CFPB Targets Unfair Discrimination in Consumer Finance
The Consumer Financial Protection Bureau (CFPB) announced an update to its Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) examination procedures on March 16, 2022 in connection with its broadening of authority to address discriminatory practices in accordance with the Equal Credit Opportunity Act (ECOA) in the offering of all financial services. These changes highlight the CFPB’s intention to supervise and bring enforcement actions against unfair practices in the issuance of all financial products where discrimination may have occurred, including those where “fair lending laws do not apply.”
While not explicitly stated, the intent of the changes likely will focus on the use of prohibited demographic factors that may occur even without the extension of credit. For example, these expanded UDAAP procedures may impose restrictions on entities that impose additional requirements or limitations on African Americans when opening depository accounts. Consequently, the CFPB’s updates to its examination procedures will encourage “examiners in looking beyond discrimination directly connected to fair lending laws, asking them to review any policies or practices that exclude individuals from products and services, or offer products or services with different terms, in an unfairly discriminatory manner.” The CFBP can now utilize review models to identify unfair practices as stipulated in the ECOA to services such as deposits or payments.
An important takeaway is that this shift may require supervised financial institutions to commit to traditional fair lending analysis across all of their consumer-facing products and services which increases compliance burdens and expense.
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