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CFPB Targets Unfair Discrimination in Consumer Finance

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The Consumer Financial Protection Bureau last month made some changes to its supervisory operations which will better protect families and communities from discrimination, including situations where fair lending laws may not be applied.

In a press release dated March 16, 2022, the agency states that it has changed its approach towards the examination of banks and non-banks to closely scrutinize discrimination practices. The announced changes are very significant  as stipulated on CFPB’s newly updated exam manual for evaluating unfair, deceptive and abusive acts and practices (UDAAPs), both unintentional discrimination practices and practices that fall outside the scope of the Equal Credit Opportunity Act (ECOA)now may be held to meet the criteria for “unfairness.” this announcement represents a substantial expansion of the agency’s authority to police practices deemed as unfair and discriminatory.

CFPB highlights that consumers can be victims of discrimination whether its intentional or not. Still, a practice may be deemed as discriminatory in nature as determined by ECOA as well as instances where ECOA does not apply. For instance, denying access to checking account because the individual is of a particular race. This could be unfair to the victims even in instances where ECOA may not apply.

“When a person is denied access to a bank account because of their religion or race, this is unambiguously unfair,” said CFPB Director Rohit Chopra. “We will be expanding our anti-discrimination efforts to combat discriminatory practices across the board in consumer finance.”

CFPB also clarified and outlined the scope of the new supervisory practices and the expected steps examiners will conform to so as to uphold this new mandate. The agency stated that it will examine for discrimination in “all consumer finance markets, including credit, servicing, collections, consumer reporting, payments, remittances, and deposits.” It is expected that examiners will require covered 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.” in addition, the press release also stated that it will look at how companies test and monitor their decision making processes for unfair discrimination, as well as discrimination under ECOA.

The following are instructions from CFPB to examiners to determine whether;

The entity has a process to prevent discrimination in relation to all aspects of consumer financial products or services the entity offers or provides, which includes the evaluation of all policies, procedures and processes for discrimination prior to implementation or making changes, and continued monitoring for discrimination after implementation.

  • The entity’s compliance program includes an established process for periodic analysis and monitoring of all decision-making processes used in connection with consumer financial products or services and a process to take corrective action to address any potential UDAAP concerns related to their use, including discrimination.
  • The entity has established policies and procedures to review, test, and monitor any decision-making processes it uses for potential UDAAP concerns, including discrimination.
  • 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 and services, or offer different terms and conditions, in a discriminatory manner.
  • The entity has appropriate training for customer service personnel to prevent discrimination.

Additionally, examiners will also now test to determine whether;

A product is targeted to particular populations, without appropriate tailoring of marketing, disclosures, and other materials designed to ensure understanding by the consumers.

  • 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.
  • The entity fails to evaluate and make necessary adjustments and corrections to prevent discrimination.

The new rules stresses CFPB’s commitment to strengthening enforcement  of the fair lending issues. The new changes will certainly increase the potential that an examination might find ‘unfairness’  if discrimination conduct is found to exist. The Agency will now place its renewed focus on discriminatory conduct, and covered entities should review their policies and procedures in advance of future examination.

 

Sources;

https://www.natlawreview.com/article/cfpb-issues-release-regarding-its-intent-to-target-unfair-discrimination-consumer

https://www.ccul.org/click-here-list/5696-cfpb-targets-unfair-discrimination-in-consumer-finance

https://files.consumerfinance.gov/f/documents/cfpb_unfair-deceptive-abusive-acts-practices-udaaps_procedures.pdf

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