Banking and Consumer Finance Law

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Banking & Finance Law Daily
  • February 17, 2017

    New York State’s "first in the nation" cybersecurity regulation takes effect March 1, 2017, Governor Andrew M. Cuomo announced. The regulation, intended to protect New York’s financial services industry and consumers from cyber-attacks, requires banks, insurance companies, and other financial services institutions regulated by the Department of Financial Services to establish and maintain a cybersecurity program designed to protect consumers’...

  • February 16, 2017

    The U.S. Court of Appeals for the District of Columbia Circuit has  granted  the Consumer Financial Protection Bureau’s request for a full-court rehearing of  PHH Corp. v. CFPB , in which a majority of a three-judge panel decided that constitutional separation of powers principles prevents the Dodd-Frank Act’s organization of the CFPB. According to the  panel decision , it is...

  • February 15, 2017

    Federal Reserve Board Chair Janet L. Yellen appeared before a full hearing of the Senate Committee on Banking, Housing, and Urban Affairs to present her semi-annual report on the nation’s economic situation and outlook. In this mandated “Humphrey-Hawkins” testimony, she presented and discussed the Fed’s semiannual Monetary Policy Report . According to Yellen’s testimony , the economy has continued to...

  • February 14, 2017

    A U.S. district judge should not have ordered defendants convicted of mail fraud to pay Bank of America $893,015 in restitution without considering the bank’s responsibility for its losses, the U.S. Court of Appeals for the Seventh Circuit has decided. The judge was told he should consider whether fining the defendants in the same amount would be a better choice...

Dodd-Frank News
  • February 23, 2017

    This story appeared in Bank Digest. Representative Scott Tipton (R-Colo) has reintroduced the Taking Account of Institutions with Low Operation Risk (TAILOR) Act (H.R. 1116), which is intended to provide smaller community banks and credit unions relief from "onerous regulatory compliance burdens." The bill would require federal regulatory agencies to...

  • February 22, 2017

    This story appeared in Bank Digest. The Consumer Financial Protection Bureau is reestablishing its Academic Research Council, Community Banker Advisory Council, Consumer Advisory Board, and Credit Union Advisory Council. Each of these entities is a continuing committee being reestablished for the purposes of compliance with the Federal Advisory Committee Act...

  • February 21, 2017

    This story appeared in Bank Digest. Several Democratic senators have written to President Donald Trump encouraging him to resist calls "from Wall Street and their allies" to remove Consumer Financial Protection Bureau Director Richard Cordray. The letter was signed by Senators Dick Durbin (D-Ill), Patty Murray (D-Wash), Debbie Stabenow (D-Mich),...

Banking and Finance Law Blog
  • February 23, 2017

    By Richard A. Roth, J.D.

    A bank that refused to consider Section 8 housing aid when it decided which mortgage loans met its criteria for secondary market purchases did not violate the Equal Credit Opportunity Act, according to the U.S. Court of Appeals for the Fifth Circuit. Rejecting the Consumer Financial Protection Bureau’s argument for a broader definition of “creditor” under the ECOA, the court said the bank did not participate in the lender’s credit decisions (Alexander v. AmeriPro Funding, Inc.).

    Consumers who wanted to buy homes in the Houston, Texas, area sued Wells Fargo Bank and AmeriPro Funding for claimed ECOA violations. According to the consumers, Wells Fargo’s secondary market purchase guidelines explicitly said the bank would not buy mortgages if the buyer’s income came in part from Section 8 assistance. Since AmeriPro wanted to be able to sell mortgages it originated to Wells Fargo, it likewise refused to consider Section 8 assistance.

    However, the ECOA makes it illegal for a creditor to discriminate against an applicant because some or all of the applicant’s income is from a public assistance program (15 U.S.C. §1691(a)(2)). AmeriPro directly violated this ban, the consumers claimed, and Wells Fargo violated it as well because its guidelines amounted to participating in AmeriPro’s credit decisions.

    Loan buyer discrimination. Potentially the most significant discussion addressed four applicants’ claims that Wells Fargo was a creditor under the ECOA and that it had discriminated against them. Despite the CFPB’s arguments supporting the consumers, the theory was rejected.

    Looking at the ECOA’s definitions of “applicant” and “creditor,” the court decided that Wells Fargo could be a creditor only if it participated in the decision to extend credit. The bank’s secondary market purchasing guidelines did not constitute participation in the credit decision.

    The CFPB argued for a broader view of participation, such as that included in Reg. B. However, even Reg. B would not include “those who have no direct involvement whatsoever in an individual credit decision,” according to the court.

    Other lending. This could be seen as bringing into question the CFPB’s guidance on the ECOA, Reg. B—Equal Credit Opportunity (12 CFR Part 1002), and indirect auto lending. The bureau has, since issuing guidance in 2013, held and enforced the position that indirect auto lenders—companies that buy loans originated by automobile dealers—are creditors and can be responsible for the dealers’ discriminatory practices (see CFPB Bulletin 2013-02).

    However, the bureau’s position in this case seems to have gone one step farther than its indirect auto lending guidance. The process described in the 2013 bulletin included the dealer forwarding the consumer’s credit information to one or more potential loan borrowers, who then would make an individual decision as to whether to buy the loan. While mortgage loan originators may follow a similar practice in finding investors to fund a loan, the court opinion did not indicate that Wells Fargo, as a secondary market buyer, was consulted on individual loans before credit decisions were made. In fact, the court’s reference to direct involvement in an individual credit decision could imply that there was no such prior consultation.

    Wells Fargo applicants. The court swiftly dispensed with the claims of the two consumers who applied directly to Wells Fargo. The consumers were applicants under the ECOA, and Wells Fargo was a creditor, the court agreed. However, the consumers had offered nothing to show that the bank had discriminated against them as a lender. Rather, they relied only on the bank’s secondary market purchase guidelines.

    The ECOA applies only to loan originators, the court said, not to secondary market buyers. Moreover, what Wells Fargo did as a loan buyer was distinct from what it did as a loan originator. There was no showing that Wells Fargo refused to consider Section 8 income when it originated loans, the court noted.

    Application requirement. The consumers who only made inquiries were not applicants under the ECOA and thus were not protected by the law, the court decided. The ECOA said that a creditor who violated the law was liable to an “aggrieved applicant,” and to be an applicant one must actually request credit.

    It was possible that the consumers were discouraged from making an application because they were told their Section 8 income would not be considered, the court conceded. Also, Reg. B banned creditors from discouraging applications on a prohibited basis, the court observed. However, the ECOA does not allow a suit by an “aggrieved prospective applicant.” 

    The CFPB can enforce a regulatory ban on discouragement, the court said, but that did not mean there was a private right of action if the law did not provide one.

    For more information about Equal Credit Opportunity Act issues, subscribe to the Banking and Finance Law Daily.

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