discriminatory lending patterns and to enforce anti-discrimination statutes.
“With little effort, financial institutions can provide data to demonstrate services are available throughout a community on a non-discriminatory basis. Rolling back requirements of HMDA data reporting at a time in our history fraught with distrust by long disenfranchised peoples, will, at the least, send a message of ignorance about the need and usefulness of the data. At the worst, the change in HMDA data reporting requirements sends a message that some never intended to end discrimination in our country,” said Pam Bean, Montana Fair Housing.
“Texas Housers and the community partners we work with depend on HMDA data to make sure that banks are serving the entire community, especially people of color who continue to face housing and lending discrimination. The minimal effort it takes for a bank to report its lending data is nothing compared to burden placed on borrowers of color who will face greater obstacles to obtain home mortgages if this rule change is to remain in place,” said Adam Pirtle, Advocacy Co-Director, Texas Housers or Texas Low Income Housing Information Service.
“HMDA data is important to communities like Toledo because it allows us to determine where financial institutions are investing in our community and affords us the opportunity to advocate, redirect, and leverage those investments in areas of greatest need. A neighborhood’s strength is driven by homeownership, which drives other amenities and provides much needed resources to strengthen our education system. Without adequate mortgage lending information, we cannot effectively advocate for Toledoans,” said Catherine Crosby, Chief of Staff, City of Toledo.
“Communities of color have been redlined for decades. Empire Justice Center has used HMDA data to demonstrate that African American and Latinx borrowers and neighborhoods have not had access to safe and affordable mortgage loans. Our research has found that Black and Brown applicants disproportionately had higher denial rates or received high cost loans, the bulk of which at the time were predatory loans that stripped wealth and equity. Excluding more institutions from reporting HMDA data, especially when communities of color are disproportionately being harmed by COVID-19 and experiencing loss of wealth and income, is exactly the wrong thing to do. Comprehensive transparency is needed now more than ever to ensure that all communities are being served, particularly those impacted from ongoing systemic racism,” stated Ruhi Maker, Esq., Senior Attorney at Empire Justice Center.
“Black and Latino communities and neighborhoods continue to suffer from discriminatory housing and lending policies and practices. HMDA was designed to equip communities with the data necessary to identify and combat discrimination and disinvestment. Yet amidst heightened racial tensions and a global pandemic, the CFPB rule to raise reporting thresholds will weaken HMDA and undermine efforts to identify disparities in lending. We cannot allow lenders to hide their unfair and discriminatory practices. Full HMDA data is a critical component for ANHD, our members, and all those committed to ensuring fair housing, an end to discrimination and undoing the systemic racism that continue to plague communities of color,” said Barika X Williams, Executive Director, The Association for Neighborhood and Housing Development (ANHD).