Alston & Bird Consumer Finance Blog

mortgage lending

States Continue Trend Supporting Remote Work for MLOs and Mortgage Company Employees

A&B ABstract:

Effective July 1, Montana will become the latest jurisdiction to codify authorization for mortgage loan originators and mortgage company employees to engage in remote work. That legislation follows a general trend over the past year – and, more so, since the early days of the COVID-19 pandemic – to allow remote operations.

No longer a temporary measure necessitated by pandemic lockdowns, remote work is increasingly acknowledged by regulators as an acceptable permanent option for today’s working environment. Last year, 18 jurisdictions took action to extend temporary permission for, or permanently authorize, the practice, and the trend continues in 2023.

Updates to the Montana Mortgage Act

On February 16, Montana Governor Greg Gianforte signed House Bill 30, substantively amending the Montana Mortgage Act and adding requirements relating to the conduct of mortgage business from a remote location. Specifically, the measure requires that each employee or independent contractor engaged in remote work:

  • Does not meet with the public at an unlicensed personal residence;
  • Does not maintain physical or electronic business records at the remote location;
  • Does not display any signage or advertising of the entity or the MLO at a remote location;
  • Takes reasonable precautions to protect confidential information in accordance with state and federal laws; and
  • Ensures that their NMLS records designate a properly licensed location as the MLO’s official workstation and a manager as a supervisor.

Further, the amended Act mandates that a licensed entity must:

  • Have written policies and procedures for working remotely, and supervise and enforce those policies and procedures;
  • Ensure that any device used to engage in the mortgage business has appropriate security, encryption, and device management controls to ensure the security and confidentiality of customer information;
  • Maintain its computer systems and customer information in accordance with its information technology security plan and all state and federal laws; and
  • Annually review and certify that its employees and independent contractors engaged in the mortgage business from remote locations meet specific requirements, and, upon request, provide the Department of Administration with written documentation of such review.

As discussed further below, the Montana measure follows a pattern established by other states, where remote work requirements have been established by regulatory guidance, and by temporary and then permanent legislation, since mid-2020.

Remote Work Authorization Trends 2020 to Present

The purpose of the legislative and regulatory guidance on remote work has changed since the spring of 2020. Remote work was already considered increasingly viable prior to the COVID-19 pandemic. Permissions and adaptations for remote work accelerated drastically with the onset of the pandemic in the spring of 2020. Today, guidance initially necessitated as an emergency response has become a permanent approach to regulating remote work in many states, enabling mortgage companies to take advantage of the benefits of a new mode of operations.

Throughout the evolution of the remote work trend, industry associations have stepped in to survey the regulatory choices being made across states and to recommend best practices. In July 2020, the Mortgage Bankers Association (“MBA”) issued a letter to the Conference of State Bank Supervisors addressing near- and long-term considerations for allowing remote work. Since that letter, there has been much activity across states in implementing permanent and temporary remote work authorization. In recognition of the significant changes to the mortgage business resulting from the new normal of remote work, on June 7, 2022, the American Association of Residential Mortgage Regulators (“AARMR”) issued guidance on best practices for permitting employees to work remotely.

In general, the guidance requires licensed mortgage entities to:

  1. Develop policies and procedures for adequate supervision of MLOs working remotely;
  2. Ensure that MLOs refrain from meeting with consumers in their homes (unless, if applicable, the MLO’s home is licensed as a branch);
  3. Ensure that MLOs use a VPN or similar system of authentication for access to the company’s secure origination system;
  4. Maintain and update security for devices used to access the company’s secure origination system;
  5. Ensure that MLOs refrain from storing physical business records at any location other than the company’s licensed main office; and
  6. Ensure that documents are available at a licensed location for regulators to conduct examinations.

The majority of legislation enacted, and guidance adopted, by jurisdictions reflects the framework set out by the MBA and AARMR.

State Response

Following the issuance of the MBA and AARMR guidance, several states have focused on effective implementation of key processes for remote operations. For example, jurisdictions including California, Kansas, Kentucky, Ohio, Pennsylvania, Rhode Island, Tennessee, and Washington require licensees to develop a written information security plan to ensure that the security goals for remote work are met.

