The current leadership of the CFPB has not been shy about highlighting the importance of fair lending—and it is becoming increasingly clear that fair lending and equity within the financial services industry is one of the CFPB’s greatest priorities under Director Rohit Chopra. Just last month, the CFPB released a blog post to discuss possible discrimination in the appraisal process. And last week, the CFPB set forth major changes to its supervisory operations with respect to “unfair” discriminatory practices in the financial services industry. Director Chopra and other CFPB personnel have also made numerous recent public statements to express their concerns regarding “algorithmic bias,” “digital redlining,” and “robo discrimination”—signaling the likelihood of enforcement actions related to the use of algorithms and machine learning in the near future.

This trend continued on March 23, 2022, as Director Chopra issued a statement regarding the final report of the Interagency Task Force on Property Appraisal and Valuation Equity (“PAVE”). In his statement, Chopra stated that PAVE’s report “underscores the critical importance of fair and accurate appraisals in residential real estate.” One critical part of ensuring fair and accurate appraisals, in the eyes of the CFPB, is fairness and accuracy in the home valuation process—whether computed by algorithm or conducted in-person. As a result, Chopra explained that discriminatory home valuations “undermine longstanding goals for fair housing and fair lending across our country.”

The CFPB intends to take several actions to further the work of the PAVE task force and the Bureau seeks an end to discriminatory lending practices. First, the CFPB will be taking an active leadership role in the Appraisal Subcommittee of the Federal Financial Institutions Examination Council. Congress has assigned critical responsibilities to the Appraisal Subcommittee, and Chopra explained in his statement the importance of meeting these expectations. The CFPB will be closely scrutinizing the work of The Appraisal Foundation, which wields enormous power to set standards and levy fees on the professional appraiser community.

Additionally, both the CFPB and numerous other federal financial regulators, with full support from the White House, will work to “implement a dormant authority in federal law” to ensure that algorithmic valuations are fair and accurate. Chopra reaffirmed that the CFPB is “committed to addressing potential bias in these automated valuation models.”

Finally, the CFPB intends to take additional steps to promote fair lending through research, supervisory examinations of financial institutions and their service providers, and through law enforcement actions. The continued threat of enforcement actions in the fair lending space—particularly with respect to algorithms and machine learning—comes as no surprise in light of recent guidance from the CFPB, but it is nonetheless noteworthy that Chopra has raised the specter of such actions once again this week.

Takeaways

This new development is one of many that forecasts that the CFPB intends to scrutinize fair lending issues, including discriminatory home valuations. Lenders are cautioned to carefully review their appraisal practices and address potential bias in their automated and manual processes.