Alert October 29, 2013

Federal Regulators Issue Statement on Fair Lending Compliance and the Ability-to-Repay and Qualified Mortgage Rules

In response to inquiries from creditors about liability under the Equal Credit Opportunity Act’s disparate impact doctrine on originating qualified mortgages under the CFPB’s ability-to-repay provisions (see January 10, 2013 Alert), the CFPB, OCC, FRB, FDIC and NCUA issued a joint statement addressing creditors concerns about potential liability under the ECOA’s disparate impact doctrine on originating qualified mortgages. The agencies view the requirements of the ability-to-repay rule and ECOA as “compatible,” and as a result, do not anticipate that a creditor’s decision to offer only qualified mortgages would, absent other factors, elevate a supervised institution’s fair lending risk. The agencies also noted that while the ability-to-repay rule create a presumption of compliance with certain qualified mortgages, there are other ways to satisfy the ability-to-repay rule, including “making responsibly underwritten loans” that are not qualified mortgages. The agencies noted that the ability-to-repay and qualified mortgage rule includes “transition mechanism[s] that encourage preservation of access to credit” during the transition period. Finally, the agencies noted that the situation was not “substantially different” that what creditors faced in the past in developing product offerings or responding to regulatory or market changes. For example, the agencies noted that although some creditors decided not to offer higher-priced mortgages once provisions implementing HOEPA became effective, it was unaware of challenges to creditors alleging violations of ECOA or Regulation B.