CFPB Takes Aim at Discrimination in Financial Services
On March 16, 2022, the Consumer Financial Protection Bureau (“CFPB”) announced it was updating its examination manual for supervised companies to provide broader protection to consumers from discrimination.
Specifically, the CFPB’s announcement noted that while Government regulators and private plaintiffs have generally relied on fair lending statutes like the ECOA to combat discriminatory practices in financial services, certain discriminatory practices will also trigger liability as an unfair, deceptive and abusive act and practice (“UDAAP”) under the Consumer Financial Protection Act (“CFPA”). Accordingly the CFPB has updated its examination manual to reflect that discrimination may meet the criteria for being “unfair” for purposes of UDAAP by causing substantial harm to consumers that they cannot reasonably avoid, where that harm is not outweighed by countervailing benefits to consumers or competition. This is true even in scenarios where ECOA may not apply, such as a provider denying a consumer access to a checking account because the individual is of a particular race.
The CFPB’s announcement notes that the CFPB will closely examine a financial institution’s decision-making in advertising, pricing, and other areas to ensure that it is eliminating illegal discrimination. Further, the CFPB will look at how companies test and monitor their decision-making processes for unfair discrimination in general, as well as discrimination under ECOA.
While the updated exam guidelines and announcement are directed at institutions supervised by the CFPB (e.g., banks, thrifts, and credit unions with over $10 billion in assets), all providers would do well to review the updated manual and accompanying announcement from the CFPB and consider what it means for their current practices and procedures as we have previously seen prudential banking regulators such as the OCC and FDIC look to the CFPB and its interpretation of UDAAP for their own examination and enforcement responsibilities.
The CFPB’s press release announcing the updated examination procedures can be found here.
The updated examination manual can be found here.