The CFPB is directing its examiners to apply the Consumer Financial Protection Act’s unfairness standard to conduct considered to be discriminatory whether or not it is covered by the Equal Credit Opportunity Act (such as in connection with denying access to a checking account). Under the CFPA, an act or practice is “unfair” if (1) it causes or is likely to cause substantial injury to consumers, (2) the injury is not reasonably avoidable by consumers, and (3) the injury is not outweighed by countervailing benefits to consumers or competition. In its press release, the CFPB states:
The CFPB will examine for discrimination in all consumer finance markets, including credit, servicing, collections, consumer reporting, payments, remittances, and deposits. CFPB examiners will require supervised companies to show their processes for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups. CFPB examiners will look at how companies test and monitor their decision-making processes for unfair discrimination, as well as discrimination under ECOA.
- In determining through discussions with management and a review of available information whether an entity’s internal controls are adequate to prevent UDAAPs, the issues examiners are directed to consider are expanded to include whether:
- The entity has established policies and procedures to mitigate potential UDAAP concerns arising from the use of its decision-making processes, including discrimination;
- The entity’s policies, procedures, and practices do not target or exclude consumers from products or services, or offer different terms and conditions, in a discriminatory manner; and
- The entity has appropriate training for customer service personnel to prevent discrimination.
- The process for identifying areas for potential transaction testing is expanded to direct examiners to determine whether:
- The entity improperly gives inferior terms to one customer demographic as compared to other customer demographics;
- The entity improperly offers or provides more products or services to one customer demographic as compared to other customer demographics;
- Customer service representatives improperly treat customers of certain demographics worse or provide extra assistance or exceptions to customers of certain demographics;
- The entity engages in targeted advertising or marketing in a discriminatory way;
- The entity uses decision-making processes in its eligibility determinations, underwriting, pricing, servicing, or collections that result in discrimination; and
- The entity fails to evaluate and make necessary adjustments and corrections to prevent discrimination.
This is a troubling development in that it does affect Brokers and Lenders who create special programs for unique niches. For example, a better rate for a doctor or medical professional, than a rate for a salesperson in a retail store. In this example, we are unaware of any specific enforcement, but that does not mean it isn’t being considered by the CFPB. Maybe it is time to look at your unique programs again and minimize regulatory risk by leveling your “playing field” a bit.
Ballard Spahr LLP published this important information on March 17th, 2022. We are grateful they have called it to our attention. Their information is largely derived directly from the government, and we pass it along to you as an educational post.
If you would like to discuss this, feel free to call me at (800) 656-4584.
Nelson A. Locke, Esq.