The Consumer Financial Protection Bureau (CFPB) issued a release on March 16, 2022, announcing modifications to its supervisory operations that expand its monitoring of discriminatory lending and servicing practices. The CFPB stated that it “will scrutinize discriminatory conduct that violates the federal prohibition against unfair practices” at banks and non-bank companies across the U.S.
The CFPB “will closely examine financial institutions’ decision-making in advertising, pricing, and other areas to ensure that companies are appropriately testing for and eliminating illegal discrimination. Consumers can be harmed by discrimination regardless of whether it is intentional.” This scrutiny will extend to all consumer finance markets, including credit, servicing, collections, consumer reporting, payments, remittances, and deposits, the CFPB said.
“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 in the announcement. “We will be expanding our anti-discrimination efforts to combat discriminatory practices across the board in consumer finance.”
The release coincided with the CFPB’s publication of an updated exam manual for evaluating unfair, deceptive and abusive acts and practices (UDAAPs). Discrimination is considered unfair if it causes consumers substantial, unavoidable harm that outweighs any benefits to consumers or competition, according to the new guidance.
For example, “denying access to a checking account because the individual is of a particular race could be an unfair practice even in those instances where ECOA may not apply,” the CFPB stated.
Examiners will require companies to show their processes for assessing risks and discriminatory outcomes. including documenting customer demographics and reporting the impact of products and fees on different demographic groups. The CFPB said it will look at how corporations assess and monitor their decision-making processes for unfair discrimination, in addition to discrimination underneath ECOA.
Announcements in the release and the updated examination guidance represent a substantial expansion of the CFPB’s authority to police practices that it deems discriminatory. The regulator’s renewed focus on fair lending, along with its position that discriminatory acts and practices might trigger its UDAAP authority, means that all players in the financial services space should stay keenly aware of the increased scrutiny and ensure they can prove that appropriate, effective fair lending and fair servicing controls are in place.