States such as California provide specific requirements on the safeguards that must be included in the policy. In another common trend, California, the District of Columbia, Kentucky, Pennsylvania, Rhode Island, and Washington explicitly note that a remote location should not be advertised or represented to consumers as an operating location. Across states, licensees should ensure that consumer and licensee information and records remain accessible for regulatory oversight and exams.

2022 State Activity on Remote Work Authorization

In 2022, eight states (California, Kansas, Kentucky, Ohio, Pennsylvania (Amendment), Rhode Island, South Dakota, and Tennessee) enacted legislation addressing remote work. In addition to passing legislation, Pennsylvania enacted an amendatory measure and Rhode Island issued related guidance. Georgia, Oregon, and Washington adopted regulations implementing previous statutory measures. Finally, nine jurisdictions issued guidance, or extended temporary guidance, regarding remote operations: Colorado, the District of Columbia, Kansas, Maine, Oklahoma, Rhode Island, Vermont, West Virginia, and Wyoming.

As of February 2023,  there were significant developments in remote work guidance and legislation in Montana and California. Montana amended the Montana Mortgage Act to permit and establish the requirements for mortgage business employees to work remotely effective July 1, 2023. The California Department of Financial Protection and Innovation issued guidance permitting remote work by employees of a licensee under the California Residential Mortgage Lending Act.

Outliers and Special Considerations

Jurisdictions have not implemented remote work guidance uniformly. Mortgage companies and MLOs should be aware of unique requirements and restrictions in certain states.

Security and Data Privacy

Mortgage industry regulators and companies are particularly concerned with ensuring responsible handling of data and maintaining the security of company systems and consumer information in connection with remote operations. Reflecting this concern, California’s legislation requires companies to provide employees working remotely with appropriate equipment to perform the work and safeguard records and personal information. In addition to the prohibition on storing physical records at a remote location, California prohibits the receipt of business-related mail at a remote location.

Similarly, the new South Dakota and Rhode Island provisions on remote work mandate employee training on the confidentiality of conversations with, or relating to, consumers that are conducted from the remote location.

Location Requirements

Mortgage companies and MLOs should be aware of particular requirements for the location of an eligible remote work site. Pennsylvania expressly requires that the location where the remote work takes place is not owned or controlled by the licensee. Pennsylvania’s legislation would allow remote work from a location that is under the control of a subsidiary or affiliate of the licensee, if the location is only used by the licensee or on an incidental basis for consumer convenience. Note that under Pennsylvania’s provisions, in-person consumer interaction is permitted at a remote location if that location is not a personal residence.

Regulators may not apply all of these requirements as written. Rhode Island’s provisions include the requirement that the remote location be within a reasonable distance of the licensed place of business or branch location. Despite the text of the statute and regulations, the Department of Business Regulation issued regulatory guidance indicating that “MLOs are not required to live within a certain distance” of a main office or branch location. Instead, companies are required to provide proof of effective supervision of MLOs.

Supervisory Requirements

Some jurisdictions permit remote locations to be licensed as branches, even when the location is a personal residence. Georgia will consider a personal residence to be a branch and subject it to branch licensing requirements when the following conditions are met: (1) advertising the location as place of business; (2) receiving consumers; (3) maintaining physical files; or (4) arranging for the licensee to reimburse rent, utilities, or other expenses for the location. If none of the conditions are met, a personal residence that is a remote work location will not be considered a branch.

As an additional oversight measure, Kansas, Kentucky, and Tennessee require licensees to annually review and certify that employees engaged in remote work meet the applicable requirements under the relevant legislation.


As the Montana measure evidences, the trend towards authorizing and regulating remote work has not stopped in 2023. First, in January, the Nebraska and Virginia legislatures introduced bills related to allowing remote work. Second, more of the jurisdictions that in 2022 updated their remote work statutes are expected to adopt corresponding regulations or issue guidance to implement or supplement the new requirements for remote work authorization. For example, Vermont has announced that it will adopt regulations to implement the changes to its mortgage licensing statute that allow remote work in the coming months.

