September 5, 2024 • 19 mins
In Episode 81 of the podcast series "Red Warning on Redlining," Len and Dean continue their discussion with fair lending expert Lori Sommerfield, a partner at Troutman Pepper. They explore the future of redlining enforcement by DOJ and federal agencies through 2024 and beyond. Lori explains the Combatting Redlining Initiative's impact to date and coordination among the federal agencies, as well as advises financial institutions on best practices to monitor and manage redlining risks. Implications of the U.S. Supreme Court's recent Loper Bright decision for redlining cases is also discussed. The episode emphasizes preparation and fair lending compliance for financial institutions.
Brought to you by GeoDataVision and M&M Consulting
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Episode Transcript
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(00:00):
Welcome to the Compliance 911 Show, a no-nonsense podcast discussing hot topics
for today's busy compliance professional.
It's everything you wanted to know about regulatory compliance, but were afraid to ask.
And now, here are your hosts, Dean Stockford of M&M Consulting and Len Susio of GeoData Vision.
(00:30):
Welcome to today's podcast. Today is our second episode in our series,
Red Warning on Red Lining.
We call today's episode, Looking Ahead.
We are joined today by Lori Summerfield, one of the leading legal experts in
the field of fair lending.
Lori Summerfield is a partner from Troutman Pepper and the firm's Consumer Financial
(00:51):
Services Practice Group.
Lori is a seasoned fair lending attorney with over 25 years of experience in
federal government, in-house, and private practice settings.
She has deep expertise in fair lending and responsible banking regulatory compliance,
including the Equal Credit Opportunity Act, the Fair Housing Act,
and unfair, deceptive, or abusive acts or practices laws, UDAP.
(01:15):
And she counsels clients in successfully navigating examinations by the CFPB
and the federal banking agencies and related supervisory issues.
In addition, Lori has successfully defended clients in many fair lending investigations
and enforcement actions by the U.S. Department of Justice, the CFPB,
and the federal banking agencies.
(01:37):
Lori, welcome to today's podcast. Thanks, Lynn. I'm delighted to be here with you and Dean again.
Great. Well, we're delighted to have you as well. In our previous episode,
we were discussing the Department of Justice's, quote, combating redlining initiative, end quote.
How many How many settlements has the Department of Justice,
(01:57):
the CFPB, and the federal banking agencies entered into so far?
Well, Len, there have been 11 public consent orders issued to date from the
DOJ and the other federal agencies.
And that's incredible because typically we might see one or two redlining actions
in a year, but there have been 11 announced since October of 2021 when the Combating
(02:19):
Redlining Initiative first was implemented. Okay.
And that's only the settlements. So tell me, Lori, how many investigations are
actually still underway?
Well, we don't know with certainty, but I can tell you that in late 2023,
Attorney General Merrick Garland noted in a press release that there were approximately
(02:40):
two dozen cases in the pipeline at DOJ.
That number doesn't include redlining allegations or cases that the federal
banking agencies and the CFPB are currently working on in an examination and supervision context.
So that number is arguably much larger. It could perhaps be double that number
that are in process at this time. Wow.
(03:04):
I'm almost afraid to ask the next question, Lynn. What should financial institutions
expect going forward from the federal agencies concerning this combating redlining
initiative through the rest of this year and, of course, beyond? aren't?
That's a good question, Dean. We fully expect that the DOJ and the federal regulators
will be proceeding full speed ahead during 2024 to continue pursuing redlining
(03:28):
investigations and enforcement actions.
Of course, the federal agency's goal is going to be to make as many redlining
referrals as possible to DOJ and for DOJ to determine how many cases it can
bring to the public consent order stage or adjudicate prior to the presidential election in November.
Now, if there's a change in presidential administration, then we would see a
(03:52):
swing of the pendulum back to a deregulatory environment, as we often do with
Republican administrations.
And then the combating redlining initiative would likely be curtailed, in my view.
