WASHINGTON, D.C. - On Sept. 24, two federal agencies settled with Hudson City Savings Bank after allegations of discriminatory practices enacted by the bank against low income and major minority areas, including those in Philadelphia, though a separate agency years earlier had rated the bank's practices "Satisfactory."
In 2008 and in 2011, the Office of Thrift Supervision, formerly of the Department of Treasury, found no wrongdoing at Hudson City Savings. Yet the Department of Justice and the Consumer Financial Protection Bureau still pursued litigation, leading to a $33 million settlement.
Eric Epstein, of the offices of Dorsey & Whitney LLP and an adjunct instructor at Columbia Law School, said different federal agencies are responsible for enforcing different federal laws.
"A given federal agency might deem a particular regulated entity to be in compliance with the specific laws that fall within the scope of that agency’s jurisdiction. At the same time, another federal agency might deem the same company to have a violated a different federal law that comes within that agency’s purview,” Epstein wrote.
“In this case, as noted in the piece I wrote for Dorsey’s consumer finance blog, it seems that the Office of Federal Thrift Supervision reviewed Hudson’s performance under the Community Reinvestment Act, assigned Hudson a rating of 'Satisfactory,' and concluded that Hudson’s conduct was not discriminatory."
The government claimed that Hudson City Savings Bank delineated its Community Reinvestment Act assessment area in a discriminatory fashion in violation of the Fair Housing Act and Equal Credit Opportunity Act.
Hudson’s assessment area supposedly improperly excluded certain majority-minority areas, and that, as a result, Hudson under-served those areas. That is the case the DOJ argued against Hudson. However, this went in contradiction with the findings of the Office of Thrift Supervision.
However, a different federal bureau, the CFPB, apparently found that Hudson’s CRA assessment area was discriminatory when viewed through the lens of certain other federal statutes, specifically the Fair Housing Act and Equal Credit Opportunity Act.
This scenario raises three issues, Epstein said. First, it would be understandable if the industry felt that it was receiving mixed signals about what conduct is expected under applicable law.
Second, as a matter of statutory interpretation, the question is to what extent the CRA, the FHA and ECOA are meant to be construed together, to bring about consistency across these three statutes.
Third, as a matter of the law of estoppel, should the conclusions reached by the OTS bind other agencies of the federal government, including the CFPB?”
“I believe this situation offers an important lesson for other businesses in the consumer finance industry," Epstein said.
"Specifically, it seems that, in the CFPB’s view, an acceptable CRA evaluation of a consumer finance entity does not necessarily mean that the entity is in compliance with the FHA or ECOA. Businesses should keep this point in mind when they conduct fair lending self-assessments."
This slight oversight between agencies is not intentional nor are the agencies purposefully contradicting each other and over riding their findings, Epstein said.
“In a sense, this situation has to do with the ongoing transition from the pre-Dodd-Frank era to the post-Dodd-Frank era,” Epstein said.
“In 2010, Congress passed the Dodd-Frank Act, and created the CFPB in order to bring under the 'roof' of one regulatory entity, the CFPB, a number of laws and regulations governing the consumer finance industry.
"The Dodd-Frank Act also terminated the OTS effective October 2011. However, the CRA evaluations conducted by the OTS have not been abrogated, and today can still be found on the Website of the Office of the Comptroller of the Currency.
"As in this case, the regulatory work of the CFPB will from time to time overlap with the scope of such evaluations.”