On May 6, 2021, the United States Government Accountability Office (“GAO”)—an independent, non-partisan congressional watchdog organization—published a report summarizing its study on the impact of the Consumer Financial Protection Bureau’s (“CFPB” or the “Bureau”) reorganization of its fair lending enforcement and supervisory activities.[1]  In 2018, the Trump administration-led CFPB decided to relocate the Office of Fair Lending and Equal Opportunity (the “Office of Fair Lending”) from the Supervision, Enforcement, and Fair Lending Division (“SEFL”) to the Office of Equal Opportunity and Fairness (“OEOF”), a division within the Office of the CFPB Director that plays no role in enforcement.  GAO found shortcomings in the reorganization process and highlighted that the reorganization likely led to a decrease in fair lending enforcement activity in 2018.  GAO ultimately recommended that the Bureau analyze the effects of the reorganization on its enforcement and supervision of fair lending laws, develop performance goals, and take measures to assess its fair lending activities going forward.

While not binding on the CFPB, GAO’s report is significant as it comes at a time when the current administration has signaled that it is motivated to increase enforcement of fair lending laws. Acting CFPB Director Dave Uejio has committed the Bureau to implementing GAO’s recommendations, and Biden’s CFPB Director nominee Rohit Chopra has similarly expressed that he would focus on fair lending.  Likewise, progressive advocates are using the report as an opportunity to apply increased pressure on the Biden administration to become more active in this area.

Background

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) created the CFPB and placed two federal fair lending laws that protect consumers from discrimination under its authority:  the Equal Credit Opportunity Act  and the Home Mortgage Disclosure Act.[2]  Section 1013 of Dodd-Frank also mandated the Bureau to establish an Office of Fair Lending, with “such powers and duties as the Director may delegate,” including: (1) providing oversight and enforcement of the fair lending laws enforced by the CFPB, (2) coordinating fair lending efforts among federal and state regulators, (3) working with the private industry and advocates to promote fair lending compliance and education, and (4) providing annual reports to Congress on its activities.[3]

For nearly a decade, the Office of Fair Lending conducted its enforcement and supervisory responsibilities under SEFL, with the powers and duties listed in Dodd-Frank.[4]  However, in January 2018, Trump’s Acting CFPB Director Mick Mulvaney announced a plan to reorganize the Bureau’s fair lending activities that stripped the Office of Fair Lending of its enforcement and supervisory duties.  The restructuring relocated the Office of Fair Lending from SEFL to OEOF, a division primarily responsible for overseeing the Bureau’s internal diversity and inclusion efforts.[5]  Unlike SEFL, OEOF plays no role in enforcement.[6]  Mulvaney envisioned that SEFL would manage fair lending enforcement without the aid of the Office of Fair Lending, which would instead focus on “advocacy, coordination, and education.”[7]  The reorganization was completed in January 2019 under Kathy Kraninger, who became CFPB Director following her confirmation in December 2018.[8]

Following Mulvaney’s announcement, members of Congress, research institutions, and consumer advocacy groups raised concerns that separating the Office of Fair Lending from its resources and expertise would substantially hinder the Bureau’s ability to effectively supervise and enforce fair lending.  For instance, the Brookings Institute predicted in an April 2018 report that “[c]onverting the Office of Fair Lending to one of internal policy advocacy will in effect dismantle it.”[9]

On December 18, 2019, Democratic Senators Sherrod Brown and Elizabeth Warren wrote a letter calling on GAO to investigate the Trump administration’s fair lending reorganization.[10]  The letter specifically requested that GAO: (1) compare the effectiveness of the CFPB’s fair lending oversight and enforcement during 2012 to November 2017 against the period from December 2017 to present; (2) compare the number of staff with specialized expertise in fair lending laws during those two periods; (3) determine whether the reorganization impacted the effectiveness of CFPB’s fair lending oversight; and (4) whether the reorganization steps were “based on indifference, neglect, improper political influence, or made over the objections of career Bureau staff.”[11]  GAO published its report on May 6, 2021.

