Special Purpose Credit Programs – Fair Lending Interagency Statement Explained
On February 22, the Federal Reserve System, FDIC, National Credit Union Administration, Office of the Comptroller of the Currency (OCC), Consumer Financial Protection Bureau (CFPB), US Department of Housing and Urban Development (HUD), the U.S. Department of Justice (DOJ), and the Federal Housing Finance Agency issued an interagency statement regarding the use of special purpose credit programs (SPCP) pursuant to Regulation B and Equal Credit Opportunity Act (ECOA). This statement reminds financial institutions of the ability to establish SPCPs to meet the credit needs of specific categories of people in the communities they serve. The intention of these programs is to expand access to credit and better meet the social needs of economically disadvantaged people. Examples include low-income minorities and small businesses owned by minorities or people with disabilities.
The statement also includes the following:
- Refers to the advisory opinion issued by the CFPB in December 2020 which indicates that all for-profit institutions must include a written plan for the establishment of any SPCP under the regulations; and
- Refers to the December 2021 HUD guidelines which conclude that SPCPs established pursuant to the ECOA and Regulation B generally do not violate the Fair Housing Act (FHA)
This affects your establishment to the extent that there are solutions to address potential disparities in homeownership in your market area. Implementing SPCPs, in accordance with the ECOA and FHA, may provide the opportunity to offer credit in an anti-discriminatory manner and may reflect your institution’s efforts to comply with the positive provisions of these regulations if gaps are identified and the program is proactively implemented.
HUD’s June 2021 proposal to recodify the Discriminatory Effects Standard places greater emphasis on the benefits of CPCPs. This standard addresses any policy that may cause systemic inequality in housing by unnecessarily excluding specific groups of people. A SPCP, in conjunction with the removal of systemic restrictions in policies, can provide additional credit opportunities where standard policies may have previously created gaps in access.
Additionally, if your institution’s refusal rates for minority groups when considering underwriting factors reflect significant disparity, CPPS could be a good option to mitigate these discrepancies. As a recent example, in October 2021, the CFPB, OCC and DOJ issued a total of $9 million in civil monetary penalties against a financial institution for – among a number of other factors – discrimination. systemic pool of applicants and potential applicants, which was reflected in its number of home loan applications being 2.5 times lower than that of its “lending peers” in one of its Metropolitan Statistical Areas (MSAs). The consent order requires the financial institution to establish a loan subsidy program that provides loans to qualified applicants on a more affordable basis when they borrow to purchase properties in this MSA.
With increased regulatory emphasis on consumer protection, it is essential to understand your fair lending risk and identify areas where your financial institution is not proactively meeting the needs of its markets. Reminders from regulators of whether to establish programs such as SPCPs make it clear that your financial institution should critically analyze its products and create meaningful solutions for access to credit in the areas you serve.
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• Interagency statement