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n its Fall 2016 Supervisory Highlights report, issued October 31, the Consumer Financial Protection Bureau (CFPB) identified mortgage redlining as an ongoing “priority area” in the Bureau’s supervisory work. In the mortgage industry, “redlining” is a form of disparate treatment where a lender provides unequal access to credit, or unequal terms of credit, on the basis of race, color, national origin, or other prohibited characteristics of the geographic area in which the credit seeker resides or wishes to reside in. Redlining takes its name from the historical practice of mortgage lenders drawing actual red lines on maps to delineate areas where credit was restricted or unavailable. The Bureau’s ongoing focus on redlining issues dovetails with its now one-year-old rule expanding the scope of mortgage lenders’ mandatory reporting under the Home Mortgage Disclosure Act (HMDA).
In its fall Supervisory Highlights report, the Bureau emphasized that CFPB examiners will continue to focus on discriminatory lending practices in an effort to ensure that minority borrowers are afforded equal access to credit. Examiners will evaluate lenders’ compliance management systems, lending patterns, marketing efforts, neighborhood mapping tools, and lending policies and procedures, among other factors, in order to determine whether a financial institution engaged in discriminatory lending practices. Examination teams typically assess redlining risk at the Metropolitan Statistical Area (MSA) level for each supervised entity, considering the unique characteristics of each MSA. Initial analyses typically compare a given institution’s lending patterns to other lenders in the same MSA to determine whether the institution received significantly fewer applications from minority areas relative to other lenders in the MSA.
The CFPB has already entered into several redlining settlements, including a $33 million settlement with Hudson City Savings Bank in September 2015. The Supervisory Highlights report also reiterates that prudential banking regulators, including the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, have made the prevention of redlining a priority.
The CFPB noted that in its supervisory experience institutions with strong fair lending compliance programs tend to examine lending patterns regularly, look for statistically-significant disparities, evaluate physical presence, monitor marketing campaigns and program, and assess Community Reinvestment Act assessment areas and market areas. The CFPB also advised that financial institutions may reduce fair lending risk by documenting risks they identify and by taking appropriate steps in response to identified risks, as components of their fair lending compliance management programs.