CFPB Issues Release Regarding its Intent to Target “Unfair Discrimination in Consumer Finance”

The Consumer Monetary Safety Bureau (“CFPB”) issued a release on March 16, 2022 in order to announce modifications to its supervisory operations with respect to discriminatory lending and servicing practices. 

In its press launch, the CFPB explains that it has modified its strategy in the direction of examination of banks and non-banks in order to extra intently “scrutinize” discriminatory practices. The CFPB’s introduced modifications are important—as underneath the CFPB’s newly up to date examination guide for evaluating unfair, misleading, and abusive acts and practices (UDAAPs), each unintentional discriminatory practices and practices that fall outdoors of the scope of the Equal Credit score Alternative Act (ECOA) now could also be held to meet the factors for “unfairness.” Though not altogether sudden, this announcement represents a considerable enlargement of the regulator’s authority to police practices it deems discriminatory.

To that finish, the CFPB defined that intentional or unintentional discrimination might meet the factors for “unfairness” the place it causes “substantial harm to consumers that they cannot reasonably avoid, where that harm is not outweighed by countervailing benefits to consumers or competition.” One instance of this dynamic, per the CFPB, is that “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.”

Within the CFPB’s new exam manual, it’s noteworthy how the definition of unfair acts or practices has modified. One aspect of an unfair act or observe outlined in the CFPB’s examination procedures, whether or not a shopper is “reasonably able to avoid the injury” at concern, now consists of the express statements that “[c]onsumers cannot reasonably avoid discrimination” and “consumers typically cannot avoid the harms of discrimination.” It’s anticipated that these additions will improve the chance the CFPB will detect “unfairness” if it believes discriminatory conduct in the direction of customers has occurred. 

The CFPB’s launch additionally outlined the scope of those new supervisory practices and the anticipated steps examiners will take to uphold this new mandate. The CFPB states it can study for discrimination in “all consumer finance markets, including credit, servicing, collections, consumer reporting, payments, remittances, and deposits.” It’s anticipated that examiners would require coated corporations “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.” The CFPB said it additionally will have a look at how corporations take a look at and monitor their decision-making processes for unfair discrimination, in addition to discrimination underneath ECOA.

To that finish, the CFPB has now instructed examiners to decide whether or not:

  • The entity has a course of to forestall discrimination in relation to all points of shopper monetary services or products the entity provides or gives, which incorporates the analysis of all insurance policies, procedures and processes for discrimination prior to implementation or making modifications, and continued monitoring for discrimination after implementation.

  • The entity’s compliance program consists of a longtime course of for periodic evaluation and monitoring of all decision-making processes used in reference to shopper monetary services or products and a course of to take corrective motion to deal with any potential UDAAP issues associated to their use, together with discrimination.

  • The entity has established insurance policies and procedures to evaluation, take a look at, and monitor any decision-making processes it makes use of for potential UDAAP issues, together with discrimination.

  • The entity has established insurance policies and procedures to mitigate potential UDAAP issues arising from using its decision-making processes, together with discrimination.

  • The entity’s insurance policies, procedures and practices don’t goal or exclude customers from services and products, or supply totally different phrases and circumstances, in a discriminatory method.

  • The entity has acceptable coaching for customer support personnel to forestall discrimination.

Examiners will even now take a look at to decide whether or not:

  • A product is focused to specific populations, with out acceptable tailoring of selling, disclosures, and different supplies designed to guarantee understanding by the customers.

  • The entity improperly offers inferior phrases to one buyer demographic as in contrast to different buyer demographics.

  • The entity improperly provides or gives extra services or products to one buyer demographic as in contrast to different buyer demographics.

  • Customer support representatives improperly deal with clients of sure demographics worse or present additional help or exceptions to clients of sure demographics.

  • The entity engages in focused promoting or advertising in a discriminatory means.

  • The entity makes use of decision-making processes in its eligibility determinations, underwriting, pricing, servicing or collections that outcome in discrimination.

  • The entity fails to consider and make mandatory changes and corrections to forestall discrimination.

Takeaways

The CFPB has but once more continued to stress its dedication to strengthening enforcement of honest lending points. These new modifications to the CFPB’s examination procedures improve the potential that an examination may discover “unfairness” if discriminatory conduct is discovered to exist. CFPB examiners will now place a renewed concentrate on discriminatory conduct, and coated entities ought to evaluation their insurance policies and procedures in advance of future examinations.

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