Working through the multitude of changes under the Dodd-Frank Act is no easy task – as it requires sifting through conforming, technical and substantive amendments to virtually every federal consumer protection law. The changes made to the Equal Credit Opportunity Act (ECOA) are no exception.
Administration
Sometime in the near future there will be a new office overseeing and enforcing the ECOA. The Act requires the director of the new Bureau to establish the “Office of Fair Lending and Equal Opportunity.” This new Office will have delegated powers and duties from the director, including the following:
The new Office will be overseen by the assistant director of the Bureau for Fair Lending and Equal Opportunity, who will be appointed by the director. It’s not clear when this will happen or how quickly after the designated transfer date (July 21, 2011), but given the concerns over subprime lending and the lingering mortgage meltdown, it will likely be a priority of the new director. Creditors should expect the new office to be very active in exploring potential fair lending violations, not only in mortgage credit, but in other consumer lending and business lending, as well.
Statute of Limitations Extended
Not only will oversight change, but there are other changes to ECOA in other provisions of the Act. Buried in the “conforming amendments” under Subtitle H of Title X is a change that every creditor needs to know. Section 1085(7) amends ECOA § 706(f) to extend the statute of limitations for civil liability from two years to five years. This means that effective July 21, 2010 (or a later designated transfer date), creditors could face individual and class actions, as well as regulatory enforcement actions, for violations alleged to have occurred within the five preceding years. Individuals who have been the victim of discrimination will still have the opportunity to bring an action one year after commencement of a regulatory enforcement action. This change could have a significant effect on previous risk assessments and a creditor’s ability to defend actions, most notably for those creditors who have followed the 25-month record-retention period under Regulation B. This change is anything but technical or conforming.
Data Collection for Small Businesses, Minority-Owned Businesses, and Women-Owned Businesses
The list of “regulatory improvements” found under Subtitle G of Title X includes new requirements for “small business data collection.” Section 1071 amends the ECOA by adding a new section (§ 704B) to require financial institutions to collect certain data about women-owned, minority-owned, and small businesses. The purpose of the new requirement is to facilitate enforcement of fair lending laws and to enable communities, governmental entities, and creditors to identify business and community development needs and opportunities of women-owned, minority-owned, and small businesses.
Under the new provisions, financial institutions will be required to gather certain information when taking an application for credit for women-owned, minority-owned, and small businesses. Specifically, financial institutions will need to: inquire whether the business is a women-owned, minority-owned, or small business, regardless of whether the application is received in person, by mail, phone, electronically, or by any other means. The Bureau will write rules governing collection, compilation, and maintenance of data provided by a loan applicant.
For those trying to get a handle on the type of information required, there is a list that serves as a good starting point. The information that is compiled and maintained will be itemized in order to clearly and conspicuously disclose:
1. the number of the application and date received;
2. type and purpose of the loan or credit applied for;
3. amount of credit or credit limit applied for and the amount approved;
4. type of action taken on the application and date of action;
5. census tract where the principal place of business of the women-owned, minority-owned, or small business loan applicant is located;
6. gross annual revenue of the business in the fiscal year preceding the date of the application;
7. race, sex, and ethnicity of the principal owners of the business; and
8. any additional data that the Bureau determines it needs.
Data collected will need to be maintained for at least three years after the date of preparation. It seems that the financial institutions will need to make the data available in the same way as the HMDA data is made available by mortgage lenders. Data will need to be submitted annually to the Bureau, and the compiled data will need to be available to the public upon request and annually. The Bureau will write regulations about how the data must be reported.
The Act requires the Bureau to issue guidance to facilitate compliance, including assisting financial institutions in working with applicants to determine whether the applicants are women-owned, minority-owned, or small businesses. The Bureau – by rule or order – may adopt exceptions to any requirements and may conditionally or unconditionally exempt any financial institution or class of financial institutions from the requirements as the Bureau deems necessary or appropriate.
Technically, the new data collection requirements become effective on the designated transfer date of July 21, 2011. However, because rules must be written to carry out the requirements of this provision, the implementation date for businesses will be longer. Just how long is hard to predict. This “improvement” undoubtedly imposes significant new obligations on commercial lenders and will likely involve significant comments and ultimately present implementation challenges.
Mortgage Appraisals and Valuations
An additional amendment to the ECOA is found in the Mortgage Appraisal Activities under Title XIV. Section 1474 expands ECOA § 701(e) from one short paragraph that requires the creditor to promptly provide the applicant for a mortgage loan with a copy of the appraisal if the applicant submits a written request for a copy to six paragraphs. The new provisions detail a creditor’s obligation to provide a copy of any and all written appraisals and valuations prepared in connection with an application for a first lien mortgage loan.
A creditor will be required to provide a copy of the appraisal or valuation “promptly upon completion” but in no case later than three days before closing. The copy must be provided even if the creditor denies the application or the application is incomplete or withdrawn. The new provisions clarify that, while the creditor may request reimbursement for the cost of the appraisal where permitted, the copy of the written appraisal or valuation must be provided at no additional cost. Now, creditors will need to provide yet another disclosure at application to inform the applicant of the right to receive a copy of each written appraisal report and valuation. To avoid any confusion about what may or may not be considered a “valuation,” a new statutory definition has been added. The term valuation must include “any estimate of the value of a dwelling developed in connection with a creditor’s decision to provide credit, including those values developed pursuant to a policy of a government sponsored enterprise or by an automated valuation model, a broker price opinion, or other methodology or mechanism.”
It’s hard to know exactly what is on the horizon, but it is clear that fair lending and compliance with ECOA will be a focal point. This would be a good time for creditors to examine existing practices under ECOA so they are prepared for the regulation, investigation, and enforcement to come.
Lisa DeLessio is a partner in the Maryland office of Hudson Cook, LLC. Lisa can be reached at 410-865-5437 or by email at ldelessio@hudco.com.
Copyright © 2024 CounselorLibrary.com, LLC. All rights reserved.