On February 3, the U.S. District Court for the Northern District of Illinois issued an opinion and order dismissing with prejudice the CFPB’s complaint for violations of the ECOA against a mortgage lender and its owner violated for engaging in discriminatory marketing and applicant outreach practices. In particular, the CFPB alleged fair lending violations based on comments made by the company on a local radio station that the CFPB alleged discouraged prospective minority applicants from submitting mortgage loan applications to the lender. The Bureau’s allegations relied on the ECOA’s implementing regulation, Regulation B, which prohibits creditors from making any statements “to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application.”

The Court held that the language in the ECOA clearly and unambiguously applies to “applicants,” and that the expansion of this language in Regulation B to also apply to prospective applicants was improper, and therefore unenforceable. The Court reviewed the Supreme Court’s holding in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. to determine whether the Court must defer to the CFPB’s interpretation of the statute. Under step one of Chevron’s two-step analysis, if the statutory term or provision is unambiguous, the Court cannot defer to an agency’s interpretation, and so there is no basis for the Court to review step two, which would have required the Court to consider whether the CFPB’s interpretation reflects a permissible construction of the statute.

Putting It Into Practice: This was the first fair lending enforcement action brought by the CFPB against a non-bank mortgage lender, but it is just one case in one district, so it remains to be seen whether the CFPB will seek to enforce the “prospective applicant” language of Regulation B in other jurisdictions against lenders that it believes are attempting to discourage consumers from applying for mortgage loans with the lender. CFPB Director Chopra has also spoken about potentially expanding the CFPB’s UDAAP authority to include unlawful discriminatory practices, so there is no certainty that we have seen the last of the CFPB’s efforts to crack down on mortgage lenders who it believes are attempting to illegally discourage protected classes from applying to obtain mortgage loans from the lender (see our previous blog post covering this expansion here).