Prepared Remarks by Richard Cordray
Director of the Consumer Financial Protection Bureau
National Community Reinvestment Coalition Keynote
April 18, 2012
Thank you so much for inviting me to be with you today. I cannot think of a better way to celebrate April, which has been deemed Fair Housing and Fair Lending month, than to be with those of you who stand arm in arm with people to work on these issues every day.
The belief that each of us can better our lot in life – that our children’s future will be brighter than our own – is deeply ingrained in the fabric of this country. Essential to that belief is the premise that each of us can access equality of opportunity, and that it is not limited only to a certain privileged set of Americans who are especially blessed by fortune or background. Too often, that equality of opportunity is harder to find than any of us would like or want to believe.
You, the National Community Reinvestment Coalition, have stepped up to preserve and expand on that foundational principle of our nation by working to increase the flow of capital to underserved communities. You know that access to credit is essential to a successful financial future, and I commend you for doing something about it.
We salute you for fighting to bring banking and reinvestment infrastructure, affordable housing, and job development to America’s working families. At the Consumer Financial Protection Bureau, we strive to make the financial markets work for consumers, honest businesses, and the economy as a whole. We educate consumers about their fair lending rights and we warn them about the costs and risks associated with financial products and services, while working to improve the practices of financial institutions.
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As the past few years have revealed all too clearly, financial products have the potential to wreak havoc on consumers and the wider economy. And we know that communities of color have been hit especially hard by the financial crisis. African-American households saw their median wealth drop 53 percent between 2005 and 2009. Hispanic households saw an even steeper drop of 66 percent. We want to work with you to reverse these trends.
Too often, unequal access to responsible credit can be at the root of these trends and problems. When a potential homeowner cannot get a mortgage or a small business owner cannot get a loan for capital improvements because of the neighborhood around them, both the individual and the community suffer, and the income inequality gap only grows wider. Some have argued that the Community Reinvestment Act is responsible for the mortgage crisis. We disagree. Sound underwriting and reasonable access to credit are both worthy goals and they can and should go hand in hand as we build stronger communities.
Our economy is in the process of recovering from the worst financial crisis since the Great Depression. We cannot afford to tolerate practices that either price out or cut off segments of the population – such as women, the elderly, or communities of color – from the credit markets.
Like a silent pickpocket, discrimination skulks among unsuspecting borrowers. Unbeknownst to the borrower, the discriminatory lender charges him or her more for a loan because of some characteristic beyond the borrower’s control, such as race, sex, or age. Intentional discrimination is wrong, and it stands as a disgrace to the values our nation was founded upon.
Too often, consumers do not know they are being cheated, and even if they find out, they may not get recourse. And so the silent pickpocket is able to continue profiting by preying upon a given community. All of this undermines that community’s hope for a stable financial foundation based on the equality of opportunity that we celebrate as the American way.
Let me say clearly that practices which marginalize people based on their race, religion, sex, or any other prohibited factor are discriminatory, plain and simple, and they are against the law.
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We know that even intentional discrimination can be difficult to identify and that consumers often do not know it is happening. But conduct that may seem benign – what the lawyers call “facially neutral” actions – can create effects that are just as devastating for those marginalized communities. An example of this kind of conduct is giving loan officers wide discretion to determine how much to charge borrowers. This can result in an aggregate pattern of African-American or female borrowers paying more than similarly situated white or male borrowers.
The consequences of “disparate impact” discrimination are very real and they affect consumers just as significantly as other forms of discrimination. In particular, they constrain opportunity for entire classes of people who are adversely affected. It is important to recognize that this subtle but powerful form of discrimination creates damages that are no less direct than the kind of overt and blatant discrimination that, we hope and assume, is increasingly a relic of a bygone era.
In 1994, the Department of Justice and several other federal agencies – including every one of the federal prudential regulatory agencies – collaborated on a joint policy statement. All of them agreed that when policies or practices are shown to have a disparate impact on protected categories of borrowers, they may violate fair lending laws.
This joint policy statement has represented the consensus approach to lending discrimination for almost two decades, and though the Consumer Bureau did not exist at the time it was issued, we concur in its recognition of the disparate-impact doctrine. Many courts have held that the disparate-impact doctrine, which applies in other areas of discrimination claims, applies to credit transactions as well. So today we are giving fair notice on fair lending.
We are issuing a Compliance Bulletin to advise both banks and nonbanks that the disparate-impact doctrine remains applicable as we examine institutions and enforce the laws against discrimination in lending and credit transactions. That doctrine is applicable for all of the credit markets we touch, including mortgages, student loans, credit cards, and auto loans.
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Against the grim backdrop of the foreclosure crisis, Congress created the new Consumer Bureau to protect consumers from unfair lending practices, as well as those that have a disparate impact on communities of color. Before the Consumer Bureau, nonbank institutions generally were exempt from federal supervision that could examine whether or not they were in compliance with the fair lending laws. That has changed. The Bureau will be supervising these entities in a tough but fair manner to single out the silent pickpocket and stop discrimination in its tracks.
In order to identify possible violations of the law, we must arm consumers with the information they need to spot the warning signs of discrimination. We cannot be in every financial institution at all times, so consumer education becomes all the more critical. As Operation HOPE President John Hope Bryant so eloquently put it, “the more consumer empowerment we have, the less consumer protection we need.”
Those of us in this room know that the Equal Credit Opportunity Act makes it illegal to base credit decisions on race, religion, marital status, color, national origin, sex, age, and certain other specified factors. But too many consumers do not know the law and cannot tell when they are victimized by discrimination.
How does the Hispanic woman who got a seven percent interest rate on her mortgage know that the Caucasian man in line in front of her got a five percent rate, despite their similar credit histories? Most of the time, she does not have the faintest idea. This two percent difference means that she will pay significantly more over the term of the loan than the other borrower will.
Whether they are applying for an auto loan, student loan, or home loan, consumers need to know their rights. And they need to know what red flags to look for that may indicate their rights are being violated. We have compiled tips and warning signs to help consumers identify and avoid credit discrimination. We break it down by category: the consumer’s rights under the law, how consumers can protect themselves, and what warning signs the consumer should look for. The advice will be published both on our website and in brochures that we will ask you to help us disseminate.
We want consumers to be better able to protect themselves by doing their own research, shopping around, and asking questions. Consumers should know their credit history, both to make sure it is accurate and to understand the basis on which creditors are making decisions about whether or not to lend them money and on what terms. When they qualify for credit but are refused, or are treated differently in person than on the phone, those are red flags. We want consumers to be able to recognize when they may be victims of discrimination.
Consumers should be in control of their own decision-making and should not feel pressured to sign an agreement until they are satisfied that it works for them. Consumers can visit our website at consumerfinance.gov, where they can file a complaint or just tell us their story.
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Dr. King once said, “Our lives begin to end the day we become silent about things that matter.” The Consumer Bureau is still in its infancy, but we are here today to say plainly that we will not be silent on discriminatory lending practices. Illegal discrimination in all of its forms is wrong, and it violates the fundamental American precept that each individual should have access to equality of opportunity. Our twin goals here are to protect consumers and empower them to be able to protect themselves.
We are intent on making our financial markets work better for the people we serve. Consumers deserve to have someone who stands on their side and sees to it that they are treated fairly in the financial marketplace. We are proud to work alongside you as we pursue that mission every day.
Thank you for your help and for all your persistence in these efforts.