But if that occurs, we'd probably see a transition period during 2025,
where the DOJ and the federal agencies would wrap up their pending cases.
(04:14):
So as a result, we may see some public or even non-public settlements for a
while before it would get shut down altogether.
But of course, if a Democratic nominee wins, then the initiative would continue.
Luria, just apropos to that, before I ask my next question, the problem I see
it, too, is just that, OK, let's assume the Republican wins and there's some
(04:36):
relaxation of this enforcement.
The problem is that when regulators look at a bank's history,
they're looking back over years.
So it's possible that in the next administration following the this election,
four years after that, it could be a Democrat again. And you can see the phenomena
return to a much more rigorous enforcement.
(04:57):
So there's this kind of a whipsawing effect.
And banks can't really let their guard down because they don't know who's going
to be in control of the agencies, who's going to win the next presidential election.
It's so critical. And the banks are in a really terrible situation because they
basically don't know. They can't predict the future.
(05:18):
And they have to anticipate that this rigorous enforcement, even though it might
be relaxed for a short while will be resumed again sometime in the future.
And since the regulators are looking back at the previous two,
three, or four years, that they can let their guard down, even if there is a
Republican administration.
That's exactly right. And I also think we see this pendulum swing becoming more
(05:41):
extreme as we switch from Democratic to Republican administrations back and
forth since the Obama administration.
Right. Now, Lori, while this is really hot, not. We don't see much in the way
of redlining litigation.
Are you aware of any lenders that are choosing to litigate redlining allegations
with the federal government?
No, I'm really not, Len. Banks aren't motivated or incentivized to fight redlining
(06:05):
allegations with their primary regulator because, of course,
it can harm the relationship between the bank and its regulator.
And as you know, a redlining investigation can go on for years and years.
So for that reason, and I'm unaware of any mortgage lenders that are currently
considering litigation against their federal regulator over redlining claims.
But of course, that information would be confidential even if I knew it.
(06:27):
By the way, I'm only aware of two mortgage lenders that have ever engaged in
litigation with a federal agency about redlining allegations.
One was that Townstone litigation that I briefly mentioned,
in which the CFPB sued this non-bank mortgage lender in Chicago based on disparaging
comments that some of the principles of that mortgage lender made in a radio
(06:49):
show that the Bureau alleged had the effect of discouraging protected class
group applicants from applying for mortgage loans.
The other involved Klein Bank, which is a suburban bank that was headquartered
about 20 miles away from the urban core of Minneapolis.
Klein Bank was sued by DOJ in 2017, alleging that the bank had avoided lending
(07:11):
to majority-minority census tracts in the Minneapolis-St. Paul MSA.
The bank had argued that it had no intent to discriminate by avoiding those areas.
It was simply a suburban bank that had no intention of lending in urban areas,
which gradually encroached on the bank's market area.
So Klein Bank decided to litigate the issue with DOJ, and that went on for about a year and a half.
(07:35):
But it's my understanding that Klein Bank ended up settling with DOJ in 2018
because it simply took too much of a toll on the bank and its ability to carry out its business plan.
So often when a bank chooses to fight redlining allegations,
it puts them into an indefinite holding pattern about the ability to establish
(07:55):
new branches or engage in any M&A activity. So that's a heavy cost to pay.
One of my clients fought redlining allegations with their primary federal regulator for over two years.
And although those claims were successfully resolved, it unfortunately put them
in the M&A penalty box for a very long time.
Yeah, and I often think of reputational risk of the financial institution as
(08:21):
well, what could happen in those types of situations.
So one of the questions I have, do you have any advice to lenders regarding
their monitoring and managing for their redlining risk to avoid an investigation
or enforcement action by the regulators?
Sure. I'll give you sort of a brief answer. There's more to be said on this
(08:44):
topic because there's a lot of things that banks should be doing to make sure
that they are adequately monitoring for redlining risk.
But first of all, I think banks should simply expect and prepare for a redlining
examination by their primary federal regulator.
