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    Mulvaney Pulls Fair Lending's Teeth: Enforcement Power Removed

    The Office of Fair Lending and Equal Opportunity (Fair Lending Office) of the Consumer Financial Protection Bureau  (CFPB) was stripped of its enforcement powers last Tuesday, the 30th of January. On Thursday, the agency confirmed its first major organizational change under Acting Director Mick Mulvaney.

    Previously, there were separate enforcement and supervisory functions within The Division of Supervision, Enforcement, and Fair Lending (SEFL): The Office of Fair Lending and Equal Opportunity, which handled the "enforcement" (i.e., investigation and legal action) and "supervision" (i.e., develops day-to-day oversight strategies) of all fair lending cases; and, The Office of Enforcement and The Office of Supervision, which handled enforcement actions and supervision of all non-fair-lending cases, respectively. 

    Since the Bureau was founded in 2011, the Fair Lending Office has "returned $400 million from discriminatory financial institutions to American families who have been overcharged or denied credit," says Sen. Elizabeth Warren, D-Mass. 

    However, House Republicans have long accused the Bureau of "overreach" particularly in fair lending enforcement actions involving discrimination against minorities as a result of dealer markups in indirect auto leading

    Concurring with House Republicans, Acting Director Mick Mulvaney stated in an agency-wide email (dated: 30 January) that the Fair Lending Office would be reassigned to the Office of the Director (AKA Mulvaney), BUT its enforcement and supervisory powers would remain within SEFL. This move effectively pulled the Fair Lending Office's teeth, rendering the office to exclusively "focus on advocacy, coordination, and education."

    Consumer advocates fear this relocation will reduce oversight and penalties for lenders involved in allegations of discrimination against consumers.

    An additional concern is that the Fair Lending Office is mandated by the 2010 Dodd-Frank Act to provide "oversight of federal laws intended to ensure the fair, equitable, and nondiscriminatory access to credit for both individuals and communities that are enforced by the bureau." The case could (and probably will) be made that by stripping the Fair Lending Office of its enforcement power, Mulvaney violated the financial reform law.

    The Agency could (and probably will) counter that the supervision and enforcement of fair lending cases will still be handled by SEFL, so the Bureau is in fact complying with Dodd-Frank. Richard Horn, a former CFPB senior counsel and special adviser explains, "In some ways, having separate supervision and enforcement staff in the Office of Fair Lending is duplicative, because there was already staff in the Office of Supervision and Enforcement." 

    Yet, Horn notes, "[I]f current staff handling supervision and enforcement in the Office of Fair Landing are moved with the office to handle only education, this could signal that there will be less of a focus on fair-lending examinations and enforcement." 

    Ultimately, however, Mulvaney's decision to relocate the Fair Lending Office and strip it of its enforcement and supervisory functions will likely be upheld. Lucy Morris, a former CFPB deputy enforcement director, says, "Obviously, fair lending is part of the bureau's mission, but where you put that office and how they carry out the mission is left to the discretion of whoever is in charge." In other words, Mulvaney's play is in(administrative)bounds.

    So what does this mean for your community bank or credit union? To begin with, you can breathe a bit easier when it comes to extending or denying lines of credit to customers. So long as you're not engage in blatant discriminatory practices, such as overcharging minorities or low-income borrowers for credit, you probably won't be bullied by the Bureau for questionable or vague violations of the Equal Credit Opportunity Act.  

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