Further, some states that have not yet authorized remote work for MLOs and mortgage company employees have passed legislation authorizing remote work by employees of companies holding certain non-mortgage licenses. Colorado passed legislation in 2022 to permanently allow supervised lender licensees to work remotely. Colorado is one of the states that has also opted to extend temporary authorization for regulated entities that are not covered by the new legislation, including mortgage licensees into 2023. Based on the activity we have seen so far this year, and announcements regarding anticipated rulemaking activity, MLOs and mortgage company employees should expect future developments in this area.

* We would like to thank Associate, Rachel Myers, for their contribution to this blog post.

CFPB Issues Advisory Opinion Warning Against Kickbacks for Mortgage Rate Shopping Platforms

A&B ABstract:

Last week, the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion to address the applicability of the Real Estate Settlement Procedures Act (RESPA)’s Section 8 – the anti-kickback provision – to operators of certain digital technology platforms that enable consumers to comparison shop for mortgages and other real estate settlement services. These platforms include those that generate potential leads for the platform participants through consumers’ interactions with the platform, referred to by the CFPB as Digital Mortgage Comparison-Shopping Platforms.

The Advisory Opinion

The Advisory Opinion is an interpretive rule issued under the CFPB’s authority to interpret RESPA and Regulation X, including under section 1022(b)(1) of the Consumer Financial Protection Act of 2010, which authorizes guidance as may be necessary or appropriate to enable the CFPB to administer and carry out the purposes and objectives of federal consumer financial laws.

The Advisory Opinion provides that an operator of a Digital Mortgage Comparison-Shopping Platform violates RESPA section 8 if the platform provides enhanced placement or otherwise steers consumers to platform participants based on compensation the platform operator receives from those participants rather than based on neutral criteria.

More specifically, the Advisory Opinion states that an operator of a Digital Mortgage Comparison-Shopping Platform receives a prohibited referral fee in violation of RESPA section 8 when: (1) the Digital Mortgage Comparison-Shopping Platform non-neutrally uses or presents information about one or more settlement service providers participating on the platform; (2) such non-neutral use or presentation of information has the effect of steering the consumer to use, or otherwise affirmatively influences the selection of, those settlement service providers, thus constituting referral activity; and (3) the operator receives a payment or other thing of value that is, at least in part, for that referral activity. In other words, where the platform’s operator presents lenders based on extracted referral payments rather than the shopper’s personal data or preferences or other objective criteria, the platform has violated section 8 of RESPA. The CFPB provides two (2) examples of prohibited conduct:

  • Platform operator presents a lender as the best option because that lender pays the highest referral fee. However, the shopper is led to believe the lender was selected based on their shared personal data or preferences.
  • Platform receives payments from lenders to rotate them as the top presented option regardless of whether the highlighted lender is the best fit for the shopper.

Furthermore, if an operator of a Digital Mortgage Comparison-Shopping Platform receives a higher fee for including one settlement service provider compared to what it receives for including other settlement service providers participating on the same platform, the CFPB views this as evidence of an illegal referral fee arrangement (absent other facts indicating that the payment is not for enhanced placement or other form of steering). Ultimately, where a platform’s formula is designed to steer shoppers to use providers in which the operator has a financial stake, the platform has violated section 8 of RESPA.


The CFPB is concerned that Digital Mortgage Comparison-Shopping Platforms, particularly popular during a time of increasing mortgage interest rates, may attempt to take advantage of consumers rather than provide them with a neutral and fair presentation of the providers that may best meet their mortgage or other settlement needs. Any entity involved, even tangentially, in the mortgage settlement process, should ensure that services are offered based on neutral criteria rather than the compensation received from a third-party provider.

Moving to Address Appraisal Bias, Agencies and the Appraisal Foundation Issue Updates

A&B ABstract:

 A year and a half after President Biden’s announcement of the Interagency Task Force on Property Appraisal and Valuation Equity (“PAVE”), the past weeks have seen a flurry of activity from federal agencies and the Appraisal Foundation to address issues of bias in residential property appraisal.  What should lenders, servicers, and appraisers know?


In June 2021, President Biden announced the formation of the PAVE Task Force, comprising 13 federal agencies, including the White House Domestic Policy Council.  He tasked the group with identifying and evaluating “the causes, extent, and consequences of appraisal bias and to establish a transformative set of recommendations to root out racial and ethnic bias in home valuations.”