It's a good idea to use your regulator's fair lending exam procedures as well
as the interagency fair lending examination procedures as guidance,
(09:06):
or even to perform a mock exam internally.
That would be an excellent way to prepare. It's also critically important to
closely monitor and understand your HUMD data concerning application and mortgage
volume and where it's occurring.
Also make sure that your compliance management system is accurately measuring redlining risk.
(09:26):
The DOJ has publicly noted that sometimes institutions rely on inaccurate or
insufficient metrics, and that can give them a false sense of security.
So those are just two or three ideas of things that are really core in terms
of important fair lending and redlining analyses and redlining examination expectations
that banks should be aware of.
(09:48):
So Lori, what specific types of analyses should banks be doing to analyze their redlining exposure?
Well, Len, you could probably actually give a treatise on this because you do
redlining analyses all the time, but I'll just mention six typical analyses
that lenders should routinely perform to evaluate their redlining risk.
(10:10):
The first is a market penetration analysis that looks at mortgage application
volume and mortgage loan denial and origination rates in majority-minority census tracts.
Banks should also look at their peer data and branch locations and then perform
a root cause analysis to figure out which factors are driving redlining risk
and whether any corrective action is needed.
(10:31):
A second type of analysis is, of course, reviewing your CRA assessment area
periodically to ensure that it doesn't exclude minority areas,
particularly that are adjacent to or near the boundary of a CRA assessment area.
Banks should also review branch locations and opening and closing decisions.
It's also a good idea to have a policy around those concepts.
(10:54):
Fourth, banks should be evaluating marketing and outreach initiatives that include
any geographic exclusion or inclusion criteria.
Fifth, banks should be reviewing their policies and procedures,
their marketing and credit models, and their mortgage loan originator compensation plans,
and make sure that they're paying attention to any geographic restrictions or
(11:17):
delineations that might be in those types of P&Ps or models or plans.
And then finally, of course, banks should be monitoring their customer complaints
for any redlining allegations or anything that might smack of that.
That also includes any concerns or complaints that are expressed by employees
about potential redlining practices and any litigation involving redlining any
(11:41):
allegations if you are the subject of that.
Obviously, if any of these analyses present any issues of concern,
then the bank should immediately begin taking appropriate corrective action
to make changes to marketing and outreach efforts,
policies and procedures and the like, if needed.
And I would just chime in, Lori, a bank should be afraid to acknowledge it might
(12:04):
have an issue because the regulators themselves are looking at the effectiveness
of the systems are in place.
And if you identify, self-identify potential problem and engage in corrective
action, that's more or less really kind of a feather in your cap, I would think.
Absolutely. I completely agree. And I meant to mention that,
of course, banks should promptly implement any recommendations from its primary
(12:27):
federal regulator following the conclusion of a fair lending exam.
But self-identification is best rather than being told by your regulator what
you need to do to fix any fair lending deficiencies you might have.
And Lynn, I'd also like to mention... Go ahead, Lori.
I was just going to jump in for a minute on that as well, just because we've
(12:48):
seen when they changed the consumer rating system a good many years ago,
in the examination process, banks actually get credit for that self-disclosure
and self-identification.
So very good advice there. Very good advice.
That can sometimes cut both ways, but that's a topic for another podcast.
Okay, we've got two more podcasts we're going to have coming up. Yeah.
(13:11):
May I mention one last thing with regard to best practices? Because I think
it's all for your listeners.
You know, the regulators also are big believers in having credit needs assessments done.
So it's a good idea to engage with your local community groups that have insight
into credit needs of local communities of color in your markets.
(13:33):
So banks should consider conducting a community credit needs assessment to inform
their efforts to increase outreach, as well as mortgage applications and lending
to communities of color.
That's great, Luria. We've actually conducted some CNAs for different banks,
and we have found some interesting information regarding the needs of the minority
(13:54):
communities in those areas.
