Consumer Financial Protection Bureau Discrimination
Hagens Berman has joined Democracy Forward in filing a lawsuit against the Consumer Financial Protection Bureau (CFPB) on behalf of California Reinvestment Coalition, a nonprofit based in San Francisco to aid low-income communities and communities of color access to credit, financial services and investments.
The lawsuit accuses the CFPB and its director, Kathleen L. Kraninger, of violating the Administrative Procedure Act (APA) despite commands from Congress in Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The suit states these violations directly harmed women-owned, minority-owned, and small businesses.
About the Consumer Financial Protection Bureau
The CFPB is a federal agency responsible for consumer protection in the financial sector. It was formed in July of 2011, as authorized under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was itself a legislative response to the financial crisis of 2007–2008 and following recession. According to former Director Richard Cordray, the Bureau's priorities are mortgages, credit cards and student loans.
Section 1071 Violations
Section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 requires financial institutions to maintain records of their actions on loan applications by women-owned, minority-owned, and small businesses. This requirement seeks to identify “credit deserts” where businesses and communities have difficulty accessing credit, and to allow financial institutions, community development organizations, and governmental agencies to identify areas of need and potential solutions.
When that data does not exist, it is impossible for financial institutions such as the CFPB to confidently answer basic questions regarding the state of small business lending, according to the lawsuit.
“Despite Section 1071’s clear and mandatory terms, CFPB has entirely failed to collect and publish the lending data required by Section 1071, or to issue any implementing regulations, in the nearly nine years since its passage. By failing to implement Congress’s explicit, mandatory directive, CFPB has unlawfully withheld and unreasonably delayed agency action, violating the APA,” the complaint states.
The suit accuses the CFPB of two counts of violating the APA and seeks injunctive relief from the court to compel the CFPB to comply with Section 1071.
Harm Caused by the CFPB
CFPB’s inaction has harmed women-owned, minority-owned, and small businesses, as well as organizations that seek to support community development efforts, such as the suit’s plaintiff, and its member organizations.
Providing lending data, as Section 1071 requires, would:
- incentivize financial institutions to ensure that all communities have equal access to credit.
- allow women-owned, minority-owned, and small businesses, and nonprofits like CRC who exist to ensure that these businesses have access to credit.
- identify specific problem areas and address these problems through negotiations with financial institutions, advice to economic development initiatives, enhanced enforcement opportunities, and advocacy to local, state, and federal policymakers.
Without this data, the lawsuit says, the suit’s plaintiff is “significantly hindered in these efforts and is forced to expend substantial additional organizational resources to effectuate its organizational objective of ensuring the availability of lending for small businesses and others who have historically been denied equal access to capital.”
If the CFPB collected and maintained this data, it would be able to provide critical, currently unavailable information that would improve California Reinvestment Coalition’s ability to negotiate with lenders to invest and originate responsible loans for businesses in low-income communities and communities of color. It would also enable the suit’s plaintiff and others to analyze data and identify specific areas of concern and work with financial institutions, economic development organizations, and policymakers to address these concerns.
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