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Fair Lending Developments Related to Student Loans

Stay up-to-date on the latest fair lending developments related to student loans and compliance with the Equal Credit Opportunity Act. Understand ECOA theories, applicability, and enforcement. Learn about risk assessments, testing, and proactive fair lending analysis for a compliant lending practice.

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Fair Lending Developments Related to Student Loans

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  1. Fair Lending Developments Related to Student Loans Vaishali Rao Partner, Hinshaw & Culbertson, LLP

  2. ECOA • 15 USC § 1691-1691(f) • Implemented by CFPB's Regulation B • 12 CFR § 1002.1 et seq. • Applies to all credit transactions • Applies to an "applicant" for credit • Applies in an extension, renewal or continuation of credit • Applies indirectly by use of an existing credit plan for an amount exceeding previously established credit limit • Section 1002.2(n) of Reg. B – To discriminate against an applicant means to treat an applicant less favorably than other applicants.

  3. Who Can Enforce ECOA? • Individuals (or entities) qualifying as applicants • CFPB • Federal Trade Commission • Department of Justice • State Attorneys General • Other federal and state regulators like the banking regulators

  4. CFPB • August 2012 – identify fair lending as an issue. Discussion of CDRs by PSLs in underwriting • Eligibility, underwriting, and pricing – disparate impact • Summer, 2014 – Supervisory Highlights – Bayesian Improved Surname Geocoding (BISG) proxy methodology for race and ethnicity • April, 2017 – As of April, 2017 exam teams are relying on updated proxy methodology that reflects newly available surname data from the Census bureau.

  5. CFPB • April, 2017 – Student loan servicing identified as "substantial risk of credit discrimination" • "Whether loan servicing companies are making it difficult for people with past-due student debt to work out a solution because of their race, ethnicity, gender or age." • “We’re looking at disparities in outcomes … and we believe there may be some" • Where does this stem from?

  6. ECOA Theories & Applicability • Intentional Discrimination • Disparate Treatment • Disparate Impact • Texas Department of Community Affairs et al v. Inclusive Communities Project – Supreme Court 2015 • Burden Shifting • Hawkins v. Community Bank – spousal guarantor not an applicant under ECOA. SCOTUS, 4-4.

  7. Examples • Honda - $24M to settle w/ DOJ and CFPB – July, 2015 • Dealer markup on buy rate - (2-3%) • 36 basis points on average more. • No penalties because of proactive change! • Ally - $98M – 2013

  8. What Does Fair Lending Compliance Mean Today? • Risk Assessments (including marketing of products) • Third Party Oversight • TESTING • Quality control and internal audit • Proactive fair lending statistical analysis • Disparate treatment in Underwriting, pricing, price exceptions, modifications (including fees and fee waivers), servicing • Disparate impact testing • Complaint management • Remediation and other corrective action (potentially reporting?)

  9. Vaishali S. Rao Hinshaw & Culbertson LLP 312-704-3156vrao@hinshawlaw.comwww.hinshawlaw.com BLOG: www.hinshawcfs.com

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