So we're going to conclude with a question that I've been bugging you about,
the Supreme Supreme Court decision recently about which terminated the Chevron
deference, basically, which was been in practice for 40 years now,
which basically allocated tremendous authority and power to the federal agencies
(14:16):
and made it really difficult to challenge their regulations and how they interpret them.
I would love to hear what you have to say about the Loper-Bright case and the
overturning of the Chevron deference
for federal agencies going forward regarding regarding redlining.
Sure, Lynn. I'd be happy to comment on that and try to read the tea leaves here
(14:37):
about what the future holds in the wake of the Loper-Bright case.
But let me give a little bit of background on the Chevron and the Loper-Bright cases first.
So just to set the table for our discussion for those who are less familiar with these cases.
So first, in the Chevron case, which was decided by the Supreme Court back in 1984,
(14:57):
the court held that federal courts must accord deference to interpretations
of law by federal agencies,
for any law that the agency administers because they have the requisite authority
and expertise to do so, even if the court would interpret the statute differently.
Now, as you mentioned, this case has been a cornerstone of administrative procedure
law for the last 40 years, but unfortunately it's been losing vitality as a
(15:22):
judicial doctrine for the past 10 or 15 years.
That is unfortunately for federal agencies.
In Loper Bright, a group of fisheries in New England contested the National
Marine Fisheries Service's interpretation of a federal law, which is called
the Magnuson-Stevens Act,
by asserting that they were not required to pay the salaries of independent
(15:45):
observers on their fishing boats.
The Supreme Court held that the Administrative Procedure Act requires courts
to exercise their own independent judgment in determining whether an agency
has acted within its statutory authority.
The court also held that courts may not defer to an agency interpretation of
law simply when a statute is ambiguous. So now let's turn to Loper Bright.
(16:10):
That decision has effectively shifted the balance of power from the executive
branch to the judiciary to interpret federal statutes and largely does away
with judicial deference to federal agency interpretations.
I think the Loper Bright decision is going to have much more of an impact in
cases involving federal agency rulemakings, where courts will no longer defer
(16:32):
to the agency's interpretation of the underlying statutes.
Aggressive rules, particularly from the CFPB, will likely be more difficult
for agencies to defend in light of the Loperbright case.
Redlining cases, on the other hand, are largely driven by supervision,
investigation, and enforcement strategy, as well as legal theories of redlining.
(16:56):
Traditional cases of redlining were based on a disparate treatment legal theory
versus the new sort of modern-day approach that agencies are taking,
which involves the disparate impact theory, just based on statistical analysis results.
So I think the Loper-Bright case will have less impact on redlining cases that
are currently pending. I mean, that's my opinion.
(17:18):
However, in light of this decision, I think target banks might now have more
motivation to litigate with federal regulators over redlining claims.
So Len and Dean, that's my perspective on Loper-Bright. Great.
Well, that certainly is a topic to be explored and we'll see what happens.
The impact, obviously, in the next year or two, because as you pointed out,
(17:43):
there's a lot of reasons why lenders are reluctant to litigate and not the least
of which was the practice of the Chevron Doctrine.
Dean, this has been just another great topic. And I think we've set the stage
for probably having Lori back for a few more recordings in the not too distant future.
In some cases, like the whole idea of ARIMA, that could be its own seminar going forward.
(18:09):
But I want to thank Lori for just knocking it out of the ballpark and educating
today's listeners with your very, very valuable and informative comments today. day.
Thanks so much for having me, Len and Dean. I really appreciate the opportunity.
Well, we do too. And I know our listeners will appreciate listening to your comments.
This is Len Susio from GeoDataVision. And this is Dean Stockford from M&M Consulting.
(18:34):
And again, thank you, Lori Summerfield, for joining us today.
And to our listeners for tuning in to today's very important discussion,
please let us know of any additional topics you'd like to hear in future episodes. Thank you.
Thanks for listening to the Compliance 9-1-1 Show.
