The Title Report has learned from multiple sources that the Consumer Financial Protection Bureau is on the verge of filing a lawsuit against an independent mortgage lender concerning violations of the Equal Credit Opportunity Act (ECOA).
The action – which could come as soon as Monday morning, The Title Report has learned – concerns an investigation of an ECOA violation that appears to be based on marketing.
Sources have told The Title Report that the target of the investigation is a small, three-person mortgage company located in Chicago, which marketed their services on a conservative AM radio station in the area. The Title Report reached out to legal counsel for the firm but has not gotten a response.
If the regulators file expected allegations, sources said the lawsuit could effectively end the industry’s ability to market and advertise their services through a variety of channels, including trade publications, online media, newspapers, radio stations and TV for fear of regulators charging companies with ECOA violations based on the predominant demographics or political leanings of each media outlet.
Sources said the expected lawsuit would essentially impose a new Equal Time Rule for the financial services industry’s marketing in certain media outlets. The Equal Time Rule is a portion of the Communications Act of 1934 which provides that broadcast licensees must permit equal use of broadcast facilities to all legally qualified candidates for political office and that the broadcast licensee may not censor the candidates’ messages, and the action would establish similar practices as a determination for discrimination in advertising under ECOA.
One source, speaking anonymously, described the potential activity as the bureau engaging in regulation by enforcement. Another source, again speaking anonymously, warned that the theory could provide agencies a way to restrict political speech with which they disagree, a move which would raise significant First Amendment concerns.
According to the Justice Department’s website, ECOA prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age, because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act.
The CFPB is the regulatory body with rulemaking authority and oversight of Regulation B, which provides the CFPB’s regulatory standards and framework for enforcing the ECOA statute.
This is not the first time the CFPB has advanced novel interpretations of statutes, and the title industry is well aware of one of the instances, which came in the 2014 enforcement action against Lighthouse Title. In that action, the bureau determined – in what later would be called regulation by enforcement – that the thing of value that amounted to a RESPA violation was the marketing services agreement itself that Lighthouse signed. The fact the agreements brought more business played a role, with one expert saying at the time, “Success in and of itself may be a damning factor for the MSA.”
The CFPB also used regulation by enforcement to expand the interpretation of RESPA in its case against PHH Corp., which not only eliminated its statute of limitations for administrative actions but also altered the long-standing statutory exception in referral relationships for the fair market payment for goods actually furnished or services actually performed. Those interpretations since have been reversed by the courts, which ruled the bureau had overstepped its bounds in changing statutory interpretation without prior notification.
Stay tuned this week for more information as it develops.