During the presidential campaign, Donald Trump’s pitch to the black community was direct: “What the hell do you have to lose?”
On Tuesday night, he stood before the nation and boasted about the lowest unemployment rate on record for African-Americans. But just hours before his State of the Union address, his lieutenant and handpicked head of the Consumer Financial Protection Bureau, Mick Mulvaney, told staff in an email that he was seizing control of the unit responsible for policing anti-lending-discrimination laws.
CFPB Acting Director Mulvaney, in a previously unreported move, said that he would be putting the Office of Fair Lending and Equal Opportunity, or OFLEO, under his direct control, startling consumer protection and civil rights advocates, and raising concerns that the office would be unable to carry out its mission — and that, indeed, that was the very purpose of the shift.
“Opening up the floodgates on lending discrimination will damage the ability for people of color to build wealth,” said Debbie Goldstein, executive vice president of the Center for Responsible Lending.
Discrimination in lending is not a subject that is unfamiliar to Trump. In 1973, he was named in a housing discrimination suit filed by Richard Nixon’s Department of Justice. The case was settled with Trump admitting no wrongdoing, but a subsequent investigation by the New York Times “uncovered a long history of racial bias at his family’s properties, in New York and beyond.”
The CFPB unit targeting discriminatory lending has recouped hundreds of millions of dollar for ripped-off minority homeowners over the past few years. But in an email to CFPB staff obtained by The Intercept from a source inside the bureau, Mulvaney announced that he would transfer OFLEO from the Supervision, Enforcement, and Fair Lending, or SEFL, division, where it lives now, to the Director’s Office, as part of the CFPB’s Office of Equal Opportunity and Fairness.
While this sounds like a mere consolidation of the organizational chart, it makes very little sense unless the goal is to neuter fair-lending enforcement. The OEOF is a personnel office, overseeing “equal employment opportunity and diversity and inclusion” among agency employees. It does no enforcement at all.
OFLEO, by contrast, was mandated by the Dodd-Frank Act to conduct “oversight and enforcement of federal laws intended to ensure the fair, equitable, and nondiscriminatory access to credit,” such as the Equal Credit Opportunity Act or the Home Mortgage Disclosure Act. The office works with bank examiners to monitor fair lending compliance, coordinates with Department of Justice attorneys and CFPB enforcement staff when violations are found, and communicates with the industry to preemptively prevent lending discrimination.
How it’s supposed to do all that in a personnel office is not clear.
Mulvaney stated in the email that “the Fair Lending Office will continue to focus on advocacy, coordination, and education, while its current supervision and enforcement functions will remain in SEFL. I do not expect that staff will experience changes in employment status, but it is possible that some may experience changes in jobs and duties.”
The best guess for what this means is that OFLEO moves under the director, and the oversight and enforcement staffers either move with it and get reassigned tasks of advocacy, coordination, and education, or they stay in SEFL, where they would have a variety of duties across all levels of enforcement, not just fair lending. What’s more, the head of OFLEO, Patrice Ficklin, will be sequestered in a separate office, unable to fight turf battles over prioritizing fair lending cases.
OFLEO already conducted advocacy, coordination, and education through engagement with the industry. But segregating enforcement and supervision takes the stick away from the carrot.
Additionally, almost nothing at the CFPB sits within the Office of the Director, and certainly not anything enforcement-related. The move suggests that Mulvaney particularly wanted this element of enforcement and supervision under his thumb. “I can’t imagine it means anything good,” said Adam Levitin, a law professor at Georgetown University and former CFPB advisory board member.
The entire point of Congress mandating OFLEO in Dodd-Frank was to ensure that racial discrimination and fair lending cases would have a baseline level of resources and support at the CFPB. By splitting the agency, financial reform advocates say, Mulvaney is deemphasizing what Congress had defined as a top priority.
“This minimizes the importance of fair lending,” said Christopher Peterson, law professor at the University of Utah, who was senior counsel for enforcement policy at the CFPB and later, a special adviser to then-Director Richard Cordray. “People who care about those issues will have more hoops to jump through in grabbing for resources to pursue those cases. All of that is, of course, the point.”