If you like the podcast, be sure to subscribe so you don't miss an episode.
(18:56):
While you're at it, please give us a like and review to help others find the show.
As always, links are in the show notes and you can always find us online at
compliance911show.com.
Follow M&M Consulting and GeoDataVision on LinkedIn for all the latest news
and information on compliance hot topics.
(19:18):
Music.
Welcome to the Compliance 911 Show, a no-nonsense podcast discussing hot topics
for today's busy compliance professional.
It's everything you wanted to know about regulatory compliance, but were afraid to ask.
And now, here are your hosts, Dean Stockford of M&M Consulting and Len Susio of GeoData Vision.
(00:30):
Welcome to today's podcast. Today is our second episode in our series,
Red Warning on Red Lining.
We call today's episode, Looking Ahead.
We are joined today by Lori Summerfield, one of the leading legal experts in
the field of fair lending.
Lori Summerfield is a partner from Troutman Pepper and the firm's Consumer Financial
(00:51):
Services Practice Group.
Lori is a seasoned fair lending attorney with over 25 years of experience in
federal government, in-house, and private practice settings.
She has deep expertise in fair lending and responsible banking regulatory compliance,
including the Equal Credit Opportunity Act, the Fair Housing Act,
and unfair, deceptive, or abusive acts or practices laws, UDAP.
(01:15):
And she counsels clients in successfully navigating examinations by the CFPB
and the federal banking agencies and related supervisory issues.
In addition, Lori has successfully defended clients in many fair lending investigations
and enforcement actions by the U.S. Department of Justice, the CFPB,
and the federal banking agencies.
(01:37):
Lori, welcome to today's podcast. Thanks, Lynn. I'm delighted to be here with you and Dean again.
Great. Well, we're delighted to have you as well. In our previous episode,
we were discussing the Department of Justice's, quote, combating redlining initiative, end quote.
How many How many settlements has the Department of Justice,
(01:57):
the CFPB, and the federal banking agencies entered into so far?
Well, Len, there have been 11 public consent orders issued to date from the
DOJ and the other federal agencies.
And that's incredible because typically we might see one or two redlining actions
in a year, but there have been 11 announced since October of 2021 when the Combating
(02:19):
Redlining Initiative first was implemented. Okay.
And that's only the settlements. So tell me, Lori, how many investigations are
actually still underway?
Well, we don't know with certainty, but I can tell you that in late 2023,
Attorney General Merrick Garland noted in a press release that there were approximately
(02:40):
two dozen cases in the pipeline at DOJ.
That number doesn't include redlining allegations or cases that the federal
banking agencies and the CFPB are currently working on in an examination and supervision context.
So that number is arguably much larger. It could perhaps be double that number
that are in process at this time. Wow.
(03:04):
I'm almost afraid to ask the next question, Lynn. What should financial institutions
expect going forward from the federal agencies concerning this combating redlining
initiative through the rest of this year and, of course, beyond? aren't?
That's a good question, Dean. We fully expect that the DOJ and the federal regulators
will be proceeding full speed ahead during 2024 to continue pursuing redlining
(03:28):
investigations and enforcement actions.
Of course, the federal agency's goal is going to be to make as many redlining
referrals as possible to DOJ and for DOJ to determine how many cases it can
bring to the public consent order stage or adjudicate prior to the presidential election in November.
Now, if there's a change in presidential administration, then we would see a
(03:52):
swing of the pendulum back to a deregulatory environment, as we often do with
Republican administrations.
And then the combating redlining initiative would likely be curtailed, in my view.
But if that occurs, we'd probably see a transition period during 2025,
where the DOJ and the federal agencies would wrap up their pending cases.
(04:14):
So as a result, we may see some public or even non-public settlements for a
while before it would get shut down altogether.
But of course, if a Democratic nominee wins, then the initiative would continue.
