Kathy Kraninger
Director
Bureau of Consumer Financial Protection
1700 G Street, NW
Washington, DC 20552
Dear Director Kraninger:
The undersigned civil rights, community, and consumer organizations appreciate the opportunity to comment on the Consumer Financial Protection Bureau’s (CFPB) Request for Information (RFI) on the Equal Credit Opportunity Act (ECOA), which “seeks comments and information to identify opportunities to prevent credit discrimination, encourage responsible innovation, promote fair, equitable, and nondiscriminatory access to credit, address potential regulatory uncertainty, and develop viable solutions to regulatory compliance challenges under the Equal Credit Opportunity Act (ECOA) and Regulation B.”[1] As organizations devoted to promoting fair lending practices, we are especially interested in this RFI as ECOA is a critical tool used to identify and address discrimination in credit transactions based on race, color, religion, national origin, sex, marital status, age, and other protected statuses. Accessing safe and responsible credit products is vital for the economy’s growth, especially now as the COVID-19 pandemic has crippled the economy.
In response to this request, we urge the CFPB to take the following steps to implement ECOA and ensure that it has the tools necessary to ensure fair access to credit:
- Need for Greater Clarity on the Disparate Impact Standard
In response to Question 1, the CFPB should not confuse its approach to implementing the disparate impact standard with the narrowly focused and detrimental approach pursued by the Department of Housing and Urban Development’s (HUD) recent final rule on the Fair Housing Act (FHA). Instead, the CFPB should update Regulation B’s language to state that a creditor practice must meet a “substantial, legitimate, nondiscriminatory interest” similar to the 2013 FHA disparate impact rule.
The CFPB should also clarify that lenders that rely on algorithms or predictive models created or maintained by third parties are still legally responsible for violations of the disparate impact standard arising from these models. This clarification would ensure consistency between the CFPB and OCC approach to ensuring compliance with third-party vendors.
- Active Encouragement to Engage LEP Consumers
In response to Question 2, the CFPB should help establish and oversee a nationally recognized organization that offers financial interpreter and translator certification. A spotlight published by the CFPB in 2017 originally highlighted the need for such a service to help limited English proficiency (LEP) consumers navigate the credit market. The implementation of this organization could be similar to the housing counseling certification program implemented by HUD. The CFPB should also provide additional glossaries of financial terms in other languages and provide a Language Access Plan (LAP) template for lenders.
- Adapt the Interpretation of Sex-based Discrimination Set Forth in Bostock
In response to Question 4, the Supreme Court’s decision in Bostock v. Clayton County that sex-based discrimination in the employment arena included people who are fired based on sexual orientation and gender identity should apply to ECOA. It is not a leap to assume that if people face employment discrimination, they also face discrimination in the credit market.
- Finalize a strong small business data transparency rule mandated by Section 1071 of Dodd-Frank
In September 2020, the CFPB released its outline of policy considerations and questions regarding the Section 1071 small business loan data required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Section 1071 of Dodd-Frank requires lending institutions to report demographic information about small business loan applications, including the race and gender of the business owners. Aspects of the proposal, if adopted, will bring much-needed, uniform transparency to the small business credit market by collecting data on application and lending to small business, woman-owned businesses, and businesses owned by people of color. The proposals also include disclosure requirements from most types of lenders active in the small business market, including banks, credit unions, online lenders, and others, ensuring that lenders cannot exploit loopholes. They also propose collecting data on loan pricing, number of employees, and years in business to ensure fair access for the smallest businesses and start-ups. All of these provisions should be included in a final rule.
However, several approaches considered by the CFPB must not be included in the next step in the regulatory process. Many of these options would make the small business credit market less transparent and would make it difficult to prevent well-documented discrimination. The CFPB must require consistent reporting from all types of lenders, including banks, credit unions, online lenders, and others.
The CFPB should not exempt lenders from the new disclosure requirements based solely on the institution’s assets. An asset threshold would exclude some small banks and credit unions, which are important small business lenders, and exclude non-depositories, such as online lenders would be excluded under an assets-only approach. The CFPB should not exempt non-traditional lenders, such as merchant cash advance providers and others.
We urge the CFPB to move forward with a strong Section 1071 proposed rule in 2021 and issue a final rule in 2022.
