Regulators show united front on targeted lending programs

Statement is latest effort from regulators to get lenders on board with special purpose credit programs

HW+ Federal Reserve

Federal finance and housing regulators today issued a statement to assure lenders they are on the same page when it comes to special purpose credit programs.

The missive from the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, the Department of Housing and Urban Development, the Department of Justice and the Federal Housing Finance Agency urged creditors to “explore opportunities to develop special purpose credit programs,” as long as they are within the bounds of the Equal Credit Opportunity Act, Regulation B and safe and sound lending practices.

Though regulators have the power to ding lenders for violating fair lending law, none of the agencies can give a special purpose credit program their blessing. Lenders are left to their own devices to design the programs, based on guidelines from the CFPB, and hope they get it right.

“While the agencies do not determine whether a program qualifies for special purpose credit status, creditors with questions about any aspect of ECOA and Regulation B’s special purpose credit provisions may consult their appropriate regulatory agencies,” the agencies wrote.

The interagency statement is the latest effort by regulators to give lenders the all-clear when it comes to special purpose credit programs.

In December 2021, HUD resolved long standing questions about whether special purpose programs would violate the fair housing act.

A year prior, the CFPB, gave directions for how for-profit organizations could implement special purpose credit programs without running afoul of ECOA. The watchdog agency provided clarity for the kind of research and data that go into creating a targeted lending program.

CFPB officials have also since made public statements in support of the programs. Acting Director David Uejio spoke in September 2021 about how special purpose credit programs “serve as an important tool” for mortgage lenders to assist underserved borrowers.

Special purpose credit programs, Uejio said, are “also a recognition that government alone cannot solve this problem.”

For the programs to have an impact — as Congress envisioned 45 years ago — regulators need lenders’ buy-in. Yet mortgage lenders are still reluctant to implement the targeted lending programs. The CFPB does not have data on the number and variety of SPCPs currently in existence, an agency spokesperson said.

Mortgage lenders still have reservations about implementing targeted lending programs. That there is no safe harbor for special purpose credit programs is a sticking point, said Andy Arculin, a partner at Blank Rome LLP, who was previously senior counsel in the CFPB’s Office of Regulations.

Lenders are expected to implement the programs, Arculin said, but they then may get examined for compliance, or sued for violating ECOA.

“If the regulators were willing to give someone a decision with a safe harbor behind it, lenders would be much more inclined to develop the programs,” said Arculin. “If you don’t have assurances it’s bulletproof or kosher, it’s a risk.”

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