Agency lists first ‘no action’ letter as highlight in last year’s fair lending enforcement

The first “no-action” letter issued by the federal consumer financial protection agency last year is listed as one of the highlights of the agency’s efforts in fair lending enforcement, according to a report dated Tuesday.

In its report, the Bureau of Consumer Financial Protection (BCFP, formerly known as the CFPB) said issuing the “no action” letter to a firm using non-traditional data in making credit and pricing decisions was “in furtherance of our interest in exploring methods of achieving fair lending compliance in conjunction with the use of alternative data and the potential benefits of such data in expanding credit access.”

The letter, published more than a year ago (Sept. 14, 2017), was issued to Upstart, a company that uses alternative data and modeling techniques in lending decision-making, the agency said. The “no-action letter,” the agency said, signified that the bureau staff had no present intent to recommend initiation of supervisory or enforcement action against Upstart with respect to the Equal Credit Opportunity Act (ECOA).

When the agency issued the letter last year, it said Upstart had agreed to several conditions designed to mitigate risk to consumers. “We hope this will create an important opportunity to further our own understanding of the use of alternative data and modeling techniques in lending decision-making, how such variables and modeling techniques impact consumer access to credit, and how entities can establish strong compliance management systems for these emerging practices,” the agency stated.

Other highlights listed in the BCFP’s Fair Lending Report, which is developed for Congress as required by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), include:

  • Enforcement actions to address discrimination by a bank in its credit card lending, and against a mortgage lender that failed to report accurate data about the applications it received and loans it made to consumers.
  • Collaboration with other federal banking regulators to issue new guidelines on how examiners evaluate whether covered mortgage lenders are reporting accurate data.
  • Monitoring lenders and servicers for compliance with the anti-discrimination laws under the bureau’s jurisdiction.

BCFP 2017 Fair Lending Report to Congress