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 § 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 (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
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