Luria, just apropos to that, before I ask my next question, the problem I see
it, too, is just that, OK, let's assume the Republican wins and there's some
(04:36):
relaxation of this enforcement.
The problem is that when regulators look at a bank's history,
they're looking back over years.
So it's possible that in the next administration following the this election,
four years after that, it could be a Democrat again. And you can see the phenomena
return to a much more rigorous enforcement.
(04:57):
So there's this kind of a whipsawing effect.
And banks can't really let their guard down because they don't know who's going
to be in control of the agencies, who's going to win the next presidential election.
It's so critical. And the banks are in a really terrible situation because they
basically don't know. They can't predict the future.
(05:18):
And they have to anticipate that this rigorous enforcement, even though it might
be relaxed for a short while will be resumed again sometime in the future.
And since the regulators are looking back at the previous two,
three, or four years, that they can let their guard down, even if there is a
Republican administration.
That's exactly right. And I also think we see this pendulum swing becoming more
(05:41):
extreme as we switch from Democratic to Republican administrations back and
forth since the Obama administration.
Right. Now, Lori, while this is really hot, not. We don't see much in the way
of redlining litigation.
Are you aware of any lenders that are choosing to litigate redlining allegations
with the federal government?
No, I'm really not, Len. Banks aren't motivated or incentivized to fight redlining
(06:05):
allegations with their primary regulator because, of course,
it can harm the relationship between the bank and its regulator.
And as you know, a redlining investigation can go on for years and years.
So for that reason, and I'm unaware of any mortgage lenders that are currently
considering litigation against their federal regulator over redlining claims.
But of course, that information would be confidential even if I knew it.
(06:27):
By the way, I'm only aware of two mortgage lenders that have ever engaged in
litigation with a federal agency about redlining allegations.
One was that Townstone litigation that I briefly mentioned,
in which the CFPB sued this non-bank mortgage lender in Chicago based on disparaging
comments that some of the principles of that mortgage lender made in a radio
(06:49):
show that the Bureau alleged had the effect of discouraging protected class
group applicants from applying for mortgage loans.
The other involved Klein Bank, which is a suburban bank that was headquartered
about 20 miles away from the urban core of Minneapolis.
Klein Bank was sued by DOJ in 2017, alleging that the bank had avoided lending
(07:11):
to majority-minority census tracts in the Minneapolis-St. Paul MSA.
The bank had argued that it had no intent to discriminate by avoiding those areas.
It was simply a suburban bank that had no intention of lending in urban areas,
which gradually encroached on the bank's market area.
So Klein Bank decided to litigate the issue with DOJ, and that went on for about a year and a half.
(07:35):
But it's my understanding that Klein Bank ended up settling with DOJ in 2018
because it simply took too much of a toll on the bank and its ability to carry out its business plan.
So often when a bank chooses to fight redlining allegations,
it puts them into an indefinite holding pattern about the ability to establish
(07:55):
new branches or engage in any M&A activity. So that's a heavy cost to pay.
One of my clients fought redlining allegations with their primary federal regulator for over two years.
And although those claims were successfully resolved, it unfortunately put them
in the M&A penalty box for a very long time.
Yeah, and I often think of reputational risk of the financial institution as
(08:21):
well, what could happen in those types of situations.
So one of the questions I have, do you have any advice to lenders regarding
their monitoring and managing for their redlining risk to avoid an investigation
or enforcement action by the regulators?
Sure. I'll give you sort of a brief answer. There's more to be said on this
(08:44):
topic because there's a lot of things that banks should be doing to make sure
that they are adequately monitoring for redlining risk.
But first of all, I think banks should simply expect and prepare for a redlining
examination by their primary federal regulator.
It's a good idea to use your regulator's fair lending exam procedures as well
as the interagency fair lending examination procedures as guidance,
(09:06):
or even to perform a mock exam internally.
That would be an excellent way to prepare. It's also critically important to
closely monitor and understand your HUMD data concerning application and mortgage
volume and where it's occurring.