- Guidance on the Use of Artificial Intelligence and Machine Learning in Underwriting
In response to Questions 9 and 10 the CFPB should provide robust guidance to lenders on Artificial Intelligence and Machine Learning (AI/ML) to reduce regulatory uncertainty and clarify that a lack of understanding is not an excuse for non-compliance with fair lending laws. The introduction of AI/ML technology into the underwriting process increases the complexity of providing adverse action notices and ensuring compliance with ECOA.
However, this complexity should not be used as an excuse by lenders to avoid providing such notices, or ignore fair lending concerns. AI/ML technology can suffer from the same issues as traditional underwriting and statistical modeling. The CFPB should provide guidance on the “accommodation ratio” to incentivize lenders to both look for ways to reduce bias and increase their models’ fairness and predictive power.
Conclusion
Providing greater clarity on the disparate impact standard, actively encouraging lenders to engage LEP consumers fairly, adapting the defection of sex-based discrimination set forth in Bostock, and providing additional guidance on the use of AI/ML technology in underwriting are all crucial to ensure the continued success of ECOA. In addition to these four key issues, the full comment letter submitted by the National Community Reinvestment Coalition provides additional responses to questions posed in the RFI and more details on the responses to the items listed above.
Thank you for the opportunity to comment on this important issue. If you have any questions, please contact Jesse Van Tol, CEO, or Tom Feltner, Director of Policy, at (202) 524-4889 or tfeltner@ncrc.org.
Sincerely,
National Community Reinvestment Coalition
Affordable Homeownership Foundation, Inc.
Affordable Housing Centers of Pennsylvania
African American Alliance of CDFI CEOs
African Cultural Alliance of North America Inc (ACANA)
Beneficial State Foundation
Brotherhood and Sisterhood International, Blacks and Whites Uniting Communities
California Reinvestment Coalition
CASA of Oregon
CDC Small Business Finance
Center for NYC Neighborhoods
Chester Community Improvement Project
Chicago Community Loan Fund
City of Toledo
Columbus Compact dba Columbus Empowerment Corp.
Community Action Committee of the Lehigh Valley
Community Enterprise Investments, Inc.
Community Reinvestment Alliance of South Florida
Consumer Action
Continuum of Care Network NWI, Inc..
County Corp
Delaware Community Reinvestment Action Council, Inc.
Economic Growth Corporation
Empire Justice Center
FACES|Family Assessment Counseling & Education Services Inc.
Fair Finance Watch
Fair Housing Center of Central Indiana
Fair Housing Center of Metropolitan Detroit
Fair Housing Center of Southwest Michigan
GenesisHOPE Community Development
Georgia Advancing Communities Together, Inc.
Home Repair Resource Center
Housing Action Illinois
Housing Coalition Educators
Independent Contractor
Local First Arizona
Local Initiatives Support Corporation (LISC)
MANNA, Inc
Metropolitan Milwaukee Fair Housing Council
Metropolitan St. Louis Equal Housing and Opportunity Council
Montana Fair Housing, Inc.
Multi-Cultural Development Center
NC Housing Coalition
NCRC, DC WBC
Nev Earth OZ Fund
Northwest Side Community Development Corporation
Northwest Side Housing Center
PathStone Enterprise Center
Pima County Community Land Trust
Prestamos CDFI
Reinvestment Partners
REVA Development Corporation
Rising Tide Community Loan Fund
River Cities Development Services
Rural Housing Opportunities Corp.
South Dallas Fair Park Innercity Community Development Corporation
Southern Dallas Progress Community Development Corporation
Southern Mutual Help Association, Inc. and Southern Mutual Financial Services, Inc.
Southwest Community Development Corporation
Southwest Neighborhood Housing Services
St. Johns Housing Partnership
TCH Development, INC
The Greenlining Institute
Universal Housing Solutions CDC – UHS CDC
Urban Land Conservancy
Woodstock Institute
Working In Neighborhoods
[1] Request for Information on the Equal Credit Opportunity Act and Regulation B. (2020, August 03). Retrieved from https://www.federalregister.gov/documents/2020/08/03/2020-16722/request-for-information-on-the-equal-credit-opportunity-act-and-regulation-b