Peterson added that OFLEO was an effective component of the supervision and enforcement division. “I was quite proud of it, yeah. The office produced important cases that were helping the industry address lingering discrimination problems that cause suffering in America’s vulnerable minority population,” he said.
Among those cases: GE Capital was fined $201 million for excluding 133,400 borrowers from debt relief because of their ethnicity, the largest credit card discrimination settlement in history. PNC Bank was fined $35 million for charging higher mortgage interest rates to African-American and Latino borrowers; Provident Funding Associates returned $9 million over higher brokerage fees to minorities. Hudson City Savings Bank took a $27 million charge for redlining communities in the Northeast, denying people of color access to credit in certain neighborhoods. BancorpSouth Bank both redlined and overcharged borrowers in the Memphis area and got fined $7.58 million.
One of OFLEO’s biggest activities concerned auto lending. The CFPB issued guidance in 2013 warning auto finance companies about discrimination in “dealer markups,” extra points put on the price of a car loan for minority borrowers. Ally Financial, American Honda Finance Corporation, Toyota Motor Credit Corporation, and Fifth Third Bank paid a total of $143.9 million in penalties.
“I think it’s pretty alarming,” said Goldstein, of the Center for Responsible Lending, about the OFLEO shift. “It’s an indicator of a longstanding attack to prevent CFPB from doing anti-discrimination work.”
Mulvaney has been part of that attack. In December, the Government Accountability Office said that the auto lending guidance could no longer be used by examiners until it went to Congress for review (and potential nullification). Under Mulvaney, the CFPB has never submitted the guidance to Congress, effectively dissolving it.
Mulvaney’s chief of staff at the CFPB, Emma Doyle, worked for Ford Motor Company and lobbied against the CFPB’s auto lending discrimination guidance. A bill passed by the House of Representatives in 2015 that would have gutted the guidance got Mulvaney’s vote. In addition, in 2016 Mulvaney voted against an amendment promoting “tougher enforcement of housing anti-discrimination and predatory lending laws.”
A report issued in January by the National Fair Housing Alliance found that racial discrimination still ran rampant in auto lending. Other studies show that minorities consistently get shafted in financial transactions with higher fees and interest rates.
“One of the reasons CFPB started is the foreclosure crisis, and African-Americans and Latinos were twice as likely to get subprime loans with bad terms,” said Goldstein. “Here, we are going backwards.”
In the email, Mulvaney said the change “help[s] make the Bureau more efficient, effective, and accountable” and “reduces redundancy and makes the best use of resources.”
Following publication, John Czwartacki, a senior adviser to Mulvaney, elaborated on that defense in a statement to The Intercept.
The Bureau’s statutory mandate includes the supervision and enforcement of fair lending laws and regulations, and the Bureau will continue to perform those functions. The fact is, it never made sense to have two separate and duplicative supervision and enforcement functions within the same agency – one for all cases except fair lending, and the other only for fair lending cases. By announcing our intent to combine these efforts under one roof, we gain efficiency and consistency without sacrificing effectiveness. And by elevating the Office of Fair Lending to the Director’s Office, we have enhanced its ability to focus on its other important responsibilities.
By moving fair lending in with the rest of the enforcement, however, that will require such cases to compete with resources against non-discrimination-related cases. Sen. Elizabeth Warren said she had little doubt as to just how likely Mulvaney would be to prioritize lending discrimination. “For years, Mick Mulvaney opposed CFPB’s efforts to fight discrimination in the consumer financial marketplace even as the agency returned $400 million from discriminatory financial institutions to American families who had been overcharged or denied credit,” she said. “Mulvaney is putting the Office of Fair Lending under his control so that he can weaken it – leaving neighborhoods and consumers across the country more vulnerable to bias.”
Update: Feb. 1, 2018, 3:23 p.m.
This piece was updated to include statements from Warren and Czwartacki.