CFPB Supports State CRA Regulation on Biased Appraisals
Commentary by Thomas Delaney
The CFPB expressed support for Illinois Department of Financial and Professional Regulation’s proposed rules for the state’s Community Reinvestment Act ("CRA") that would make it a violation for lenders to rely on discriminatory appraisals.
In a comment letter to the Illinois Joint Committee on Administrative Rules, CFPB Deputy Director Zixta Martinez said that the CFPB supports the proposed appraisal-related provision which states that a lender "relying on or giving force or effect to discriminatory appraisals to deny loan applications where the covered financial institution knew or should have known of the discrimination" is a violation of both the Equal Credit Opportunity Act ("ECOA") and the Fair Housing Act ("FHA"). Ms. Martinez said, "[...] to the degree that discrimination is a relevant factor for determining a financial institution lender’s rating under a state CRA or other law, it is appropriate to consider whether there is evidence of the lender’s reliance on an appraisal that it knows or should know to be discriminatory, and, beyond the appraisal context, whether a lender enables, gives force to, or participates in a course of conduct that it knows or should know to be discriminatory."
Ms. Martinez argued that "by adopting the proposed provisions [discussed herein], the state of Illinois would be acting in accordance with existing legal standards for discrimination and utilizing its available tools to ensure a fair marketplace."
Commentary
It is not typical for a federal government agency to interject itself into a state rulemaking process and more unusual when that agency attempts to blur the lines between consumer protection law and the CRA, which was designed to ensure that determinations regarding bank locations are made on an equitable basis. Leaving aside the question of whether it is proper for a federal agency to involve itself in a state rulemaking, the larger concern for lenders is the CFPB's advocacy for applying consumer protection law standards to a state CRA regulation. Here, the CFPB is advocating for the incorporation of an ambiguous standard (whether a lender “should know” appraisals provided by independent, third-party appraisers are discriminatory) into the process of determining that lender’s CRA rating.