CFPB Warns U.S. Banks: Expand 'Fair Lending' or Else

May 12, 2014
Investor's Business Daily 
mortgage lending news
In its new "Fair Lending Report," the Consumer Financial Protection Bureau reminds U.S. banks that they could face discrimination charges if they fail to write enough prime loans to low-income minority borrowers. The paper recommends racial sensitivity training for lending staff and encourages banks to aggressively market loans in urban areas. CFPB regulators are also partnering with federal prosecutors to launch "targeted reviews" of banks' loan data by race in search of "disparate impact" violations.

"We are working to remove unnecessary obstacles that too many Americans face in the consumer financial marketplace," CFPB director Richard Cordray declares in the report. "This includes ferreting out discrimination in credit markets, including the markets of home mortgages and auto lending."

Banks appear to be responding to the crackdown and threat of investigation by lowering their credit standards -- and, subsequently, loan quality -- which has some worried about a repeat of the conditions that sparked the mortgage bubble. Wells Fargo, for instance, eased its minimum credit scores on some home loans last quarter to expand access for low-income home buyers. These changes come after a $175 million Justice Department lawsuit against it for alleged lending discrimination based on disparate impact.

The response from the American Bankers Association has been to offer a "fair lending toolbox" to help its members avoid disparate-impact probes.

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