CFPB expands authority to fight unlawful discrimination


As of March 16, 2022, the Consumer Financial Protection Board (CFPB) expanded its power to act to “better protect families and communities from unlawful discrimination, including situations where fair lending laws may not not apply”. On March 16, the CFPB announced a policy change through revisions to its Unfair, Deceptive or Abusive Acts or Practices (UDAAP) review manual which provided details on the types of discrimination it intends to address. under UDAAP standards. The CFPB notes that discrimination can meet the criteria of “unfairness” by causing substantial harm to consumers that they cannot reasonably avoid, thus extending discrimination through the UDAAP to advertising, pricing and areas of banking operations other than lending. Unlike the Equal Credit Opportunity Act (ECOA), which until recently applied primarily to credit applicants, the CFPB’s inequity authority applies to all products or consumer financial services, such as collection payments, remittances and deposits. At this point, federal prudential regulators do not appear to have followed suit. However, the more subjective standard of unfairness certainly entails an increased risk of disparate impact analysis.

On April 25, the CFPB invoked its “dormant authority” to review non-bank companies posing consumer risks, ostensibly to level the playing field between banks and non-banks by using this authority to compel non-banks. banks to meet the same standards to which banks are owned. The CFPB, pursuant to its authority under the Dodd-Frank Wall Street Reform and Consumer Protection Act, regulated non-bank entities in the mortgage, private student loan, and payday loan industries as well than larger participants in other non-bank markets for consumer financial products and services such as consumer reporting, debt collection, student loan servicing, international remittances and auto loan servicing . Dormant authority should be applied to a third category of entities whose activities the CFPB has reasonable grounds to determine pose risks to consumers, although it is not specific to any particular financial product or service.

This rule change allows the CFPB to determine by order, after notice to the covered person and reasonable opportunity for that covered person to respond, whether an entity is engaging or has engaged in conduct that poses risks to consumers in terms of that relates to the offer or provision of financial products or services to consumers, based on complaints or information gathered from other sources.

Finally, on May 9, 2022, the CFPB issued an advisory opinion on ECOA coverage, stating that the law continues to protect borrowers after they have applied for and obtained credit and are no longer “ applicants”. As noted above, the ECOA traditionally applies to applicants. The advisory opinion and accompanying analysis 1) clarifies that the ECOA protects individuals from discrimination in all aspects of a credit agreement and 2) requires lenders to provide notices of adverse action to borrowers with existing credit. An example of the former is that the ECOA prohibits lenders from lowering the credit limit on certain borrowers’ accounts or subjecting certain borrowers to more aggressive collection practices on a prohibited basis, such as race. An example of the latter case is that borrowers receive notices when an existing account is terminated or the terms of the account are changed adversely, in addition to the denial of credit.

Thus, with these three actions, the CFPB has broadened its scope, all without any formal normative action, other than with respect to the authorization of comments on the establishment of authority over certain non-bank covered parties based of risk. Although no regulatory action was involved, the regulatory risk for institutions regulated by the CFPB has been significantly increased by the broader application of the more subjective standards of the UDAAP and the extended application of the ECOA beyond the candidates.

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