The Report

In its 37-page report, GAO (1) identified key shifts in responsibility caused by the Office of Fair Lending reorganization; (2) conducted a review of shortcomings in the reorganization process; and (3) analyzed the effects of the reorganization on fair lending enforcement and supervisory activity, noting that the Bureau’s failure to publish goals or measures related to fair lending activities made it challenging to assess its success in this area.

The report concluded by offering two recommendations for the CFPB Director in order to better “determine the impact of the changes and identify actions needed”: (1) “collect and analyze” information on the reorganization as a means to “address any challenges or unintended consequences resulting from the change,” and (2) “develop and implement performance goals and measures” regarding its fair lending enforcement and supervision.[12]

1. Key Shifts in Responsibility

GAO began its analysis by identifying the key shifts in responsibilities caused by the reorganization:

  • First, the Bureau shifted the Office of Fair Lending’s enforcement responsibilities to SEFL’s general Office of Enforcement. In this shift, the Office of Fair Lending’s approximately 10 fair lending specialist attorneys were rebranded as generalist enforcement attorneys for SEFL.[13]
  • Second, and relatedly, the Bureau shifted the Office of Fair Lending’s supervisory responsibilities to SEFL’s Office of Supervision Policy (OSP), replacing the Office of Fair Lending’s dedicated supervision staff with a new fair lending team at OSP.[14]
  • Third, the Bureau shifted the Office of Fair Lending’s examination prioritization duties to other SEFL offices, tasking those offices with identifying which institutions to examine in the coming year.[15]
  • Fourth, the Bureau shifted the Office of Fair Lending’s examiner and enforcement attorney training to SEFL offices.[16]
  • Finally, the Bureau stripped the Office of Fair Lending of its place on the Action Review Committee, which makes recommendations regarding what enforcement action, if any, should be taken in response to identified violations.[17]

2. Shortcomings in the Reorganization Process

GAO then examined the CFPB’s reorganization process, and found that the CFPB took limited steps to incorporate key agency reform practices in the reorganization.  GAO compared the CFPB’s procedures during the reorganization against GAO’s “Key Questions to Assess Agency Reform Efforts,” a July 2018 report it released as a framework under which Congress and the executive branch may “evaluate agencies’ reform proposals.”[18]  The key practices suggested by GAO include “establishing outcome-oriented goals” for the proposed reforms, “using data and evidence” to justify the changes, “involving employees” in the process, engaging in “strategic workforce planning,” dedicating “leadership focus and attention,” and “managing and monitoring” the reforms.[19]

While GAO found that the CFPB applied some of these practices, it concluded that the Bureau fell short in numerous respects , including:

  • The Bureau “did not have any documentation to demonstrate its use of data or evidence . . . to help justify proposed reforms.”[20]
  • The Bureau failed to take “formal steps to collect and respond to input from employees about the proposed reorganization.”[21]
  • While the Bureau identified loss of fair lending expertise as a risk of the reorganization and took steps to mitigate that risk, it “did not conduct any formal workforce planning” ahead of the changes.[22]
  • GAO found no evidence that the Bureau designated a leadership team to oversee the reorganization.[23]
  • The Bureau failed to fully follow its implementation plan to track progress.[24]

3. Effects of the Reorganization on Enforcement and Supervision

Having found shortcomings in the CFPB’s process, GAO then analyzed the reorganization’s effects on fair lending enforcement and supervisory activity within the Bureau.  Concerning enforcement activity, GAO found that in 2018, the year the reorganization began, enforcement reached its lowest point since at least 2014, before rebounding the following year.[25]  GAO cited as possible causes the loss of the Bureau’s single, dedicated fair lending enforcement team as well as the time and costs involved with hiring individuals to replace the expertise of regulators who were assigned to generalist positions or left the CFPB altogether.[26]  However, while enforcement activity saw a meaningful decline, supervisory activity remained relatively constant.[27]  According to GAO, this was because other offices within SEFL had responsibility for scheduling and conducting fair lending examinations even prior to the reorganization.[28]

Notably, GAO observed that the CFPB presently lacks an effective means to measure its fair lending supervisory and enforcement activity levels. [29]  After the reorganization was completed, the Bureau stopped reporting performance measures specific to fair lending, only providing aggregated data in its reporting on overall enforcement and supervision activities.[30]