In March 2022, the member agencies of the PAVE Task Force published an action plan, announcing a series of concrete commitments to address appraisal bias in five broad categories:

  • strengthening guardrails against discrimination in all stages of residential valuation;
  • enhancing fair housing and fair lending enforcement, and driving accountability in the appraisal industry;
  • building a diverse, well-trained, and accessible appraiser workforce;
  • empowering consumers to take action against bias; and
  • giving researchers and enforcement agencies better data to study and monitor valuation bias.

While the Task Force’s activity is ongoing, federal agencies in the past few weeks have announced a series of steps that are in line with the PAVE goal of addressing real property appraisal bias.

FHA: Draft Mortgagee Letter on Reconsiderations of Value and Appraisal Review

On January 3, 2023, the Federal Housing Administration (“FHA”) published for public comment a draft mortgagee letter, Borrower Request for Review of Appraisal Results, that would permit a second appraisal to be ordered if a Direct Endorsement underwriter determines that an original appraisal contains a material deficiency.  The letter would expressly identify as a material deficiency – one that would directly impact value and marketability of the underlying property – either indications of unlawful bias in the appraisal or of a violation of applicable federal, state, or local fair housing and non-discrimination laws.

Further, the draft mortgagee letter would require the underwriter in a transaction involving an FHA-insured loan to “review the appraisal and determine that it is complete, accurate, and provides a credible analysis of the marketability and value of the Property.”  Among other criteria, this would require the underwriter to make a determination of whether the appraisal is materially deficient – that is, whether the appraisal contains indications of unlawful bias or of a violation of applicable fair housing and non-discrimination laws.  Providing a “credible analysis” exceeds the scope of a quality control review.  If included in a finalized mortgagee letter, it would require lenders to determine whether underwriters must be state-licensed or -certified appraisers.

The draft mortgagee letter also sets forth standards for the submission and consideration of a borrower’s request for a review of appraisal results, including the submission of a reconsideration of value request to the appraiser.

VA: Enhanced Oversight Procedures to Combat Appraisal Bias

On January 18, the Department of Veterans Affairs (“VA”) issued Circular 26-23-05, detailing the enhanced oversight procedures that the VA has adopted “to identify discriminatory bias in home loan appraisals and act against participants who illegally discriminate based on race, color, national origin, religion, sex (including gender identity and sexual orientation), age, familial status, or disability.”

In the Circular, the VA indicated that it will review all appraisal reports submitted in connection with VA-guaranteed home loans to identify any potential discriminatory bias.  The VA will: (a) conduct an escalated review of any suspected incidents of bias; and (b) remove from its panel of approved appraisers any individual who is confirmed to have provided a biased appraisal as the result of such a review.

The VA also reminded panel appraisers that in submitting a Fannie Mae Form 1004 (Uniform Residential Appraisal Report), they certify that they have not based the opinion communicated in an appraisal report on discriminatory factors (e.g., the race) of either the property applicants or the residents of the area in which the property is located.

Appraisal Foundation: Proposed Revision of Appraisal Standards

In mid-December, the Appraisal Standards Board (“ASB”) of the Appraisal Foundation released its fourth exposure draft of proposed changes to the Uniform Standards of Professional Appraisal Practice (“USPAP”), the operational standards that govern real property appraisal practice.

In response to comments received in response to the last draft, the ASB proposes to add to the USPAP Ethics Rule a section expressly discussing non-discrimination.  The proposed section would prohibit appraisers from engaging in both unethical discrimination and illegal discrimination, and would provide guidance as to the type of conduct constituting each form.

Unethical Discrimination:

First, the ASB proposes to include an express statement that an appraiser must not engage in unethical discrimination.  First, that prohibition would preclude an appraiser from developing and/or reporting an opinion or value that is based, in whole or in part, on the actual or perceived protected characteristics of any person.

Second, the rule would prohibit an appraiser from performing an assignment with bias with respect to the actual or perceived protected characteristics of any person – meaning that the appraiser may not engage in any discriminatory conduct (regardless of whether it arises in the course of developing and/or reporting an opinion of value). For purposes of this prohibition, the rule would utilize the USPAP definition of bias: “a preference or inclination that precludes an appraiser’s impartiality, independence, or objectivity in an assignment.”

