The Consumer Financial Protection Bureau is following through on its promise to focus on racial equity by boosting the number of examiners scrutinizing fair lending at banks and other financial firms.
The agency in recent months has “allocated double the examiner capacity for fair lending related supervisory work,” according to a report submitted to the White House in August. That coincides with a planned 18% increase in funding for the CFPB’s Supervision, Enforcement and Fair Lending unit during the first two years of the Biden administration.
One area of examiner focus is Covid-19 relief loans that lenders issued to struggling small businesses under the federal government’s Paycheck Protection Program. Mortgage lending is also a priority, an agency spokesman told Bloomberg Law.
The bump in agency resources is already being felt on the ground by lenders supervised by the CFPB, multiple attorneys told Bloomberg Law.
“I definitely see the uptick in fair lending exams that was promised,” said Christopher Willis, the co-leader of Ballard Spahr LLP’s Consumer Financial Services Group.
The CFPB during the Trump administration didn’t make fair lending a high-priority issue, bringing only a handful of fair lending enforcement actions. The bureau removed the CFPB’s Office of Fair Lending from its home in the supervision and enforcement division, putting it firmly under control of directors appointed by Trump.
CFPB acting Director David Uejio and other agency leaders have put muscle behind those promises. The bureau has doubled the number of fair lending examiners since the last year of the Trump administration, according to the report, which Bloomberg Law obtained through a Freedom of Information Act request. That increase in examiners has also yielded a 100% increase in exams, the report said.
Some CFPB units have seen even larger increases in resources. The bureau has tripled the number of examiners detailed to a specialized unit known as the National Fair Lending Examination Team (NFLET), according to the report.
“You set your priorities and then you set your resources accordingly,” said Ori Lev, a former deputy CFPB enforcement director who’s currently a Mayer Brown LLP partner.
The CFPB declined to give precise numbers of examiners looking at fair lending issues, but confirmed that it was increasing the resources devoted to “targeted fair lending reviews.”
“This will include follow up work to the fair lending risks identified in the prioritized assessments from our review of the Paycheck Protection Program restrictions to current customers, as well as other horizontal supervisory inquiries and full examinations covering various product lines, especially mortgage origination and small business lending,” Tia Elbaum, a spokeswoman for the bureau, said in an email to Bloomberg Law.
Setting those priorities will make it easier for the CFPB to spot fair lending violations and set both regulatory and enforcement priorities, said Todd Phillips, the director of financial regulation and corporate governance at the Center for American Progress, a liberal think tank.
“When you have those specialists, you can spot more things. You can spot more nuanced things,” said Philips, a former Federal Deposit Insurance Corp. official.
A budget released by the bureau in February shows that the consumer watchdog is also throwing money at its Supervision, Enforcement and Fair Lending unit. The CFPB isn’t subject to congressional appropriations and instead draws funds as needed from the Federal Reserve’s annual operating budget.
Already the largest budgetary outlay by far at the CFPB, the bureau allotted $139 million in fiscal year 2020 to the supervision and enforcement unit. The unit’s budget grew to $154.2 million in fiscal 2021 and is projected to grow to $164.6 million in fiscal 2022.
The biggest banks aren’t necessarily opposed to the CFPB increasing its fair lending vigilance. They just want the bureau to ensure that the scrutiny isn’t solely on banks, but online lenders and others as well.
The Consumer Bankers Association “ fully supports robust enforcement and supervision of all fair lending laws and encourages the Bureau to broaden their examination jurisdiction to ensure full compliance among traditional banks and non-bank lenders alike,” said Dan Smith, the head of regulatory affairs at the CBA and a former top CFPB official.
The uptick in fair lending hasn’t yet resulted in any enforcement actions. Of the 12 actions the CFPB has undertaken since the change in administrations, none involved violations of key fair lending laws like the Equal Credit Opportunity Act or the Fair Housing Act.
But that’s likely a function of the CFPB only undertaking this renewed focus in January, said Jenny Lee, a partner at Arent Fox LLP and a former CFPB enforcement attorney.
“There’s a natural maturation period for a working investigation to be ready to go public. That may take several months, depending on the case,” she said.