Alert December 11, 2012

CFPB Releases Fair Lending Report and Announces Coordination with Department of Justice on Coordination of Fair Lending Enforcement

The CFPB announced it and the Department of Justice have entered into a Memorandum of Understanding setting forth the general framework for cooperation in the enforcement of fair lending laws. Both the CFPB and the DOJ have authority to enforce the Equal Credit Opportunity Act, which prohibits creditors from discriminating against applicants in credit transactions based on the applicant’s race, color, religion, and national origin, among other things. Key components of the MOU include: information sharing and confidentiality; joint investigation and coordination; and referral and notice procedures.

In conjunction with the announced coordination with the DOJ, the CFPB released its annual Fair Lending Report to Congress detailing its efforts to fulfill the Dodd-Frank mandate to ensure “fair, equitable, and nondiscriminatory access to credit.” As a follow-up to its report on the private student loans market (see July 24, 2012 Alert), the CFPB highlighted the potential fair lending implications from the use of “cohort default rates”—a measure of the federal student loan repayment history of a particular group or “cohort” of borrowers—to set school eligibility cutoffs raised fair lending concerns. In particular, the report noted that racial and ethnic minorities are disproportionately concentrated in schools with higher cohort default rates.