The rule would make a limited exception for activity that qualifies with “limited permissive language,” permitting an appraiser to use or rely upon a protected characteristic in an assignment only where:

  • laws and regulations expressly permit or otherwise allow the consideration of a protected characteristic;
  • use of or reliance on that characteristic is essential to the assignment and necessary for credible assignment results; and
  • consideration of the characteristic is not based upon bias, prejudice, or stereotype.

The exposure draft provides as an example of activity that might qualify for the exception the completion of an appraisal review in order to determine whether the initial appraisal was discriminatory.

The ASB proposal makes clear that because “an appraiser’s ethical duties are broader than the law’s prohibitions,” an appraiser may commit unethical discrimination without violating any applicable law; however, an act that “constitutes illegal discrimination … will also constitute unethical discrimination.”

Illegal Discrimination:

Complementing the prohibitions discussed above, the ASB proposes to include an express statement that an appraiser must not engage in illegal discrimination – conduct that violates the minimum standards of anti-discrimination set forth in the Fair Housing Act (“FHA”), the Equal Credit Opportunity Act (“ECOA”), and Section 1981 of the Civil Rights Act of 1866 (“Section 1981”).  The rule would impose on appraisers a duty to understand and comply with such laws as they apply to the appraiser and the appraiser’s assignments, including the concepts of disparate treatment and disparate impact.  Further, the rule would prohibit an appraiser from using or relying on a non-protected characteristic as a pretext to conceal the use of or reliance upon protected characteristics when performing an assignment.

Further Guidance:

 The exposure draft indicates that the ASB would follow the adoption of the new non-discrimination section of the ethics rule with detailed guidance on the scope of these prohibitions, including:

  • Background on federal, state, and local anti-discrimination laws;
  • Guidance on the application of FHA, ECOA, and Section 1981 to appraisals of residential real property;
  • Explanation of the disparate treatment and disparate impact theories of discrimination, including examples relating to appraisal practice;
  • Guidance on neighborhood discrimination in real property appraisals; and
  • Clarification on acceptable uses of protected characteristics, in connection with the “limited permissive language” exception for the prohibition against unethical discrimination.

OMB: AVM Rule on Regulatory Agenda

 Automated valuation models  (“AVMs”) are considered a useful tool to help mitigate appraisal discrimination.  On January 4, the Office of Management and Budget (“OMB”) released its Fall 2022 Regulatory Agenda.  Among other topics, OMB indicated that an interagency proposed rule addressing quality control standards for AVMs is expected in March 2023. The Dodd-Frank Act’s amendments to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) require the federal banking regulatory agencies to undertake this rulemaking.

 ASC: Hearing on Appraisal Bias

 On January 24, the Appraisal Subcommittee (“ASC”) of the Federal Financial Institutions Examination Council held a hearing on appraisal bias.  Of note, Consumer Financial Protection Bureau Director Rohit Chopra ended the hearing by articulating the objective that the “lodestar” of appraisals is an appraisal that neither too high nor too low, but rather is accurate.    Director Chopra then questioned the regulatory structure governing appraisals, calling it “byzantine.”  His remarks focused on the funding mechanism between the Appraisal Institute and the Appraisal Foundation, implying that there may be a conflict of interest.

To understand Director Chopra’s comment requires knowledge of the current regulatory framework, which Title XI of FIRREA established in 1989.   It includes three principal parties: the ASC, the Appraisal Foundation, and the Appraisal Institute:

  • The ASC is a federal agency with oversight responsibility of the state appraisal regulatory structure for real property appraisers as well as to monitor activities of the Appraisal Foundation.
  • The Appraisal Foundation is a private non-profit educational organization. Through the ASB and the Appraiser Qualifications Board (“AQB”), the Appraisal Foundation sets the ethical and performance standards of appraisers in the USPAP.  The AQB establishes the minimum education, experience, and examination requirements for real property appraisers, which are then enforced by state regulatory agencies.  The Appraisal Foundation is funded through sales of publications and services, as well as by its sponsoring organizations.
  • The Appraisal Institute is a private professional organization of appraisal professionals, and is one of the sponsoring organizations of the Appraisal Foundation.


