Mr. Thomas Pahl
Policy Associate Director
Bureau of Consumer Financial Protection
1700 G Street, NW
Washington, DC 20552
The American Bankers Association (ABA) appreciated the opportunity to meet with you, David Silberman, Alexa Reimelt, and Laura Stack on September 4 to discuss member concerns about the 2018 Home Mortgage Disclosure Act (HMDA) data and the unresolved issues regarding the public disclosure of the new data fields.
As you are aware, the 2015 final HMDA rule has increased from 39 to 110 the data fields that lenders must collect and report to the Bureau for each reportable application, and many of the existing data fields have been modified. In addition, in August 2017, the Bureau issued a final rule that made a number of technical corrections and clarifications to reporting requirements. These changes, coupled with the new web-based data submission and edit-check system (the HMDA Platform), have generated a significant number of questions from our members as they diligently work to collect and accurately report the data.
As discussed during our meeting, lenders consult a number of sources to find answers to these questions, including consulting Bureau implementation aids, third-party vendors, outside counsel and consultants, ABA, and state bankers associations. Despite these resources, a significant number of questions have not been answered definitively, leaving lenders to make interpretations of the rule—based upon their best judgment in light of such information as may be available—as to what to report in certain fields. It can be expected that lenders acting reasonably and in good faith will make different interpretations, resulting in inconsistencies in how the data are reported for many of the fields.
Indeed, in its December 21, 2017, public statement on HMDA compliance, the Bureau recognized “the significant systems and operational challenges needed to meet the impending requirements under the rule” and the data errors that can be expected. Accordingly, the Bureau assured lenders,
It does not intend to require financial institutions to resubmit data unless data errors are material, or to pay penalties with respect to data errors. Accordingly, collection and submission of the 2018 HMDA data will provide financial institutions an opportunity to focus on identifying any gaps in their implementation of the additional requirements and making improvements in their HMDA compliance management systems for future years. The Bureau expects that any supervisory examinations of 2018 HMDA data will be diagnostic, to help institutions identify compliance weaknesses, and will credit good-faith compliance efforts.
While we appreciate this assurance and the Bureau’s continuing efforts to help lenders comply, we believe the acknowledged challenges and data integrity issues should also inform the Bureau’s decision about the data that should be publically disclosed in the spring of 2019.
As promised, attached to this letter is a list of 65 questions lenders have submitted to ABA recently. Prior to sharing the list, we redacted identifying information and removed duplicate (or substantially similar) questions as well as questions ABA staff could answer confidently by referring to the regulation or other HMDA resources. Notably, these questions were submitted to ABA’s compliance helpline between May 1, 2018, and September 14, 2018, demonstrating that despite being three quarters of the way through the first year of data collection, there are a significant number of unanswered questions outstanding.3
In addition, there are two email messages from bankers that describe continuing HMDA implementation challenges presented by third party vendor software and system challenges and errors that require ongoing efforts to resolve. These messages, reflective of others ABA has received, underscore the fact that system and software changes continue to this day, requiring far too many “work arounds” and manual data entries, which exponentially increase error rates. These messages also note the challenges of resolving regulatory ambiguities resulting from vendor interpretations that vary from those of the lender. We hear far too frequently expressions of frustration similar to that stated in Attachment B, “Part of the issue with the CFPB is that they refuse to put their HMDA clarifications in writing so that we can forward to the vendors who disagree with our interpretation. Instead, I have only been able to provide the name(s) of CFPB personnel I have spoken with and forward that information to the vendor.”
ABA believes that these ongoing challenges—which will significantly degrade the integrity of the HMDA data—compel the Bureau to withhold the public release of the new data fields in April 2019. No one will benefit from the publication of data with known data quality issues.
Moreover, it has been ABA’s longstanding position that the Dodd-Frank Act amendments to HMDA expressly require the Bureau to engage in an Administrative Procedure Act (APA) rulemaking to address the privacy issues presented by the public disclosure of the HMDA data. As explained in our 2017 comment to the proposed policy guidance, Disclosure of Loan Level HMDA Data (Proposed Guidance),4 the Dodd-Frank Act defines the terms under which the Bureau is authorized to release to the public an expanded set of loan-level data. The Bureau is required to “develop regulations” “after notice and comment” which: a) establish a method to evaluate whether the publication of specific data will violate consumers’ privacy interests (the balancing test) and b) describe how the Bureau will “modify” any data that trigger this privacy breach. The letter and intent of the law are only satisfied by meeting both of these terms.
The HMDA balancing test, as promulgated in the 2015 HMDA Final Rule, fulfills the statutory obligation to establish a framework for evaluating the impact of disclosure of loan-level data. However, neither that regulation nor the proposed rule established the method to mask the data fields deemed to present privacy risks. It is in this latter action, the application of the balancing test, that the impact of the Final Rule will be felt by all stakeholders, especially consumers. As modified by Dodd-Frank, the statutory requirement is to develop regulations “that modify or require modification of itemized information, for the purpose of protecting the privacy interests of the mortgage applicants or mortgagors, that is or will be available to the public.”5 This clear and unambiguous statutory requirement is not satisfied by promulgating a conceptual framework for making that determination at a later date; rather, it was the outcome that was the core concern for lawmakers when mandating the rulemaking. The application of the test and the outcomes necessitate an APA-compliant rulemaking process.
During the meeting, you stated that the Bureau hopes to finalize the Proposed Guidance by year end and also suggested that APA rulemaking obligations could be addressed when the Bureau reconsiders the 2015 HMDA Rule. ABA believes that this course of action is inadequate. The fact that the Bureau has requested comment on the Proposed Guidance does not excuse a procedural shortcut; the requirements for APA rulemaking encompass far more than notice and comment if we are to realize the promotion of fairness, transparency, and fact-based decision- making. Moreover, a final rule adopted through APA rulemaking has a degree of permanence that is not guaranteed with agency guidance.
We urge the Bureau to withdraw the Proposed Guidance and delay public disclosure of the new data fields until the Bureau has completed a formal APA rulemaking to determine the data fields that will be made public and the data elements that require modification to protect consumer privacy. This also will enable the Bureau to address outstanding interpretive questions and permit lenders and third-party vendors to make the necessary software and system changes, which will ensure that when the new data are released, they are accurate.
Senior Vice President, Center for Regulatory Compliance