Mortgage lenders will find it easier to discriminate against prospective borrowers under the latest quiet sabotage of financial industry rules proposed by the Trump administration.
The new rollbacks take a two-pronged approach to undermining a relatively new system that’s helped journalists and watchdogs identify prejudicial lending practices they characterize as modern-day redlining. During the Obama administration, the CFPB played an instrumental role in earning settlements against banks accused of racial discrimination. These changes would do harm to the agency’s continued ability to be a cop on this particular beat.
One proposed regulation would end mortgage data reporting requirements for relatively small lenders who issue dozens of loans per year, while leaving them in place for the industry leaders who sell hundreds or thousands of home loans annually.
Lender allies have argued that these low-volume shops don’t play a large enough role in the overall housing finance market to produce harmful macro effects even if they were to use this new obscurity in nefarious ways. More than a thousand different lenders would be exempted under the proposal, however, creating a scattershot jigsaw of unpoliced potential discrimination.
And the robust national data analysis that’s only recently become possible thanks to post-financial crisis regulatory changes wrought by the Dodd-Frank legislation would be substantially weaker, as roughly a million of the 8 million loans currently covered by anti-discrimination data disclosure rules established by the Home Mortgage Disclosure Act (HMDA) would fall out of the tracking systems researchers have historically used to show systematic racism persists in the mortgage business.
A second move this week by the people President Donald Trump sent to the Consumer Financial Protection Bureau (CFPB), largely with the intention of defanging the agency, tees up major changes to the data collected from those lenders who do remain subject to the tightened scrutiny imposed after the crisis. CFPB head Kathy Kraninger – who despite having negligible experience safeguarding the interests of consumers was chosen as the permanent replacement for Trump budget chieftain and devoted CFPB opponent Mick Mulvaney – also announced that the agency is seeking comment on rules her predecessors enacted that require both more and more specific details about the loan prices and terms given to borrowers of different racial and ethnic identities.
Lenders tend to treat discriminatory pricing and differentiated sales tactics as an organic outgrowth from market forces. It’s not that they’re actively choosing to make it more expensive or potentially impossible for people of color to borrow the capital required to switch from renting to owning property, they say – it’s that this is what the market’s invisible hand dictates.
While the attack on CFPB’s current interpretation of mortgage data reporting rules isn’t as attention-grabbing as the Trump team’s previous assaults on consumer protections – most notably the freezing of payday lender regulations even though the agency’s final rules in that regard were more friendly to the industry than consumer groups wanted – this new assault on data collection strikes at the core machinery that made the agency effective in its initial years.
The CFPB, after all, isn’t just a rulemaking body. It’s also a clearinghouse for the collection, organization, analysis, and public release of rich statistical details about various products the finance industry markets to consumers. Though the bureau’s accomplishments are more often summarized by pointing to the immense sums of money it’s recouped for scammed citizens and for the public as a whole, its role as a high-powered microscope on those practices is just as important.
Before the bureau was around to demand this data and crunch these numbers, there were plenty of consumer advocates who warned that benignly branded financial products, such as overdraft protection, were deceptive and harmful to vulnerable working families.
But this loosely connected coterie of watchdogs often lacked the collective clout to bring miscreants to heel. And so anyone whose salary depended on applying skepticism to the efforts of consumer advocates – either out of philosophical free-market earnestness or because they were specifically compensated to publicly take the financial industry’s side – could ward off those criticisms fairly easily.
The bureau’s robust effort to provide legible and comprehensive data, however, played a key role in illuminating the ways overdraft fees wallop people living paycheck to paycheck, how the payday lending business model is almost entirely reliant on trapping a large share of customers in never-ending debt traps, and the means by which mortgage and automobile lenders endeavor to charge black and Latinx borrowers more than white ones with similar credit profiles.
It’s little wonder, then, that the Trump-Mulvaney campaign to destroy the agency from within is not stopping with the rollback of individual pro-consumer regulations propagated under previous director Richard Corddray. They’re also looking to bin all of the evidence that shaped those policies, and flip the balance of informational power between working people and the well-dressed vampires who hunt them back in favor of private capital.