 Viewed through the lens of the overall PAVE Task Force efforts, actions by the FHA and the VA show early and concrete action to address residential appraisal bias.  Because they implicate government insurance and guarantee programs, the focus is particularly important for lenders and appraisers to take heed of – such that documentation submitted to the agencies is accurate.

Appraisers should also take note of the updated USPAP exposure draft as it moves toward final adoption, so that they are aware of their responsibilities with respect to avoiding bias in appraisal reports. Finally, with regulators scrutinizing the appraisal framework – as seen in the OMB and ASC announcements – more significant changes are expected.

District Court Dismisses CFPB’s Redlining Case Against Townstone Financial

A&B ABstract:

On Friday, in the CFPB v. Townstone Financial fair lending case, the U.S. District Court for the Northern District of Illinois dismissed with prejudice the complaint filed by the Consumer Financial Protection Bureau (CFPB), holding that the plain language of the Equal Credit Opportunity Act (ECOA) does not prohibit discrimination against prospective applicants.


 The complaint, filed by the CFPB in July 2020, alleged that Townstone Financial, Inc., a nonbank retail-mortgage creditor and broker based in Chicago, engaged in discriminatory acts or practices in violation of ECOA, including: (1) making statements during its weekly radio shows and podcasts through which it marketed its services, that discouraged prospective African-American applicants from applying for mortgage loans; (2) discouraging prospective applicants living in African-American neighborhoods from applying for mortgage loans; and (3) discouraged prospective applicants living in other areas from applying for mortgage loans for properties located in African-American neighborhoods.

Court Opinion

The court, in its opinion, summarized the allegations as follows: “The CFPB alleges that Townstone’s acts and practices would discourage African-American prospective applicants, as well as prospective applicants in majority- and high-African-American neighborhoods in the Chicago MSA from seeking credit.” To determine whether the CFPB’s allegation of discrimination against “prospective applicants” was permissible under ECOA, the court applied the framework set forth in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

The court found, upon applying the first step of the Chevron analysis, that “Congress has directly and unambiguously spoken on the issue at hand and [that ECOA] only prohibits discrimination against applicants” (emphasis added). In granting Townstone’s motion to dismiss, the court reasoned that the plain text of the ECOA applies to “applicants,” which the ECOA “clearly and unambiguously defines as a person who applies to a creditor for credit” – and not to “prospective applicants.” Given this, the court was not required to move on to the second step of the Chevron analysis and consider the CFPB’s interpretation of the statute. Accordingly, the CFPB’s claim under ECOA was dismissed with prejudice, as “the CFPB cannot amend its pleading in a way that would change the language of the ECOA.”

Notably, the fact that the anti-discouragement provision of Regulation B refers to “prospective applicants” was not sufficient to convince the court. Further, because the court found that ECOA unambiguously applies only to “applicants,” the court did not analyze whether the ECOA’s prohibition on “discrimination” encompasses “discouragement.” The court likewise did not reach Townstone’s argument that the CFPB is attempting to create affirmative obligations with respect to marketing and the hiring of loan officers, nor its arguments under the First and Fifth Amendments.


Ultimately, the court’s dismissal of the CFPB’s case against Townstone casts significant doubt on the agency’s ECOA discouragement theory and its approach to fair lending enforcement, particularly the agency’s redlining investigations. We expect the CFPB to appeal the court’s order, though it is possible that existing investigations based on allegations of discouragement may experience a temporary slowdown in the interim.

Illinois Proposes Rules Implementing Its Community Reinvestment Act for Banks, Mortgage Lenders, and Credit Unions

A&B ABstract:

The Illinois Department of Financial and Professional Regulation (“IDFPR”) has issued a notice of proposed rules to implement the newly passed Illinois Community Reinvestment Act (“ILCRA”), aimed at serving the credit needs of low- and moderate-income communities and individuals.  The proposal includes a separate set of rules applicable to state-chartered banks, non-depository mortgage lenders, and credit unions.  Each set of proposed rules address topics that include, among other things, performance tests and ratings by institution size or business model, assessment area delineation, data collection and reporting, and examination procedures. The IDFPR is soliciting comments from interested stakeholders through March 16, 2023 and will be holding three public hearings related to the rules.

