CFPB Proposal Would Harmonize Reg B and C Compliance

The Consumer Financial Protection Bureau issued a proposal on Friday to provide flexibility for lenders around the collection of applicants’ demographic data under the Home Mortgage Disclosure Act (Regulation C) and the Equal Credit Opportunity Act (Regulation B).

Currently, under Reg B, creditors are prohibited from requesting information about consumers’ race or ethnicity, except to the extent required to monitor compliance with ECOA or to comply with HMDA. The permissible inquiries under Reg B include only aggregate racial and ethnic categories. In contrast, beginning in January 2018 under a final rule issued by the CFPB in October 2015, HMDA-reporting institutions must permit applicants and borrowers to self-identify using disaggregated ethnic and racial categories — for example, by identifying as having a Korean ethnic background rather than simply “Asian.”

The proposed amendments would permit a creditor to allow applicants to self-identify using disaggregated categories beginning on Jan. 1, 2017, enabling institutions to use Fannie Mae and Freddie Mac’s new Uniform Residential Loan Application prior to January 2018. The proposal would allow institutions not subject to HMDA reporting requirements to choose on an “application-by-application basis” between two approaches to collecting personal demographic data from applicants: either the more limited, aggregate race and ethnicity categories required by Reg B, or the disaggregated and more expansive categories required for HMDA-reporting institutions under Reg C effective in 2018.

To help avoid frequent changes in compliance systems, non-HMDA-covered institutions would be able to collect applicant demographic information and remain in compliance with Regulation B provided they submit HMDA data, have at any point in the previous five years or are on the verge of being HMDA-covered. Comments on the proposal are due 30 days after publication in the Federal Register.