On September 30, the California governor signed AB 801, the California Fair Lending Examination Act. The law, effective January 1, 2027, requires the commissioner of the California DFPI to examine certain state banks and credit unions at least once every four years for compliance with nondiscrimination laws that apply to mortgage lending. The requirement covers institutions that meet at least one of the criteria in 12 CFR 1003.2(g)(1)(v). The law also adds a nondiscrimination review to the exams the DFPI already conducts of residential mortgage lender and servicer licensees at least once every 48 months. The covered laws include the ECOA, the federal Fair Housing Act, California’s Fair Employment and Housing Act (FEHA), the Holden Act, and the Unruh Civil Rights Act. A violation of any applicable nondiscrimination law becomes a violation of the Banking Law, the California Credit Union Law or the California Residential Mortgage Lending Act (CRMLA), as applicable. The commissioner may bring enforcement actions under those laws or under Division 24 of the Financial Code, which contains the California Consumer Financial Protection Law. According to the Legislative Counsel’s Digest, the law expands the scope of the crimes of perjury and of violating the CRMLA.

For all three types of institutions, the commissioner may review books, records and documents and examine officers, directors, employees and agents under oath. The commissioner may also accept exams conducted by other state or federal agencies, Fannie Mae or Freddie Mac in lieu of conducting its own, unless the exams do not provide the information needed. The commissioner may conduct targeted exams for due cause and may exempt or reduce exams for institutions that showed full compliance in their most recent exam. The commissioner must provide written findings and take steps to correct violations. For banks and credit unions, those violations expressly include a discriminatory effect under the FEHA that is “not attributable to a legitimate business interest.” The mortgage licensee provisions do not contain that language. The law also makes affiliates of banks and credit unions subject to examination when a report from, or examination of, the institution provides documented evidence of unlawful activity between the institution and an affiliate benefiting, affecting or arising from the activities regulated by the new nondiscrimination provisions. Institutions must pay exam fees that do not exceed reasonable exam expenses. Exam findings may be shared only with the examined entity, law enforcement, and other regulators, and exam reports are not public records.