Fair lending advocates fear that a provision in pending Senate legislation that would roll back bank regulations could make it harder to spot discriminatory mortgage lending patterns, but just how much of an impact that provision will ultimately have remains murky.
The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) includes a section that would lower reporting requirements for small-mortgage lenders under a 1970s data collection law. A Senate vote is expected this week.
That provision would not eliminate all of the reporting requirements small lenders face under the 1975 Home Mortgage Disclosure Act (HMDA), but it would allow them to avoid collecting new data fields that were mandated by the Consumer Financial Protection Bureau in a regulation that took effect this year.
Community banks and credit unions say that the provision in the Senate bill would significantly lower their compliance costs while not materially impacting the data that lenders provide under HMDA. Consumer, fair lending and bank reform groups argue that lowering the reporting requirements will blow a big hole in the ability to detect and eliminate discriminatory lending and redlining, a practice where banks decline to lend to people from certain geographic and demographic areas.
HMDA requires banks, credit unions, and other mortgage lenders to provide information to the federal government about the race, ethnicity, and other demographic characteristics of their borrowers. The data is then used to determine broad lending trends and, if there is an appearance of potential discrimination, bring enforcement actions.
The 2010 Dodd-Frank Act mandated that lenders report an additional 13 categories of data, including the age of mortgage applicants, and gave the CFPB the authority to increase those data fields if it saw fit. The CFPB did, and more than doubled the additional data.
The bureau provided exemptions, allowing banks and credit unions that issue fewer than 25 mortgage loans in each of a preceding two years to avoid that reporting requirement. Lenders that issued fewer than 100 home equity lines of credit (HELOC) were also exempted under the CFPB rule. The new reporting rule took effect in January, although lenders were given time to make mistakes in the new reporting system.
“They looked more toward getting more loan data than the burden on an institution that makes 25 loans,” Richard Andreano, a partner with Ballard Spahr LLP, told Bloomberg Law.
S. 2155 rolls that provision back, exempting all banks and credit unions that issue fewer than 500 mortgages in each year of a two-year period to avoid the additional reporting requirements, with the same figure applying to HELOC lenders.
Those lenders would still have to comply with HMDA reporting mandates in place prior to Dodd-Frank, however, said Paul Merski of the Independent Community Bankers of America.
“That reporting will stay in place. All the banks that have to do HMDA reporting now will continue to do that HMDA reporting,” he said.
Losing that additional data could prove to be a big loss for those seeking to root out discriminatory lending, said Kevin Stein of the California Reinvestment Coalition.
Stein and other opponents of S. 2155 note that allowing small bank and credit union mortgage lenders to escape the updated CFPB data reporting mandates would exempt around 85 percent of banks from them.
“It is a big deal. It’s a huge number of lenders, and it will have the effect of making it harder to determine whether discrimination is occurring. That is the main purpose of the HMDA data,” Stein said.
Even though the number of banks reporting the enhanced mortgage data would be slashed, the real impact is unclear.
According to the Federal Reserve Bank of Kansas City, if the Senate bill’s HMDA changes go into effect as currently written, around 3.57 percent of all HMDA data currently reported would be lost, based on 2016 reporting data.
Even that small drop could prove damaging to anti-discrimination efforts, said Ira Rheingold, the executive director of the National Association of Consumer Advocates.
Having to report that data forces banks to consider whether they are doing enough to ensure they are not engaged in even unintentionally discriminatory lending practices, he said.
“It’s a huge number of lenders, and it will have the effect of making it harder to determine whether discrimination is occurring. That is the main purpose of the HMDA data,” Rheingold said.
With the Senate bill poised to pass in the coming days and adoption by the House is seen as likely, the changes to HMDA reporting requirements for small lenders are likely on the way.
If and when the bill finally passes, the biggest losers would be private groups that want to look into lending practices since federal and state regulators could see what they need to prosecute fair lending violations, Andreano said.
“The government can still get whatever it wants,” he said.
That is small comfort to Stein and other fair lending advocates, however.
“It is happening in the context of an administration that is retreating from oversight of financial institutions, retreating from consumer protection and retreating from enforcement of fair housing laws,” he said.
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