GAO’s Recommendations

Having found that there were deficiencies in the CFPB’s reorganization process, that the reorganization likely led to a decrease in enforcement activity in 2018, and that the CFPB’s decision to stop reporting on fair lending performance goals and measures left it without a meaningful way to assess its activities in the fair lending space afterwards, GAO made two primary recommendations:

  • First, it recommended that the CFPB Director “collect and analyze information on the outcomes of its 2018-2019 fair lending reorganization” as a tool for assessing any “challenges or unintended consequences” of the changes.[31]
  • Second, it recommended that the Bureau develop and implement “performance goals and measures” specific to fair lending enforcement, as a replacement for the metrics that were removed in February 2019.[32]

Takeaways

While not legally binding on the CFPB, GAO’s report is significant as the current administration appears receptive to the proposed reforms.  Notably, the report provides an occasion for Biden’s CFPB to contrast itself to the prior administration and lay the groundwork for increasing fair lending law enforcement, which it has already identified as a priority.[33]  In fact, the Bureau has already expressed its support of GAO’s findings.  Acting CFPB Director Uejio indicated that he agreed with GAO’s recommendations, noting that the Bureau is “committed” to implementing the recommendations and “looks forward to working with GAO as it monitors the Bureau’s progress.”[34]

GAO’s report also provides an opportunity for advocates outside the current administration to highlight fair lending issues in the news and bolster support for increased enforcement in this space.  Indeed, after GAO released the report, Senator Warren published a statement characterizing GAO’s findings as evidence that Mulvaney’s team “gutted the Bureau’s fair lending office” and encouraging the new CFPB leadership to “prioritize[] the enforcement of fair lending laws.”[35]

Reactions from both agency officials and progressive advocates indicate that the Biden Administration is facing increased pressure to ramp up its enforcement of fair lending laws.  The Administration has indicated that it is motivated to act in this space, with potential areas of enforcement including increased examinations of lenders and efforts to reinstate a disparate impact standard in enforcing the Equal Credit Opportunity Act.[36]  With these developments, lenders should expect Biden’s CFPB to be particularly active in its enforcement and oversight of fair lending laws.

[1] U.S. Gov. Accountability Office, GAO-21-393, CFPB Needs to Assess the Impact of Recent Changes to Its Fair Lending Activities (2021).

[2] Generally, the Equal Credit Opportunity Act combats discrimination in credit transactions, and the Home Mortgage Disclosure Act imposes home mortgage data reporting requirements on financial institutions. 12 U.S.C. § 5493(c)(2) (2018).

[3] 12 U.S.C. § 5493(c)(2) (2018).

[4] Press Release, United States Senate Committee on Banking, Housing, and Urban Affairs, Brown, Warren Call on GAO to Investigate CFPB’s Failure to Enforce Fair Lending Rule (Dec. 18, 2019), https://www.banking.senate.gov/newsroom/minority/brown-warren-call-on-gao-to-investigate-cfpbs-failure-to-enforce-fair-lending-rule.

[5] See Consumer Financial Protection Bureau, Standards for Equal Employment Opportunity and Diversity at the CFPB (October 2015), https://files.consumerfinance.gov/f/201511_cfpb_eeo-and-di-standards-Design.pdf (“[OEOF] is primarily responsible for overseeing equal employment opportunity and diversity and inclusion at the CFPB.”).

[6] Consumer Financial Protection Bureau, Standards for Equal Employment Opportunity and Diversity at the CFPB (October 2015), https://files.consumerfinance.gov/f/201511_cfpb_eeo-and-di-standards-Design.pdf (“[OEOF] is primarily responsible for overseeing equal employment opportunity and diversity and inclusion at the CFPB.”).

[7] Mick Mulvaney, The CFPB Has Pushed Its Last Envelope, Wall Street Journal (Jan. 23, 2018), https://www.wsj.com/articles/the-cfpb-has-pushed-its-last-envelope-1516743561 (attaching Jan. 23, 2018 internal memorandum regarding fair lending reorganization).

