WASHINGTON (Legal Newsline) - The Consumer Financial Protection Bureau acted in an “arbitrary and capricious” manner when it quadrupled the number of mortgages lenders must make before being subject to detailed reporting requirements designed to detect racial discrimination, a federal court ruled.
The CFPB loosened requirements under the Home Mortgage Disclosure Act in 2020, exempting lenders who made 100 or fewer loans per year. The agency, which assumed enforcement duties for HMDA under the Dodd-Frank Act in 2010, justified the increased threshold by estimating it would save $6 to $42 in compliance costs per loan.
Five nonprofit groups including the National Community Reinvestment Coalition as well as the City of Toledo challenged the change, saying the CFPB failed to consider all the costs associated with the regulatory loosening. And the U.S. District Court for the District of Columbia agreed in a Sept. 23 decision, requiring the agency to vacate the rule and come up with a new one. The D.C. court agreed to dismiss another claim based on the threshold for mortgage lines of credit, finding the CFPB actually lowered it from 500 to 200.
The decision hinged upon the CFPB’s accounting for costs associated with compliance and the large numbers of institutions that would be exempt from HMDA. By increasing the threshold from 25 to 100 loans per year, the court found, the 2020 rule would have exempted 40% of lenders from reporting HMDA data.
“CFPB insists that the agency’s treatment of nonquantifiable costs complied with its statutory duties, as the Dodd-Frank Act `requires only that the Bureau consider benefits and costs,’” …as if mere lip service mentioning the matter suffices,” the court ruled. “Taking `consider’ to mean `[t]o view or contemplate attentively, to survey, examine, inspect, scrutinize,’ CFPB’s superficial attention to the costs to consumers of the decrease in HMDA data hardly fulfills the obligation for full consideration.”
The CFPB’s change in reporting rules for mortgage lines of credit wasn’t arbitrary, however, because the plaintiffs compared it to a 2015 threshold of 100 loans per year that never went into effect, the court ruled. The CFPB postponed the rule and temporarily raised it to 500 loans in 2017, before reducing it to 200 in 2020.