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Consumer Financial Protection Bureau (CFPB)
CFPB and Justice Department Take Action Against Fairway for Redlining Black Neighborhoods in Birmingham, Alabama
The CFPB and U.S. Department of Justice took action against Fairway Independent Mortgage Corporation. The CFPB and DOJ allege that Fairway redlined Black neighborhoods, including through its marketing and sales actions. Fairway’s actions discouraged people from applying for mortgage loans in the Birmingham metropolitan area’s Black neighborhoods. If entered by the court, the settlement announced today would require Fairway to pay a $1.9 million civil penalty to the CFPB’s victims relief fund. Fairway would also be required to provide $7 million for a loan subsidy program to offer affordable home purchase, refinance, and home improvement loans in majority-Black neighborhoods.
The CFPB and DOJ allege that Fairway violated the Equal Credit Opportunity Act, the Consumer Financial Protection Act, and the Fair Housing Act. Specifically, the government alleges problematic conduct by Fairway including:
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Failing to address known signs of discrimination: Fairway's own data showed that it was failing to serve majority-Black neighborhoods in the Birmingham area, but, before October 2022, it took no steps to address redlining risk other than telling loan officers not to discriminate. Only 3.7% of Fairway’s applications from 2018 through 2022 were for properties in majority-Black areas, compared to 12.2% for Fairway’s peer lenders. This disparity was even higher in neighborhoods with 80% or more Black residents, where Fairway made loans at less than an eighth of the rate of its peer lenders. Despite these figures, Fairway failed to adopt any written plan for marketing or growth to address the concern.
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Redlining Black neighborhoods: From 2015 through 2022, Fairway operated three retail loan offices and three loan production desks located in real estate offices in the Birmingham metropolitan area, all of which were in majority-white areas. Fairway also relied on referrals from real estate professionals and others to generate applications, and the vast majority of Fairway’s referral sources and referred consumers were located in majority-white areas. Fairway predominantly directed its marketing to majority-white areas. By taking these actions, Fairway unlawfully discouraged mortgage loan applications for properties in majority-Black neighborhoods.
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Financial Crimes Enforcement Network (FinCEN)
FinCEN Assesses Record $1.3 Billion Penalty Against TD Bank
FinCEN assessed a record $1.3 billion penalty against TD Bank for violations of the Bank Secrecy Act (BSA). As part of the settlement, TD Bank admits that it willfully failed to implement and maintain an AML program that met the minimum requirements of the BSA and FinCEN’s implementing regulations. FinCEN’s investigation revealed that TD Bank knew that its AML program was neither appropriately designed nor adequately resourced to mitigate the actual illicit finance risks that it faced on multiple fronts. Among other failures, TD Bank’s processing of peer-to-peer transactions (e.g., Venmo and Zelle), including transactions indicative of human trafficking, was insufficient, and as a result, TD Bank failed to identify and timely report these transactions to FinCEN. TD Bank also allowed significant backlogs of potentially suspicious activity to persist, thereby depriving law enforcement of necessary information. TD Bank knew that it was the subject of significant funnel account activity involving high-risk countries yet failed to take timely action to address this substantial risk.
TD Bank also failed to timely detect suspicious activity involving its own employees. For example, in 2021, a TD Bank employee facilitated the laundering of narcotics proceeds in exchange for bribes. This employee opened numerous accounts, including for shell companies, that then engaged in millions of dollars’ worth of funnel account activity in a high-risk jurisdiction where TD Bank maintained no operations. TD Bank knew that this type of activity was not subject to appropriate controls and failed to mitigate this glaring risk.
As a result of these failures, TD Bank allowed trillions of dollars in transactions annually to go unmonitored for potentially suspicious activity that would require reporting to FinCEN. Specifically, during the time period covered by the Consent Order, TD Bank willfully failed to file Suspicious Activity Reports (SARs) on thousands of suspicious transactions—totaling approximately $1.5 billion. Additionally, TD Bank’s Currency Transaction Reports (CTRs) of large cash transactions were often delayed, and, in some instances, misleading to law enforcement.
TD Bank failed to properly limit or report suspicious transactions and cash activity that included substantial criminal activity, as further detailed in the Consent Order. For example, from 2017 to 2021, TD Bank facilitated over $400 million in transactions for Da Ying Sze (Sze), who pled guilty to money laundering in 2022 for his role in conspiring to hide proceeds of narcotics trafficking. Sze conducted most of these transactions in large sums of cash (often in bags that Sze brought into TD Bank branches), yet the Bank failed to timely limit or restrict Sze’s activity. TD Bank failed to timely file SARs on a substantial portion of this activity and also failed to identify Sze in more than 500 CTRs totaling more than $400 million, which hindered FinCEN and law enforcement.
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League InfoSight Highlight: Coming in 2025: Secondary Market Reconsideration of Value Requirements Effective October 31st
Back in July, the joint agencies, including the National Credit Union Administration (NCUA), finalized their reconsideration of value (ROV) guidance. The guidance provides examples of policies and procedures that the credit union may choose to implement to help identify, address, and mitigate the risk of discrimination impacting residential real estate valuations.
Credit unions that sell their loans on the secondary market will soon have mandatory reconsideration of value requirements that they must follow. In May, Fannie Mae issued Selling Guide Announcement SEL-2024-03 and Freddie Mac issued Bulletin 2024-06. These documents require sellers to establish and follow policies and procedures when responding to a reconsideration of value request.
Sellers must notify borrowers at the time of application and again upon delivery of the appraisal of their right to request an ROV and what information will be required in support of that request. These new policy and procedure requirements are effective in connection with applications dated on or after October 31, 2024.
FHA is also implementing ROV requirements in connection with HUD guaranteed loans. These requirements are found in Mortgagee Letter 2024-07. Similar to the Fannie and Freddie requirements, applicants must be notified of their right to request an ROV, what information will be required in support of their request and expected processing times.
FHA’s requirements are effective in connection with transactions that have a case number assigned on or after October 31, 2024.
Credit unions can find model content related to Reconsiderations of Value (7302.10) within CU PolicyPro. Please note credit unions will need to customize this resource based on the applicable GSE requirements.
Michael R. Christians
Regulatory Compliance Counsel
Michael Christians Consulting, LLC
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GoWest Credit Union Conversations: Fraud & Risk Management
Exciting news! The Fraud and Risk Management Conversation is now live!
Email notifications from “GoWest Online” were sent to former participants of the Risk Management Listserv informing them of a message posted inside the Fraud and Risk Management Conversation. The Risk Management Listserv is now closed, and they have been added to the Fraud and Risk Management Conversation, which is a new tool to connect with other Fraud and Risk Managers! All the benefits of the Listserv will be available, plus much more.
The new tool can be accessed either from the email by clicking the “View/Comment” button in the emails you receive from Conversations, or by logging in directly. Log into your GoWest Online account, click “My Account” and then “Home” to see the Conversations.
The new Conversation will allow credit unions to share developing fraud issues with each other along with other risk mitigation strategies.
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