What’s New?

The proposal outlines CRA responsibilities and performance evaluation measures for banks and would subject them to a CRA examination by the IDFPR, in addition to their federal CRA examinations.  The rules themselves, however, are essentially the same as under the federal CRA.

Under the ILCRA, non-depository mortgage lenders and credit unions are subject to CRA requirements.  As described in the proposal, credit unions and non-depository mortgage lenders would be subject to a CRA evaluation based on a testing framework that looks similar to the current federal CRA framework, meaning that the IDFPR will examine these institutions under tests that look similar to the current federal CRA tests depending on their operations and asset sizes.

Credit Unions

The proposal’s requirements for Illinois-chartered credit unions look comparable to those for banks under the current federal CRA and the proposal.  Akin to banks, credit unions would have CRA responsibilities in delineated assessment areas, which are communities based on where credit unions have their main offices, branches, and deposit-taking ATMs.  These responsibilities take the form of lending, investment, and service tests based on asset size thresholds and then add resultant evaluation elections depending on asset size.  Additionally, the proposal provides an alternative evaluation framework for wholesale and limited purpose credit unions, involving a community development test, and strategic plan evaluation option.  The lending test includes home mortgage, small business, and small farm loans, though it also adds potential consumer loans, such as motor vehicle, credit card, home equity, other secured, and other unsecured loans, depending on the credit union’s loan portfolio.  Credit unions would also have data collection, reporting, and disclosure requirements, though those requirements are reduced for small credit unions.

Non-depository Mortgage Lenders

Under the proposal, non-depository mortgage lenders licensed pursuant to the Residential Mortgage License Act of 1987 which made 50 or more HMDA-reportable home mortgage loans in the previous calendar year will have CRA responsibilities.  There are a number of key aspects of the proposal specific to mortgage lenders that differ from the rules for credit unions and banks:

  • In contrast to banks or credit unions, CRA activities would be assessed state-wide, not based on delineated assessment areas.
  • The proposal outlines that mortgage lenders would be subject to lending and service tests, but not an investment test. Instead, the proposal states that a mortgage lender that warrants a satisfactory rating can be considered for an outstanding rating based on its level of qualified investments and community development loans, which is essentially the traditional CRA investment test.
  • Importantly, and in contrast to the lending test evaluations of banks or credit unions, mortgage lender performance criteria for the lending test explicitly includes not only the portfolio of loans’ geographic distribution, borrower characteristics, and innovative or flexible lending practices, but also (i) loss mitigation efforts, (ii) fair lending performance, and (iii) contribution to the loss of affordable housing units. These are new areas not contained in the federal CRA, either.
  • Finally, mortgage lenders will also have data collection and reporting requirements, which would include “additional data fields beyond what is required under HMDA.” These data fields are not specified in the proposal.

What’s Surprising?

The proposed regulations implementing ILCRA, as applicable to Illinois-chartered banks, largely mirror the federal CRA regulations applicable to state-chartered institutions.  But those federal CRA regulations are on the precipice of a major overhaul.  As proposed by the interagency Notice of Proposed Rulemaking to the federal CRA, where a bank will have CRA responsibilities, the substance of those responsibilities, the measurement of those responsibilities, and the record keeping and reporting of those responsibilities are slated for significant change under a completely new framework.  Whether those changes will be finalized as currently proposed by the three prudential banking regulators remains to be seen, but the fact that the IDFPR’s suggested framework for bank compliance with the ILCRA is based on a likely soon-to-be outdated set of regulations is surprising.  The proposal does note that the ILCRA regulations are intended to follow the federal standards.  Accordingly, there could be a revision in the works sooner-than-later should the federal CRA regulations change contemporaneously with or soon after the ILCRA regulations are finalized.


Compliance with the ILCRA as proposed would be relatively easy to plan for and implement because it generally applies the current and 28-year-old federal CRA regulations to Illinois banks, non-depository mortgage lenders, and credit unions, as relevant to the type of financial institution.  However, these Illinois financial institutions would be wise to monitor the federal CRA modernization efforts with an eye to the future.  As the ILCRA proposal comment window is open, affected stakeholders should consider voicing any concerns with their future CRA responsibilities.