Re-introduced Fair Lending for All Act Proposes Stiffer ECOA Penalties and CFPB Testing Office

On January 4, 2021, Representative Al Green of Texas, the Chairman of the Subcommittee on Oversight and Investigations for the House Financial Services Committee, re-introduced H.R. 166, titled the Fair Lending for All Act, a bill he previously introduced in 2019. The proposed bill would significantly revise the application and enforcement of the Equal Credit Opportunity Act (ECOA) and would further expand lenders’ collection and reporting obligations under the Home Mortgage Disclosure Act (HMDA). The proposal includes:

1. Expanding the prohibited bases under ECOA to include the sexual orientation or gender identity of the applicant, as well as their zip code or census tract.
2. Establishing an Office of Fair Lending Testing (Testing Office) within the Consumer Financial Protection Bureau (CFPB), headed by a Director appointed for five-year terms by the Director of the CFPB.
   1. The Testing Office would engage in “mystery shopping”-style testing of lending institutions, using investigators posing as loan applicants to gather information on various institutions’ lending practices.
   2. Evidence of violations of ECOA would be referred to the Attorney General for appropriate legal actions and would be provided to Congress in the form of a comprehensive report.
3. Imposing new criminal penalties for violations of ECOA, including:
   1. Fines up to $50,000 or one year in prison for knowing and willful individual violations.
   2. Fines up to $100,000 or up to twenty years in prison for individuals who engage in a pattern or practice of knowing and willful discrimination.
   3. Fines up to 100% of compensation received during the time period in which the violations occurred or 1-3 years preceding their discovery, and imprisonment for up to five years for any executive officer or director of a board of any lender who causes such lender to engage in a pattern or practice of knowing and willful discrimination.
4. Requiring the CFPB to review loan applications and application processes used by lenders for compliance with federal law, and to prevent the use of applications or processes that are deemed non-compliant.
5. Amending HMDA to require lenders to gather and report information that includes the number and dollar amount of mortgage loans and completed applications grouped according to the applicants’ zip code, religion, marital status, and sexual orientation. (Of course, Regulation B separately makes it illegal to ask a loan applicant for most of these data points, and the bill fails to address that problem.)

Representative Green introduced this bill in 2019 and it did not gain any traction. But could the Fair Lending for All Act pass in the new Democratically-controlled Congress under an administration that has repeatedly called for a focus on racial equity? It is possible, but unlikely given that H.R. 166 has no co-sponsors and has significant drafting problems in its current form. However, certain of the bill’s provisions are particularly interesting and could be a harbinger of future legislation to come under the new Democratic Congress. Because the relative dearth of fair lending enforcement in recent years has contributed to a sense that not enough is being done to combat discrimination in the marketplace, there may be more of an appetite not only to increase the federal government’s enforcement of existing fair lending laws, but potentially also to increase expand ECOA’s reach and penalties for violators.