[8] Consumer Financial Protection Bureau, Press Statement by Mick Mulvaney, Acting Director, (Dec. 11, 2018), https://www.consumerfinance.gov/about-us/newsroom/press-statement-mick-mulvaney-acting-director/.

[9] Makada Henry-Nickie, On Fair Lending, Mulvaney’s Actions at CFPB Speak Louder than his Words, Brookings Institute (Apr. 12, 2018), https://www.brookings.edu/research/on-fair-lending-mulvaneys-actions-at-cfpb-speak-louder-than-his-words/.

[10] Press Release, United States Senate Committee on Banking, Housing, and Urban Affairs, Brown, Warren Call on GAO to Investigate CFPB’s Failure to Enforce Fair Lending Rule (Dec. 18, 2019), https://www.banking.senate.gov/newsroom/minority/brown-warren-call-on-gao-to-investigate-cfpbs-failure-to-enforce-fair-lending-rule.

[11] GAO was also asked to determine the impact that eliminating certain data points under the Home Mortgage Disclosure Act, which Kraninger had proposed, would have on the CFBP’s ability to oversee and enforce fair lending laws.  Press Release, United States Senate Committee on Banking, Housing, and Urban Affairs, Brown, Warren Call on GAO to Investigate CFPB’s Failure to Enforce Fair Lending Rule (Dec. 18, 2019), https://www.banking.senate.gov/newsroom/minority/brown-warren-call-on-gao-to-investigate-cfpbs-failure-to-enforce-fair-lending-rule.  GAO found that the data points supported supervisory and enforcement activities and fair lending analyses by (1) allowing the CFPB to prioritize risks of fair lending violations; (2) supporting fair lending examinations and investigations; and (3) improving efficiency of fair lending work.  GAO-21-393 at 19–21.

[12] GAO-21-393 at 21.

[13] GAO-21-393 at 5.

[14] GAO-21-393 at 5.

[15] GAO-21-393 at 5-6.

[16] GAO-21-393 at 6.

[17] GAO-21-393 at 6.

[18] U.S. Gov. Accountability Office, GAO-18-427, Key Questions to Assess Agency Reform Efforts 6 (2018).

[19] GAO-21-393 at 8.

[20] GAO-21-393 at 9.

[21] GAO-21-393 at 9.

[22] GAO-21-393 at 10.

[23] GAO-21-393 at 11.

[24] GAO-21-393 at 11.

[25] GAO-21-393 at 12.

[26] GAO-21-393 at 12.

[27] GAO-21-393 at 12.

[28] GAO-21-393 at 13.

[29] GAO-21-393 at 16-18.

[30] GAO-21-393 at 16-18.

[31] GAO-21-393 at 21.

[32] GAO-21-393 at 21.

[33] Dave Uejio, The Bureau is Taking Much-Needed Action to Protect Consumers, Particularly the most Economically Vulnerable, Consumer Financial Protection Bureau Blog (Jan. 28, 2021), https://www.consumerfinance.gov/about-us/blog/the-bureau-is-taking-much-needed-action-to-protect-consumers-particularly-the-most-economically-vulnerable/ (“fair lending enforcement is a top priority and will be emphasized accordingly.”)

[34] GAO-21-393 at 29-30.

[35] Press Release, Senator Elizabeth Warren, Independent Watchdog Finds Trump Administration’s Unjustified CFPB Reshuffling Undermined Enforcement of Fair Lending Laws (Jun. 7, 2021), https://www.warren.senate.gov/newsroom/press-releases/independent-watchdog-finds-trump-administrations-unjustified-cfpb-reshuffling-undermined-enforcement-of-fair-lending-laws.

[36] Biden’s Department of Housing and Urban Development has already moved to restore the disparate impact standard in the fair housing context, releasing an interim final rule on the subject on June 10, 2021.  See Restoring Affirmatively Furthering Fair Housing Definitions and Certifications, 86 Fed. Reg. 30,779 (Jun. 10, 2021) (to be codified at 24 C.F.R. pts. 5, 91, 92, 570, 574, 576, and 903).