WASHINGTON — The Consumer Financial Protection Bureau issued a proposal Friday that would give mortgage lenders more flexibility in collecting information on the race, sex and ethnicity of home loan applicants.

The bureau is proposing three changes to the Equal Credit Opportunity Act, including giving lenders the option of allowing mortgage applicants to self-identify certain demographic data such as race and ethnicity.

CFPB Director Richard Cordray
"This proposal will help industry comply with the law and help protect consumers against illegal discrimination," said CFPB Director Richard Cordray. Bloomberg News

"This proposal will help industry comply with the law and help protect consumers against illegal discrimination," CFPB Director Richard Cordray said in a press release.

The proposal is needed to align two regulations that appear to be in conflict.

Regulation B, which implements the ECOA, prohibits a creditor from inquiring about the race, color, religion, national origin or sex of a credit applicant. But Regulation C, which implements the Home Mortgage Disclosure Act, requires the collection of expanded demographic data including race and ethnicity, for fair lending purposes.

The proposal would make technical changes to the equal-credit so that its language would align better with recent changes to mortgage disclosure law, the consumer bureau said.

Banks and credit unions with assets of less than $10 billion would be the primary beneficiaries because the proposed changes would reduce the duplicate collection of certain mortgage data.

Under the proposal, mortgage lenders would not be required to maintain different practices depending on their loan volume or other characteristics, the CFPB said.

Banks and credit unions that report race and ethnicity in accordance with the consumer bureau's 2015 final HMDA rule and Regulation C would automatically be in compliance with Regulation B without any further action, the bureau said.

Smaller entities that do not report under the HMDA, but record and retain race and ethnicity data under Reg B, would have the option of recording data either using existing aggregated categories or new disaggregated categories.

"By making disaggregated collection an option under Regulation B, entities who will report race and ethnicity information under the HMDA final rule will also be in compliance with Regulation B with certainty," the CFPB said in its proposal.

The proposal also would remove an outdated 2004 mortgage form and add additional forms to allow for compliance with Reg B.

In addition, the proposal would amend Reg B to allow lenders and credit unions that are not required to report under HMDA data and Reg C to collect data on ethnicity, race and sex from mortgage applicants in certain circumstances.

Some institutions that have very low mortgage volume may be required to report under the mortgage disclosure act and Reg C in some years, but not in others, or they may be uncertain about whether they have report.

"Allowing voluntary collection will reduce the burden of compliance with Regulation C on some entities and provide certainty regarding Regulation B compliance over time," the CFPB said.

The proposal will be open for public comment for 30 days after it is published in the Federal Register, the bureau said.

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