As we previously discussed here, in 2020 the Consumer Financial Protection Bureau (CFPB) issued a final Home Mortgage Disclosure Act (HMDA) rule amending Regulation C to raise institutional and transactional coverage thresholds for closed-end mortgage loans and open-end lines of credit. The final rule raised the threshold to report closed-end mortgage loans from 25 to 100 originated loans in the previous two years. On September 23, 2022, the United States District Court for the District of Columbia issued a decision invalidating the change for closed-end mortgage loan reporting finding the CFPB’s justification for the increased loan-volume reporting threshold to be “arbitrary and capricious.” The decision left the increased threshold for open-end lines of credit unchanged. On December 6, the CFPB released a blog post announcing the change to its closed-end loan reporting threshold back to its 2015 level.
In National Community Reinvestment Coalition v. CFPB, the plaintiffs, which included five nonprofit organizations and the City of Toledo, Ohio, all of whom used HMDA data in their advocacy to promote access to credit in minority and rural communities, filed suit challenging the 2020 rule as arbitrary and capricious, contrary to law, and in excess of the CFPB’s statutory authority under the Administrative Procedure Act. The plaintiffs argued that HMDA data has been invaluable in “uncovering and addressing redlining, fair lending violations, and other inequitable lending practices” over the decades. In support of their arbitrary and capricious argument, the plaintiffs contended that the cost-benefit analysis underlying the 2020 increase was flawed because the CFPB exaggerated the benefits of increasing the loan-volume reporting thresholds by failing to adequately account for comments suggesting that the savings would in fact be much smaller than estimated, and by relying on overinflated estimates of the cost savings to newly-exempted lending institutions with smaller loan volumes while also miscalculating the costs of amending the rule by failing to consider the nonquantifiable harms of raising the reporting thresholds, and the disproportionate impacts of those harms.
Ultimately, the court held that the 2020 rule did not exceed the CFPB’s statutory authority because HMDA grants broad discretion to the CFPB to create exceptions to reporting requirements. However, the court found that the CFPB failed to adequately explain or support its rationale for increasing the closed-end threshold, rendering that portion of the 2020 rule arbitrary and capricious. For example, the court noted that lenders with total assets below $50 million are already exempt from HMDA data reporting, significantly diminishing the effect of the CFPB’s claims regarding the 2020 rule’s decreased regulatory burden on small lenders. The court further found that the CFPB failed to appropriately consider the costs of the threshold change to consumers in areas dominated by small lenders, such as rural areas or areas replete with low-to-moderate income census tracts. In those areas, the modest decrease in the number of covered institutions could leave housing advocates with a substantially blurrier picture of who is being able to access credit, and on what terms.
The CFPB did not appeal the ruling and subsequently announced the change to its closed-end loan reporting threshold back to its 2015 level in its blog post, stating: “The CFPB recognizes that financial institutions affected by this change may need time to implement or adjust policies, procedures, systems, and operations to come into compliance with their reporting obligations. In these limited circumstances, in allocating the CFPB’s enforcement and supervisory resources, the CFPB does not view action regarding these institutions’ HMDA data as a priority. Thus, the CFPB does not intend to initiate enforcement actions or cite HMDA violations for failures to report closed-end mortgage loan data collected in 2022, 2021, or 2020 for institutions subject to the CFPB’s enforcement or supervisory jurisdiction that meet Regulation C’s other coverage requirements and originated at least 25 closed-end mortgage loans in each of the two preceding calendar years but fewer than 100 closed-end mortgage loans in either or both of the two preceding calendar years.”