Time for S'More Learning: Collecting Disaggregated HMDA Data
Hi, Compliance Friends. We are currently enjoying some wonderful fall weather here in Washington, DC.
With the pending HMDA changes, some credit unions have been uncertain about the regulatory authority to be currently collecting the disaggregated age, race and sex data. This blog presents the crux of the conflict with Regulation B, which implements the Equal Credit Opportunity Act, current HMDA guidance, and a credit union's options for collecting disaggregated data including how that may impact its implementation of the new HMDA rules.
Generally, Regulation B (Equal Credit Opportunity Act) prohibits credit unions from inquiring into an applicant's race or ethnicity. However, Regulation B permits inquiries for monitoring purposes in connection with self-testing or HMDA (Regulation C) reporting.
With that being said, absent regulatory authority, the current collection of disaggregated race and ethnicity data is prohibited until HMDA's new provisions are in effect. In other words, absent other guidance, credit unions could only inquire into race and ethnicity to the extent required by the current HMDA provisions. However, the CFPB did issue guidance on this last year and amended Regulation B effective January 1, 2018.
While Regulation B allows collecting information that is otherwise prohibited in order to comply with HMDA, Regulation B uses terminology that does not align with the amended version of HMDA. As a result, the CFPB recently released technical amendments that address these types of issues.
The technical amendments also set forth "other permissible collection of information" to allow credit unions to collect this kind of data even if not subject to HMDA reporting. For example, a credit union that submitted HMDA data in any of the past 5 years, but is not currently a "financial institution" under HMDA is permitted collect information for HMDA covered loans. The technical amendments also grant credit unions the option to allow applicants to self-identify using the specific race and ethnicity categories required by HMDA. The actual text is pretty technical so for those working on HMDA compliance at a credit union, it may be worth taking a look at the specific language in the proposal.
Prior to the recent technical amendments, the CFPB's 2016 Notice of Official Approval granted credit unions the authority to begin collecting disaggregated race and ethnicity data pursuant to Regulation C. The Notice of Official Approval was in part directed at Fannie Mae's updated Uniform Residential Loan Application.
However, for credit unions looking to comply with HMDA requirements, the following excerpt from the Notice of Approval seems to grant credit unions the ability to currently collect disaggregated race and ethnicity information:
"For purposes of submitting HMDA data for applications received on or after January 1, 2017, and before January 1, 2018, and on which final action is taken on or after January 1, 2018, the financial institution, at its option, may submit the information concerning ethnicity and race under §1003.4(a)(10)(i) using disaggregated categories if the applicant provided such information instead of using the transition rule in Regulation C comment 4(a)(10)(i)-2 as adopted by the 2015 HMDA final rule, or it may submit the information in accordance with that transition rule."
Collecting this information early is not the only option for credit unions. The 2015 HMDA rule created a carve out for disaggregated data collection which allows a credit union to report the applicant's ethnicity, race, and sex required under the Regulation C requirements in effect at the time that the credit union collects the information not when the financial institution takes final action on the application.
Collecting Disaggregated Data
There is also helpful guidance in the small entity compliance guide:
The small entity compliance guide also provided an example that may be helpful to the credit union:
Given the current regulatory guidance, it seems that credit unions have two options for collecting data related to ethnicity, race and sex in the weeks leading up to the HMDA compliance deadline. A credit union can collect the disaggregated data pursuant to the 2016 guidance as a voluntary measure. The credit union can also comply with the transitional rule and comply based on the "requirements in effect at the time the [credit union] collects the information". Note, with the transition method, the credit union would have to be instantly ready for the new HMDA requirements in 2018 versus the more gradual method.
CFPB updates HMDA implementation materials and the 2018 Filing Instructions Guide. The updated HMDA implementation materials include a chart on the Collection and Reporting of HMDA Information about Ethnicity and Race, and a Reporting Reference Chart intended to be used as a reference for data points required to be collected, recorded, and reported under Regulation C. The Filing Instructions Guide is for data collected in 2018 that reflects updates to the Automated Underwriting System.