I. INTRODUCTION
The Consumer Financial Protection Bureau (CFPB) has issued a Final Rule amending Regulation B (ECOA) which is designed to facilitate compliance with Regulation C (HMDA) and transition to the 2016 Uniform Residential Loan Application (URLA). The amendment permits creditors to collect additional Government Monitoring Information (GMI) without violating Regulation B. The Final Rule adds certain model forms and removes others from Regulation B. Additionally, the Final Rule makes amendments to Regulation B and its commentary to facilitate the collection and retention of information about ethnicity, sex, and race of certain mortgage applicants. The Final Rule is effective January 1, 2018, except for the removal of the existing “Uniform Residential Loan Application” form, which is effective January 1, 2022.
II. SCOPE OF THE RULE
The Final Rule amends parts of Regulation B, its commentary, and its appendices, and affects when and how a creditor may collect information regarding the applicant’s ethnicity, race, and sex.
Financial institutions affected by the Regulation B Final Rule are primarily creditors making mortgage loans subject to 12 C.F.R. § 1002.13 (Information for Monitoring Purposes). Generally, Regulation B creditors who extend mortgage financing to consumers to purchase or refinance an applicant’s primary residence are covered by the rule. Financial institutions that report under Regulation C, have reported in the prior five years, or may report in the near future may also be affected by this rule. Creditors that utilize model forms from Appendix B to Regulation B (the Regulation B Appendix) for mortgage loans are also affected by the rule.
III. CHANGES TO APPLICANT INFORMATION COLLECTION FOR REGULATION B CREDITORS
The Final Rule allows creditors making mortgage loans subject to 12 CFR § 1002.13 (purchase and refinance transactions involving an applicant’s primary residence) to collect the applicant’s information using either the aggregate ethnicity and race categories or disaggregated ethnicity and race categories and subcategories, as set forth in Appendix B to Regulation C (Regulation C Appendix).
NOTE: The Rule change does not require Regulation B creditors that are not HMDA reporters to change their practices, but the Final Rule allows these creditors to voluntarily adopt the new practices for collecting applicant information.
Regulation B creditors may voluntarily collect certain information about applicants for certain mortgage loan scenarios. These types of scenarios would generally involve loans, subject to Regulation C, where a creditor: (1) voluntarily reports information under Regulation C; (2) reported such information in the past five years; or (3) may report such information in the near future.
IV. CHANGES TO APPLICANT INFORMATION COLLECTION FOR HMDA REPORTERS
For HMDA reporters subject to the collection requirements of 12 CFR § 1002.13: compliance with applicant information collection under Regulation C generally satisfies similar requirements under Regulation B. HMDA reporters, who at some point no longer are required to comply with HMDA can continue to collect certain applicant information as provided by 12 CFR § 1002.5(a)(4).
V. CLOSED-END MORTGAGE LOANS AND OPEN-END LINES OF CREDIT
The Final Rule, with respect to Closed-End Mortgage Loans and Open-End Lines of Credit, allows a creditor that is a financial institution to collect the demographic information of an applicant on an excluded transaction under the revised version of Regulation B if it submits HMDA data concerning those applications and loans or if it submitted HMDA data in any of the preceding five calendar years.
NOTE: The CFPB has clarified that this collection is voluntary and not a new compliance requirement. However, creditors taking advantage of this authorization must comply with the record retention requirements of Regulation B.
A creditor that exceeded an applicable loan volume threshold in the first year of the two-year threshold period provided in 12 CFR § 1003.2(g), 1003.3(c)(11), or 1003.3(c)(12) may, in the second year, collect information regarding the ethnicity, race, and sex of an applicant for a loan that would otherwise be a covered loan under HMDA.
A creditor that is collecting information regarding the ethnicity, race, and sex of an applicant or first co-applicant for a HMDA loan may collect information regarding the ethnicity, race, and sex of a second or additional co-applicant for a covered loan under 12 CFR § 1003.2(e) or for a second or additional co-applicant.
VI. RECORD RETENTION
If a creditor uses the new Regulation C method (disaggregation), this information must be collected and retained in the same manner as previously collected data under Regulation B.
VII. Changes to Regulation B Model Forms
The Final Rule amends the Regulation B Appendix to provide, effective January 1, 2018, two options: (1) a model form for collecting aggregate applicant race and ethnicity information and (2) a cross reference to the Regulation C Appendix model form for collecting disaggregated applicant race and ethnicity information. Additionally, the Final Rule removes the existing version of the URLA contained in the Regulation B Appendix, effective January 1, 2022.
The model data collection form for the disaggregated categories under Regulation C can be located at: https://www.gpo.gov/fdsys/pkg/FR-2015-10-28/pdf/2015-26607.pdf