Also make sure that your compliance management system is accurately measuring redlining risk.
(09:26):
The DOJ has publicly noted that sometimes institutions rely on inaccurate or
insufficient metrics, and that can give them a false sense of security.
So those are just two or three ideas of things that are really core in terms
of important fair lending and redlining analyses and redlining examination expectations
that banks should be aware of.
(09:48):
So Lori, what specific types of analyses should banks be doing to analyze their redlining exposure?
Well, Len, you could probably actually give a treatise on this because you do
redlining analyses all the time, but I'll just mention six typical analyses
that lenders should routinely perform to evaluate their redlining risk.
(10:10):
The first is a market penetration analysis that looks at mortgage application
volume and mortgage loan denial and origination rates in majority-minority census tracts.
Banks should also look at their peer data and branch locations and then perform
a root cause analysis to figure out which factors are driving redlining risk
and whether any corrective action is needed.
(10:31):
A second type of analysis is, of course, reviewing your CRA assessment area
periodically to ensure that it doesn't exclude minority areas,
particularly that are adjacent to or near the boundary of a CRA assessment area.
Banks should also review branch locations and opening and closing decisions.
It's also a good idea to have a policy around those concepts.
(10:54):
Fourth, banks should be evaluating marketing and outreach initiatives that include
any geographic exclusion or inclusion criteria.
Fifth, banks should be reviewing their policies and procedures,
their marketing and credit models, and their mortgage loan originator compensation plans,
and make sure that they're paying attention to any geographic restrictions or
(11:17):
delineations that might be in those types of P&Ps or models or plans.
And then finally, of course, banks should be monitoring their customer complaints
for any redlining allegations or anything that might smack of that.
That also includes any concerns or complaints that are expressed by employees
about potential redlining practices and any litigation involving redlining any
(11:41):
allegations if you are the subject of that.
Obviously, if any of these analyses present any issues of concern,
then the bank should immediately begin taking appropriate corrective action
to make changes to marketing and outreach efforts,
policies and procedures and the like, if needed.
And I would just chime in, Lori, a bank should be afraid to acknowledge it might
(12:04):
have an issue because the regulators themselves are looking at the effectiveness
of the systems are in place.
And if you identify, self-identify potential problem and engage in corrective
action, that's more or less really kind of a feather in your cap, I would think.
Absolutely. I completely agree. And I meant to mention that,
of course, banks should promptly implement any recommendations from its primary
(12:27):
federal regulator following the conclusion of a fair lending exam.
But self-identification is best rather than being told by your regulator what
you need to do to fix any fair lending deficiencies you might have.
And Lynn, I'd also like to mention... Go ahead, Lori.
I was just going to jump in for a minute on that as well, just because we've
(12:48):
seen when they changed the consumer rating system a good many years ago,
in the examination process, banks actually get credit for that self-disclosure
and self-identification.
So very good advice there. Very good advice.
That can sometimes cut both ways, but that's a topic for another podcast.
Okay, we've got two more podcasts we're going to have coming up. Yeah.
(13:11):
May I mention one last thing with regard to best practices? Because I think
it's all for your listeners.
You know, the regulators also are big believers in having credit needs assessments done.
So it's a good idea to engage with your local community groups that have insight
into credit needs of local communities of color in your markets.
(13:33):
So banks should consider conducting a community credit needs assessment to inform
their efforts to increase outreach, as well as mortgage applications and lending
to communities of color.
That's great, Luria. We've actually conducted some CNAs for different banks,
and we have found some interesting information regarding the needs of the minority
(13:54):
communities in those areas.
So we're going to conclude with a question that I've been bugging you about,
the Supreme Supreme Court decision recently about which terminated the Chevron
deference, basically, which was been in practice for 40 years now,
which basically allocated tremendous authority and power to the federal agencies
(14:16):
and made it really difficult to challenge their regulations and how they interpret them.
