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Are 'marketplace' lenders, such as those using Lending Club or Funding Circle, etc., subject to fair lending provisions, such as the Equal Credit Opportunity Act or the Fair Lending provisions of the Fair Housing Act? (Though I realized there are probably few mortgages through these sites.) If so, what are the obligations of lenders under the law, and what is the enforcement mechanism for violations?

  • Jurisdiction please? – Dale M Mar 3 at 19:51
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    ECOA and FHA are U.S. laws, but I should have been clear that the jurisdiction was the United States. – shabbychef Mar 4 at 7:08
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In the case of the ECOA, yes.

The law applies to any person who, in the ordinary course of business, regularly participates in a credit decision, including banks, retailers, bankcard companies, finance companies, and credit unions.

For example, a 2017 American Bankers Association report at pages 91-92 (internal pages numbers, add 7 for pdf page number) which states:

Since marketplace lenders are very much involved in many aspects of the credit transaction, they must structure and operate their lending platforms in compliance with the ECOA and applicable state law counterparts. In addition, the criteria used to determine creditworthiness must not have a disparate impact on the basis of any Prohibited Basis. Notably, the ECOA applies to commercial as well as consumer lending.

The Fair Housing Act also applies in mortgage lending with regard to owner occupied residential housing (see also here). The only meaningful exemption would be for mortgage lending provided by religious organizations to its members only, which does not apply to the situations in the question. But see, Alexander v. AmeriPro Funding, Inc., No. 15-20710 (5th Cir. 2017), cert. denied, U.S. No. 16-cv-01395 (11/6/2017) (holding that the FHA does not apply to secondary market purchases of mortgage loans which are subject at the underlying loan level to the act). This case is discussed starting at page 18 of the American Bankers Association report linked above (internal page numbering, not pdf page number).

For what it is worth, I do not believe that Alexander will be followed by other federal circuits or will remain good law, because it is contrary to a plain reading of the statute and HUD and Consumer Financial Protection Bureau ("CFPB") policy (at least prior to the current administration), and because it requires primary lenders to make prohibited distinctions to cull packages of loans for sale to secondary market purchasers.

  • Thank you for this. As I understand it, the OCC is the agency that enforces ECOA. It is hard for me to imagine them taking action against individual marketplace lenders, even if their collective action results in disparate impact on borrowers. – shabbychef Mar 6 at 5:22
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    @shabbychef The OCC lost jurisdiction to the CFPB under Dodd-Frank files.consumerfinance.gov/f/… (also there may be more than one agency with jurisdiction). I wouldn't be surprised at all to see a state or federal regulator sue a marketplace lender (of course, only if they break this law, something I have no reason to suspect). The Colorado attorney general recently sued several re violations of different consumer protection laws and the CA AG has also done that. See the ABA report cited above. – ohwilleke Mar 6 at 5:33
  • +1, thanks again. – shabbychef Mar 6 at 6:23

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