The Inclusive Economy
To Preserve Fair Housing & Fair Lending, We Need a Strong CFPB
Fair housing is about a lot more than just prohibiting discrimination when renting apartments. Fundamentally, it’s about protecting the freedom of all people to choose where they live, ensuring equal access to all communities. As Bryan Greene, General Deputy Assistant Secretary of the Office of Fair Housing and Equal Opportunity at HUD, mentioned at last week’s “Downpayment on the Divide” event, the U.S. has made great progress to expand equal opportunity and eliminate housing discrimination in the 49 years since the Fair Housing Act was enacted. However, many Americans still find the promise of fair housing out of reach, especially when trying to buy a home. When that happens, it’s not just HUD and the Department of Justice that have a role in combatting unfairness—the Consumer Financial Protection Bureau (CFPB) has a big part to play, too.
There are a number of different agencies that regulate all aspects of the financial industry, but the CFPB is the only agency dedicated solely to consumer protection. Since it was launched in 2011, the CFPB has done a tremendous amount to protect victims of predatory financial practices and foster fair practices in the financial industry. So far, the independent agency has secured about $12 billion in relief for 29 million consumers—about one out of every 10 consumers in the country. To put that in perspective, the CFPB has helped more people than live in the state of Texas, all while leveraging a total of $2.9 billion in funding, providing taxpayers with a return on public investment at a rate of 4:1.
In addition to returning to money back into the pockets of wronged consumers through its enforcement actions, the CFPB has also put in place new mortgage servicing rules to curb the risky lending that contributed to the financial crisis, proposed rules to rein in the predatory practices of the payday lending industry and the abuse of arbitration clauses and started work on regulations against abusive debt collection practices. Communities of color have disproportionately suffered from abuses in these areas and are positioned to benefit more from these rules.
Fair lending is critical to fair housing, and the CFPB has been integral in holding financial institutions accountable for discriminatory lending practices. In coordination with the Department of Justice, the CFPB has taken actions against a number of financial institutions for intentionally avoiding mortgage lending in communities of color, denying credit to African-American applicants more often than comparable White applicants. These efforts are working to help ensure that households of color get a fair shake in the home buying process. But despite these growing achievements on behalf of consumers everywhere, and the CFPB’s commitment through its Office of Fair Lending to prioritize tackling redlining for this year, plenty of work remains to be done to fight unfair lending.
That includes pushing back efforts by some leaders in Congress to scale back what the Bureau does to protect vulnerable homebuyers. Take manufactured housing, for example. The CFPB has the authority to regulate chattel loans, the personal property loans that are typically used to finance manufactured home purchases. Previously, chattel loans had been largely unregulated and interest rates were excessive, putting many homebuyers at risk of default. Now chattel loans are subject to many (though not all) of the same standards as regular mortgage loans, including the Home Ownership Equity Protection Act (HOEPA) and the CFPB’s Ability to Repay rule. However, before the new rules even went into effect (and any data on their impact), the Preserving Access to Manufactured Housing Act was proposed in Congress in 2012 to weaken consumer protections and clear the way for predatory, high-cost loans. Versions of the bill have been reintroduced repeatedly, including this March. Despite the name, this legislation would not increase access to manufactured home lending but would restrict the CFPB’s ability to protect vulnerable consumers, including home buyers of color who may experience discrimination and be targeted for more expensive loans in the manufactured home lending market.
Congressional challenges can be seen throughout the whole range of the CFPB’s portfolio—including its auto-lending, prepaid cards or payday work—but there’s also a big fight looming on the horizon that could upend the consumer watchdog agency entirely. Recently we’ve seen these attacks surface in the form of proposals to convert CFPB into a bi-partisan commission, which is likely to result in continual gridlock and/or a Congressionally hamstrung agency. The challenges to the Bureau are likely to come to head later this month with the re-introduction of the Financial CHOICE Act. This bill would essentially gut the CFPB and prevent it from doing the job Congress tasked it to do: protect consumers.
Fair housing can only go so far if mortgage originators are not held accountable for racial disparities in lending. Without a strong and independent CFPB, home buyers of color would be left vulnerable to the same practices that fueled the economic crisis and contributed to the vast racial wealth divide we see today. Instead of breaking down this critical agency, Congress should be building and supporting it.