New NYDFS Unit Signals Focus on Fair Lending and Financial Inclusion
The Situation: The New York Department of Financial Services ("NYDFS") has established a Statewide Office of Financial Inclusion and Empowerment, providing yet another example of state and federal regulators prioritizing fair lending and financial inclusion.
The Result: The NYDFS announcement highlights the Department's ongoing efforts to facilitate broader financial inclusion and empowerment for minorities and underserved communities. These efforts are consistent with other state and federal agencies' financial inclusion initiatives, as well as recent statements by federal and state regulators regarding an increased focus on fair lending practices by financial institutions.
Looking Ahead: Coordinated actions among, and scrutiny by, state and federal agencies with respect to fair lending and financial treatment of minorities and vulnerable populations is expected to be a near-term priority for several state and federal agencies, including the NYDFS, the CFPB, and state attorneys general.
On April 13, 2021, NYDFS Superintendent Linda Lacewell announced the creation of a new Statewide Office of Financial Inclusion and Empowerment. Viewed alongside recent remarks from state attorneys general and federal agencies, the creation of this office is further evidence that state and federal agencies plan to prioritize financial inclusion and empowerment under the Biden administration.
What Will the Office of Financial Inclusion and Empowerment Do?
The NYDFS Press Release states that the new Office will "strengthen the mission of the [NYDFS] to protect and empower all New York consumers" and announces the appointment of Hon. Tremaine Wright as the first Director of the Office. The Office was created to help meet the financial services needs of low- and middle-income New Yorkers, and will advance, develop, and pilot financial inclusion initiatives across New York state.
In addition to providing direct services to assist consumers with their "financial access and empowerment needs," the Office also plans to advance initiatives "designed to identify and remove barriers to accessing financial services." The creation of this Office signals an ongoing focus on financial equity and fair lending by the NYDFS, which has previously launched investigations into, among other things, discrimination in the financial services sector. It can be expected that such inquiries and investigations are likely to increase as the newly-created Office of Financial Inclusion and Empowerment identifies potentially unfair or inequitable treatment in the provision of financial services and lending practices.
While it remains to be seen the extent to which NYDFS may impose their investigations and attempts at enforcement of fair lending and financial inclusion on national banks, recent efforts by NYDFS to expand their reach over non-New York banking institutions may provide a roadmap for future enforcement efforts. These efforts are likely to be supported by the broad investigative authority of NYDFS, which is authorized to issue non-judicial administrative subpoenas for documents and testimony without regard to whether the recipient is licensed by NYDFS. In 2019, for example, NYDFS led a multistate investigation into companies engaged in illegal online lending and payroll advances.
Anticipated State and Federal Coordination with Respect to Financial Inclusion
The NYDFS announcement and associated prioritization of financial inclusion and empowerment is consistent with recent statements regarding an increased attention to financial inclusion by numerous state and federal agencies. On June 5, 2020, for example, members of the Federal Financial Institutions Examination Council (FDIC, OCC, Federal Reserve Board, CFPB, NCUA, and the State Liaison Committee) issued a short statement on the importance of financial inclusion. In that statement, the regulators made clear that they are "steadfastly dedicated to ensuring that … financial institutions … provide fair access and fair treatment to everyone in America." CFPB Acting Director Dave Uejio has similarly expressed that the CFPB will be scrutinizing financial institutions with respect to fair lending and treatment of minorities and vulnerable populations; in remarks shared on January 28, 2021, Uejio stated that the CFPB would be looking to "identify and root out unlawful conduct that disproportionately impacts communities of color and other vulnerable populations."
State and federal agencies have also exhibited their recent focus on financial inclusion through the creation of offices and initiatives similar to the NYDFS Office of Financial Inclusion and Empowerment. Last year, for example, the OCC launched its Roundtable for Economic Access and Change, which was established to "promote[ ] financial inclusion through greater access to credit and capital." Also last year, the OCC and HUD announced a new initiative to make affordable housing and capital available to underserved communities through investments and lending.
Moreover, state and federal agencies have also already expressed a willingness to coordinate their efforts to promote consumer access to responsible credit and financial inclusion. In 2019, the CFPB and several state partners—including attorneys general from nine states—launched the American Consumer Financial Innovation Network to "enhance coordination among federal and state regulators…to further objections such as consumer access, competition, and financial inclusion."
While it is clear that financial inclusion is expected to be a top priority at nearly all state and federal agencies under the Biden administration, it remains to be seen how that increased focus will translate to potential investigations and regulatory actions regarding consumer protections and fair lending. It can be expected that these agencies will take an expansive view of unfair or unlawful conduct. But, it is not yet clear the extent to which companies will be held responsible for disparities in outcomes alleged to have been caused by a failure to take affirmative steps to ensure minority outcomes are equal to their representation in the overall population. In all events, financial institutions should expect to see increased coordinated focus amongst the states and federal consumer protection agencies regarding financial inclusion and fair lending practices.
Three Key Takeaways
- NYDFS, along with other state and federal agencies, has signaled that it will be closely scrutinizing financial institutions with respect to fair lending and financial access, inclusion, and empowerment.
- Financial institutions should expect to see increased coordinated focus amongst the states and federal consumer protection agencies regarding fair lending practices and financial inclusion.
- It remains to be seen the extent to which companies will be held responsible for disparities in outcomes alleged to have been caused by a failure to take affirmative steps to ensure minority outcomes are equal to their representation in the overall population.
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