Fair Lending and the Paycheck Protection Program

COVID-19 Update

While predicting the enforcement priorities of the financial regulators has always been more of an art than a science, the current circumstances—including a pandemic, a presidential election and a Supreme Court case hanging like a guillotine over the Consumer Financial Protection Bureau (CFPB)—have made such predictions even more difficult. Nonetheless, the CFPB, even while explicitly de-emphasizing other types of enforcement during the COVID-19 pandemic, has been consistently reiterating that it is still focused on fair lending issues.

On April 27, the CFPB added some specificity to its generalized warnings of forthcoming fair lending enforcement. Director of Fair Lending Patrice Ficklin and two other CFPB officials authored a blog post focusing on access to credit under the Paycheck Protection Program for women- and minority-owned businesses. On the same day, Grady Hedgespeth, assistant director for small business lending markets at the CFPB, announced his temporary assignment to the Small Business Administration to help ensure that the emergency relief was finding its way into the hands of these underserved small businesses.

The blog post underscores the importance of compliance with the Equal Credit Opportunity Act (ECOA) and stresses that the ECOA protects business owners from discrimination as they seek access to credit under the CARES Act. Warning signs of lending discrimination are provided, and, while some of these signs, including discouragement because of a protected characteristic and negative comments about protected statuses—are obvious, others are less so. For instance, any denial of credit without an explanation is considered a warning sign of lending discrimination. Additional warning signs include the refusal of available loans or workout options even when the business qualifies for them, and offers with higher rates or worse terms than those the business applied for and qualifies for.

The blog post goes on to suggest that small-business owners who believe they have been discriminated against should submit a lending discrimination complaint online through the CFPB’s consumer complaint system, so that it can be taken into account in supervisory and enforcement work. Financial institutions should carefully monitor and log all complaints coming in through the CFPB portal to ensure that they have an explanation for any accusations of lending discrimination.

The combination of the competitive nature of the Paycheck Protection Program and the speed with which the money has been going out could lead a financial institution to dismiss fair lending compliance as an unnecessary speed bump, but these warnings from the CFPB should instead caution financial institutions to slow down and use this unprecedented new lending program as an opportunity to review their fair lending programs, ensuring that discretion is low and documentation is heavy.

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