I would love to hear what you have to say about the Loper-Bright case and the
overturning of the Chevron deference
for federal agencies going forward regarding regarding redlining.
Sure, Lynn. I'd be happy to comment on that and try to read the tea leaves here
(14:37):
about what the future holds in the wake of the Loper-Bright case.
But let me give a little bit of background on the Chevron and the Loper-Bright cases first.
So just to set the table for our discussion for those who are less familiar with these cases.
So first, in the Chevron case, which was decided by the Supreme Court back in 1984,
(14:57):
the court held that federal courts must accord deference to interpretations
of law by federal agencies,
for any law that the agency administers because they have the requisite authority
and expertise to do so, even if the court would interpret the statute differently.
Now, as you mentioned, this case has been a cornerstone of administrative procedure
law for the last 40 years, but unfortunately it's been losing vitality as a
(15:22):
judicial doctrine for the past 10 or 15 years.
That is unfortunately for federal agencies.
In Loper Bright, a group of fisheries in New England contested the National
Marine Fisheries Service's interpretation of a federal law, which is called
the Magnuson-Stevens Act,
by asserting that they were not required to pay the salaries of independent
(15:45):
observers on their fishing boats.
The Supreme Court held that the Administrative Procedure Act requires courts
to exercise their own independent judgment in determining whether an agency
has acted within its statutory authority.
The court also held that courts may not defer to an agency interpretation of
law simply when a statute is ambiguous. So now let's turn to Loper Bright.
(16:10):
That decision has effectively shifted the balance of power from the executive
branch to the judiciary to interpret federal statutes and largely does away
with judicial deference to federal agency interpretations.
I think the Loper Bright decision is going to have much more of an impact in
cases involving federal agency rulemakings, where courts will no longer defer
(16:32):
to the agency's interpretation of the underlying statutes.
Aggressive rules, particularly from the CFPB, will likely be more difficult
for agencies to defend in light of the Loperbright case.
Redlining cases, on the other hand, are largely driven by supervision,
investigation, and enforcement strategy, as well as legal theories of redlining.
(16:56):
Traditional cases of redlining were based on a disparate treatment legal theory
versus the new sort of modern-day approach that agencies are taking,
which involves the disparate impact theory, just based on statistical analysis results.
So I think the Loper-Bright case will have less impact on redlining cases that
are currently pending. I mean, that's my opinion.
(17:18):
However, in light of this decision, I think target banks might now have more
motivation to litigate with federal regulators over redlining claims.
So Len and Dean, that's my perspective on Loper-Bright. Great.
Well, that certainly is a topic to be explored and we'll see what happens.
The impact, obviously, in the next year or two, because as you pointed out,
(17:43):
there's a lot of reasons why lenders are reluctant to litigate and not the least
of which was the practice of the Chevron Doctrine.
Dean, this has been just another great topic. And I think we've set the stage
for probably having Lori back for a few more recordings in the not too distant future.
In some cases, like the whole idea of ARIMA, that could be its own seminar going forward.
(18:09):
But I want to thank Lori for just knocking it out of the ballpark and educating
today's listeners with your very, very valuable and informative comments today. day.
Thanks so much for having me, Len and Dean. I really appreciate the opportunity.
Well, we do too. And I know our listeners will appreciate listening to your comments.
This is Len Susio from GeoDataVision. And this is Dean Stockford from M&M Consulting.
(18:34):
And again, thank you, Lori Summerfield, for joining us today.
And to our listeners for tuning in to today's very important discussion,
please let us know of any additional topics you'd like to hear in future episodes. Thank you.
Thanks for listening to the Compliance 9-1-1 Show.
If you like the podcast, be sure to subscribe so you don't miss an episode.
(18:56):
While you're at it, please give us a like and review to help others find the show.
As always, links are in the show notes and you can always find us online at
compliance911show.com.
Follow M&M Consulting and GeoDataVision on LinkedIn for all the latest news
and information on compliance hot topics.
(19:18):
Music.
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