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Question: Did California recently pass a law whereby mortgage lenders will be subject to a fair lending examination?

Answer:

Yes, California enacted the Fair Lending Examination Act (the “Act”) which is effective January 1, 2027.

The Act requires the Commissioner of the Department of Financial Protection and Innovation (DFPI) to perform fair lending examinations of banks, credit unions, and residential lenders and servicer licensees to ensure compliance with applicable mortgage lending nondiscrimination / fair lending laws.

Specifically, the Act requires the DFPI to examine lender, banks and credit unions meeting certain HMDA volume thresholds at least once every 4 years. For residential mortgage lenders and servicer licensees, the DFPI is to incorporate the fair lending examination into its existing supervisory framework, which requires review of licensees at least once every 48 months. This means that mortgage lenders, banks, and credit unions operating in CA will be examined by the DFPI for adherence to fair lending laws by the end on 2030, if not sooner.

The examinations will cover federal and California fair lending laws, including the Equal Credit Opportunity Act, the Fair Housing Act, California’s Unruh Civil Rights Act, and the Holden Act (California’s anti-redlining statute). Notably, the Act permits the DFPI to accept comparable state, federal, and agency exams to avoid duplication, but this will likely not affect mortgage lenders.

Results of the DFPI’s fair lending examinations will not be disclosed to the public, but may be shared with law enforcement officials and other state or federal regulatory agencies. The DFPI will impose the cost of examination and fees on the examined institutions.