CFPB Targets Unfair Discrimination Through UDAAP

The CFPB recently announced changes to its supervisory operations targeting illegal discrimination of families and communities in situations where fair lending laws may not apply.  In scrutinizing discriminatory conduct that violates the federal prohibition against unfair practices under the Consumer Financial Protection Act, the CFPB will examine financial institutions’ decision-making in advertising and pricing, among other areas.  

Speaking to this shift in approach, CFPB Director Rohit Chopra was quoted as saying that “[w]hen a person is denied access to a bank account because of their religion or race, this is unambiguously unfair. We will be expanding our anti-discrimination efforts to combat discriminatory practices across the board in consumer finance.”

To further this effort, the CFPB published an updated exam manual for evaluating unfair, deceptive and abusive acts and practices (UDAAPs), noting that discrimination, whether intentional or unintentional, may meet the criteria for “unfairness” by causing substantial harm to consumers that they cannot reasonably avoid—the updated manual notes that consumers typically cannot avoid the harms of discrimination—where that harm is not outweighed by countervailing benefits to consumers or competition.  As an example of discrimination where conduct may not be covered by ECOA, the updated manual provides that denying access to a checking account because of an individual’s race could be an unfair practice.

Examiners will require supervised companies to show their processes for assessing risks and discriminatory outcomes and look at how companies test and monitor their decision-making processes for unfair discrimination. This examination will cover all consumer finance markets, including credit, servicing, collections, consumer reporting, payments, remittances, and deposits.