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CFPB Eyeing Discrimination Claims Against Berkshire Unit

WASHINGTON — An investigation into potential discriminatory lending practices of a company owned by Berkshire Hathaway is spurring attention by the Consumer Financial Protection Bureau.

Vanderbilt Mortgage and Finance, a lending arm for themobile home builder Clayton Homes — which are both part of Warren Buffett's Berkshire Hathaway Company — has been accused of discriminating against minorities in a series of investigative stories by The Seattle Times, the Center for Public Integrity and BuzzFeed News.

The latest in the series, released Dec. 26 by the Seattle Times and BuzzFeed, alleges that minority borrowers were rushed into loans and then overcharged. Though the claims are being fiercely denied by the companies and even Buffett, the stories have drawn the eye of the CFPB.

"The allegations of discrimination and predatory practices raised by the reporting are obviously very concerning to the Bureau," Sam Gilford, a spokesman for the CFPB,saidin a statement Tuesday to American Banker.

Observers said they are not surprised that such claims are triggering enhanced scrutiny by the CFPB and other regulators.

"The raw statistics provided in the latest article in and of itself does not prove anything, but it certainly raises a red flag that the CFPB thinks is significant enough to have an interest in, or at least to do some homework on it," said Michael Mierzewski, a partner at Arnold & Porter LLP.

Both Clayton and Buffett have denied the allegations raised in the articles, which first surfaced earlier in April.

In May, Buffett was quoted by The Seattle Times as defending the lending practices of Clayton and that he makes "no apologies whatsoever about Clayton's lending terms." Clayton is one of the largest mobile home providers in the country.

Clayton also issued a lengthy statement following the Dec. 26 article staunchly denying the allegations made in the story, claiming the stories were "activism masquerading as journalism." It provided total numbers of loans to minorities as support of its fair lending practices.

"Clayton Homes offers homes and financing to all Americans regardless of their race, socioeconomic status, or background. We categorically and adamantly deny discriminating against customers or team members based on race or ethnicity as" the article insinuates, the company said in a statement issued Dec. 26. "In fact, our company is committed to building on our track record of helping individuals and families from all walks of life, including people in historically underserved markets, achieve the American dream of home ownership."

Clayton also addressed government oversight in saying that the two lending companies it owns — Vanderbilt and 21st Mortgage — "are highly regulated by both state and federal agencies" including the CFPB.

"In the last two years alone, we had 64 routine federal and state examinations and regulator-reviews. These assessments have included detailed reviews of originations, servicing, collections, advertising, compliance management, internal controls, and a variety of other areas of our operations," the company said. "While other companies and industries have faced costly fines, sometimes in the billions of dollars, the total fines resulting from the 64 reviews was less than $40,000 over the two-year period."

Representatives for Berkshire and Clayton did not return calls by deadline.

Regardless of the truth of the allegations, sources said the CFPB and other regulators are likely to look into the claims. Even if it is not discrimination, the CFPB can use its authority under the Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) to cite financial providers on a broad array of allegations, such as not clearly disclosing charges to consumers. The Dec. 26 article against Vanderbilt and Clayton quotes minority borrowers claiming they were rushed into closing a loan without understanding the terms or charges.

"The CFPB would definitely be interested in this" series on Vanderbilt, said Richard Horn, who runs his own law firm after having worked at the CFPB as a senior counsel and special advisor. "The allegations concern UDAAP and fair lending, which are certainly target areas of the bureau. And they've been concerned about the manufactured housing market."

Though some in the industry may question whether the CFPB has jurisdiction over a mobile home builder, sources said the agency has vast authority over any financial product or service offered to consumers.

"Generally speaking, the CFPB has the authority to look at anyone involved in the financing of a consumer's mobile home, whether it be the lender itself, a broker or servicer of the loan, a service provider to the lender, or even others who may be aiding and abetting unfair, deceptive, or abusive acts or practices," said Lucy Morris, a partner at Hudson Cook and a former deputy enforcement director at the CFPB. "If the conduct involves consumer financial products or services, it's likely covered by the CFPB."

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