Compliance Blog

Dec 21, 2022

CFPB Responds to Federal Court Vacating HMDA Closed-End Mortgage Threshold

On September 23, 2022, the United States District Court for the District of Columbia (court) issued an opinion vacating the Consumer Financial Protection Bureau’s (CFPB) reporting threshold requirement for Home Mortgage Disclosure Act (HMDA) data on closed-end mortgage loans. The ruling nullified the 100 closed-end mortgage loans threshold and reestablished the threshold back to the 25 closed-end mortgage loans threshold, originally from 2015.

Initially, the plaintiffs raised two issues with the 2020 threshold. First, the plaintiffs argued the CFPB exceeded its statutory authority under the HMDA in promulgating the 2020 threshold. Second, the plaintiffs alleged the cost-benefit analysis used to support the 2020 rule was “flawed because the CFPB exaggerated the ‘benefits’ of increasing the loan-volume reporting threshold.”

In a partial victory for the CFPB, the court found the bureau did not exceed its statutory authority, maintaining the CFPB “offered the best construction of the statute.” On the other hand, the court held the CFPB’s 2020 closed-end mortgage loan threshold was “arbitrary and capricious.” A court finds agency action arbitrary and capricious “when it ‘entirely fail[s] to consider an important aspect of the problem,’ offers an explanation for its decision that ‘runs counter to the evidence before the agency,’ or ‘is so implausible that it could not be ascribed to a difference in view or the product of the agency expertise.’” In other words, the reasoning was simply flawed. Behind the backdrop of these legal principles, the court did spare the 200-loan volume threshold for open-end lines of credit, maintaining the plaintiffs did not meet their burden in proving the bureau’s actions were “arbitrary and capricious.” On the other hand, the court held the benefits of the 2020 rule were “inflated" and the costs were not adequately addressed, leading the court to vacate the 2020 rule and reestablishing the 2015 HMDA threshold for closed-end mortgage loans.

You may be wondering why provide an overview of a court’s opinion that was decided in late September of this year. Although the impact to credit unions and the compliance of the new HMDA threshold is still fresh, the CFPB recently addressed how the change to the closed-end mortgage threshold may impact its enforcement and supervision priorities. It is the CFPB's recent statement on this outcome that is interesting and important to highlight. The CFPB acknowledged changes to internal procedures and processes to stay or become compliant with the new thresholder will take time and stressed  enforcement actions against these federal credit unions that meet these “limited circumstances” are not a priority. I have included the CFPB’s exact wording for your reference below.

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.

This court ruling vacates the 2020 rule, reverting back to the lower threshold for closed-end mortgage loans. As a result, more credit unions are now required to file HMDA data in March. This is only a district court opinion and the CFPB would likely have appealed if the bureau wanted to. Based on the failure to appeal the district court decision and the CFPB’s recent statement regarding the supervision and enforcement of financial institutions that are not yet compliant with the new threshold, it seems like the current CFPB leadership might be amenable to this outcome.

If there are any remaining questions, please do not hesitate to contact NAFCU’s Regulatory Compliance team at compliance@nafcu.org.

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About the Author

Justin White, Regulatory Compliance Counsel, NAFCU

Justin White, NAFCU-Regulatory-Compliance-Counsel

Justin joined NAFCU as a regulatory compliance counsel in August 2021. As part of the Regulatory Compliance Team, he provides daily compliance assistance to member credit unions on a variety of topics.

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