D.C. District Court Partially Rejects CFPB HMDA Reporting Rule
The U.S. District Court for the District of Columbia recently rejected part of a rule promulgated by the CFPB in 2020 that increased the loan-volume threshold for a HMDA reporting exemption for lower-volume lenders of closed-end mortgages. Another part of the 2020 Rule, which decreased the loan-volume threshold for open-end lines of credit, was left intact.
In 2015, the CFPB promulgated a rule exempting lenders issuing fewer than 25 closed-end mortgages and lenders issuing fewer than 100 open-end lines of credit from HMDA reporting requirements on those loans. In promulgating the 2015 rule, the CFPB reasoned that these thresholds appropriately balanced the need for sufficient mortgage lending data with the need to avoid burdening lower-volume lenders. In 2017, the CFPB temporarily increased the reporting threshold for open-end lines of credit to 500 loans. In 2020, the CFPB modified these loan-volume thresholds further, increasing the closed-end mortgage reporting threshold to 100 loans and decreasing the open-end line of credit threshold to 200 loans.
The plaintiffs in this case, a group of nonprofit housing advocacy organizations, challenged the 2020 rule as arbitrary and capricious, contrary to law, and in excess of the CFPB’s statutory authority under the APA. Plaintiffs alleged that the CFPB, in conducting the cost-benefit analysis required under the APA prior to promulgating a rule, exaggerated the benefits of the 2020 rule and failed to appropriately account for its nonquantifiable costs, such as decreases in HMDA’s deterrent effect on discriminatory lending practices and the ability to assess HMDA data.
The court held that the 2020 rule did not exceed the CFPB’s statutory authority because HMDA grants broad discretion to the agency to create exceptions to reporting requirements. The court also determined that the 2020 rule’s threshold for open-end lines of credit was not arbitrary and capricious, noting that the 2020 rule’s 200-loan threshold actually amounted to a decrease from the 2017 rule’s temporary increase to 500 loans, and that the plaintiffs had not shown that the CFPB failed to consider important factors in connection with the open-end line of credit threshold.
However, the court found that the CFPB failed to adequately explain or support its rationale for increasing the closed-end threshold, rendering that portion of the 2020 rule arbitrary and capricious. For example, the court noted that lenders with total assets below $50 Million are already exempt from HMDA data reporting, significantly diminishing the effect of the CFPB’s claims regarding the 2020 Rule’s cost-savings to and decreased regulatory burden on small lenders. The court also referenced the CFPB’s early claims that lenders exempted from HMDA reporting requirements for closed-end loans would save $11.2 Million annually under the 2020 rule and its later Notice of Correction clarifying that the annual savings to these lenders would be only $6.4 Million.
