The CFPB recently released a proposal to amend Regulation B, which implements the Equal Credit Opportunity Act. With the proposed amendments, the CFPB is seeking to give mortgage lenders more flexibility when it comes to collecting consumers’ demographic information. Currently, under Reg. B, lenders are not permitted to ask consumers about their race, religion, national origin, etc.
These restrictions are in place to help ensure that loan applicants are protected from being discriminated against by lenders. However, there are some exceptions to these restrictions. As it stands, the exceptions come into play for some dwelling-secured loans under Reg. B, and information required to be reported under HMDA, which is implemented by Reg. C. The proposed changes would add circumstances where ethnicity and race information can be collected, most notably when a lender collects the information for compliance with Regulation C reporting requirements.
HMDA & Reg. B
As you are probably well aware, HMDA has undergone some significant changes. A lot of lenders have been struggling to figure out how to implement the HMDA rule, while still maintaining compliance with Regulation B.
The most prominent proposed change in this area would allow financial institutions to collect demographic information for HMDA reporting in compliance with Regulation B. The proposed changes create some flexibility for creditors who may find they are required to collect HMDA data for a particular calendar year, but not for the next year (or vice versa) due to changes in their asset size or loan reporting threshold. This proposed change would permit a creditor to voluntarily collect government monitoring information if it submitted HMDA data in any of the preceding five calendar years without being out of compliance with Reg. B. In addition, the proposal would allow a creditor to voluntarily collect monitoring information for up to five years after it fell below the loan volume threshold. This proposed change would be applicable, not only to closed-end mortgages, but also to HELOCs if the creditor is reporting data for those loans. This could benefit a creditor in situations where it is uncertain whether it will be required to report information under the revised Reg. C in a future calendar year. If a creditor decides to voluntarily collect monitoring information under this scenario, the proposal would require that creditor to retain the records of the information it collects for 25 months for consumer applicants and 12 months for business applicants.
Another change to be aware of comes with applicant forms. Appendix B of Reg. B currently refers to the use of the 2004 Uniform Residential Loan Application (URLA), which reflects the ethnicity/race categories required under the current Reg. B. The proposal would revise this reference to also refer to the 2016 URLA, which includes the disaggregated categories and subcategories, for those creditors that must or are voluntarily complying with the revised Reg. C collection requirements. The continued use of the 2004 form would end effective on the secondary market’s cutover date for the 2016 URLA or January 1, 2022, whichever comes first.
While we’ve hit the highlights, it’s still a good idea to take a look at the proposal to make sure that you understand, in case you want to submit comments or want to start preparing for the coming changes. Being aware of such proposed changes and responding appropriately is one of the hallmarks of an institution that is mindful of its fair lending obligations.
To read the full text of the proposed rule, click here.