The Consumer Financial Protection Bureau is looking to rewrite Obama-era regulations that sought to punish banks and financial firms for unintentional discrimination.
Acting CFPB Director Mick Mulvaney on Monday praised President Trump for signing a repeal of the CFPB's guidance on indirect auto lending, but added that the agency will now re-examine how it enforces the Equal Credit Opportunity Act, which prohibits discrimination in lending.
"Given a recent Supreme Court decision distinguishing between anti-discrimination statutes that refer to the consequences of actions and those that refer only to the intent of the actor, and in light of the fact that the Bureau is required by statute to enforce federal consumer financial laws consistently, the bureau will be reexamining the requirements of the ECOA," the CFPB said in a press release.
The ECOA is a 1974 law that protects consumers from discrimination based on race, sex, age and other variables that have historically been used to prevent certain buyers from obtaining home loans. The CFPB referred to a 2015 Supreme Court decision in Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project, as its reason for re-examining disparate impact. The decision said that disparate impact claims, under which a lender can be cited for unintentional discrimination, require that a plaintiff prove a defendant's policies caused the alleged disparity.
Mulvaney's comments suggest the CFPB may make it harder for protected groups, including minorities and women, to claim they were adversely impacted by discriminatory practices. It is the first time that the CFPB has signaled publicly that it plans to clarify the language of Regulation B, which is intended to prevent consumers from being discriminated against in any aspect of a credit transaction.
The CFPB also stated that it plans to submit all past guidance issued by the CFPB to Congress for review, a heady task given that the agency has issued guidance bulletins on a wide range of topics from credit card add-on fees to in-person collection practices.
"Today’s action also clarifies that a number of bureau guidance documents may be considered rules for purposes of the CRA, and therefore the Bureau must submit them for review by Congress," the CFPB said. "The bureau welcomes such review, and will confer with Congressional staff and federal agency partners to identify appropriate documents for submission."
House Financial Services Committee Chairman Jeb Hensarling. R-Texas, who has complained for years about the legal theory of "disparate impact," in which lenders are held responsible for inadvertent discrimination, praised the move.
"It is the Bureau’s job to enforce law, not make it," Hensarling said in a press release. “This announcement by the bureau is yet another example of the outstanding efforts acting Director Mulvaney is taking to restore the Bureau to its proper role of vigorously policing our consumer credit markets for fraud and deception."
The CFPB is not the first agency to target disparate impact under the Trump administration.
Last week, the Department of Housing and Urban Development said it will take its own look at disparate impact in light of the Supreme Court ruling three years earlier. Several lawyers said the White House likely coordinated the efforts by both agencies to take another look at the disparate impact doctrine.
Both agencies are expected to clarify that standards of proof will make it harder for federal agencies or consumers to claim that certain practices led to unintentional discrimination.