American Elephants

CFPB: Forget Prudent Banking Rules, Expand “Fair Lending” Or Else! by The Elephant's Child


The Consumer Financial Protection Bureau (CFPB) was formed as a new (and unnecessary) independent agency of the government responsible for ‘consumer protection’ in the financial sector by the much criticized Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act’s passage in 2010 was a misguided response to the financial crisis of 2007-2008 and the subsequent “Great Recession.” It is an independent agency that is part of the United States Federal Reserve. Investors explains:

In a stunning repeat of the conditions that led to the mortgage crisis, banks are increasing their loan risk to reduce government risk as President Obama steps up “fair lending” enforcement.

The Consumer Financial Protection Bureau has issued a fresh warning to lenders who aren’t making enough prime loans to low-income minorities, to take “corrective action” or face discrimination charges.

Meanwhile, there’s new evidence the quality of loans underwritten by the nation’s largest banks is deteriorating, as lenders weaken credit standards under threat of prosecution.

The bureau has put out a 48-page “Fair Lending Report” which urges banks to review home, automobile, business and student lending data for racial “disparities in pricing (and) underwriting.” It also advises putting staff through racial sensitivity training and to aggressively market loans in recession-torn urban areas. The report mentions “discrimination” no fewer than 51 times, Investors says. It also warns lenders that CFPB regulators, working with federal prosecutors , are launching “targeted reviews” of their loan practices by race  looking for violations of “disparate impact.” I don’t know if they have their own SWAT team yet.

CFPB Director Richard Cordray implied that lending discrimination is rampant.

We are working to remove unnecessary obstacles that too many Americans face in the consumer financial marketplace,” he said in the report. “This includes ferreting out discrimination in credit markets, including the markets of home mortgages and auto lending.”

Examinations are “data-driven exercises,” the report stressed, so lenders had better get their numbers right. “Different out comes” by race are a red flag.

Strange. When Obama was inaugurated, it was widely believed that his administration would be acting to bring the races together. Instead, as the most politicized presidency in history, they have sought to keep their base in line by insisting that anything negative in life is caused by racism. Inequality, they insist is rampant, and due to racism.

The Dodd-Frank bill was widely criticized because it did nothing to address the problem of “Too Big To Fail” bailouts. All those “toxic assets”we heard about were loans made to people who could not afford to repay them, because of Democrat demands that bankers ignore the rules of prudent banking and overlook minimum credit scores to increase home ownership among minorities.

The Justice Department has already filed a $175 million lawsuit against Wells Fargo for alleged lending discrimination based on disparate impact. Wells Fargo has eased their minimum credit scores on some home loans to ‘expand access to credit for low-income home buyers.’ Been there, done that. With unpleasant results, as we all know.

The American Bankers Association has issued a “fair lending toolbox” to its 5,000 members to help them avoid disparate impact probes. It suggests they give a second look to rejected loans to minorities. Credit Unions are also worried. It no longer matters if you have a sound credit-scoring system, or follow prudent banking rules.  What matters is what might be perceived as disparate impact. And politics is about perceptions, not facts.

If minorities have trouble getting loans, the response should be— help in raising credit scores and living within your means— not forcing banks to make riskier loans. That would seem to be common sense.

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[…] to deal with “Too Big to Fail” bailouts. The famous “toxic assets” we heard so much about were loans made to people who could not afford to repay them, because of Democrat demands that […]


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