CFPB Announces Expansion Of Unfairness Analysis To Address Discrimination

Published date29 March 2022
Subject MatterFinance and Banking, Consumer Protection, Financial Services, Dodd-Frank, Consumer Protection Act
Law FirmWilmerHale
AuthorMr Debo Adegbile, Franca Harris Gutierrez, Karin Dryhurst, Jamie Dycus, John C. Wells, Benjamin Chapin and Andre Manuel

On March 16, the Consumer Financial Protection Bureau ("CFPB" or "Bureau") announced a significant expansion of its "anti-discrimination efforts to combat discriminatory practices across the board in consumer finance."1 Under the Dodd-Frank Act, the CFPB's explicit statutory authority to examine covered institutions for potential discriminatory practices arises primarily in the consumer credit and housing markets under the Equal Credit Opportunity Act ("ECOA") and Home Mortgage Disclosure Act ("HMDA"). Last week, the agency announced that it will examine institutions for potential discrimination (presumably on the basis of protected characteristics such as race, religion, sex and age) in the offering or provision of consumer financial products or services more broadly. The announcement asserts that such discrimination may constitute an unfair act or practice under the Consumer Financial Protection Act ("CFPA").

The Bureau's announcement has potentially far-reaching implications for providers of consumer financial products and services, whether or not they are already subject to oversight under ECOA, HMDA, or other anti-discrimination statutes, such as the Fair Housing Act, enforced by other federal regulators. First, non-credit consumer financial products formerly not covered by fair lending laws will be subject to anti-discrimination risk under the Bureau's new standard. The position outlined in the revised examination manual is likely to extend beyond supervision to the Bureau's other regulatory activities, including enforcement. Indeed, the Bureau's Assistant Directors who oversee its supervision and enforcement offices issued a joint blog post on the day of the Bureau's announcement discussing the newly announced standard.2 Second, non-bank providers of consumer financial products, including entities not subject to the Bureau's supervisory authority, may be subject to anti-discrimination compliance obligations enforced by the Bureau for the first time. Third, entities should prepare for uncertainty regarding the precise legal standard the Bureau will employ in applying its new unfair discrimination standard, which may diverge from established anti-discrimination liability standards.

1. Background

The Bureau's traditional statutory authority for fair lending supervision and enforcement arises from ECOA and HMDA. ECOA prohibits discrimination by creditors against credit applicants.3 Its implementing regulations also largely prohibit creditors from collecting demographic data related to the protected class status of credit applicants.4 HMDA, a limited exception to the data collection provisions in ECOA, requires mortgage lenders to collect and report to the Bureau data about their mortgage lending activities, including demographic data on mortgage applicants.5

The Bureau's newly announced anti-discrimination policy rests on the CFPA's prohibition on unfair acts or practices. An act or practice is unfair under the CFPA if it (1) "causes or is likely to cause substantial injury to consumers" (2) which is not "reasonably avoidable by consumers" (3) and which is "not outweighed by countervailing benefits to consumers or to competition."6 Generally, an injury is reasonably avoidable "if consumers have reason to anticipate the impending harm and the means to avoid it."7

Typically, unfairness actions have challenged "behavior that unreasonably creates or takes advantage of an obstacle to the free exercise of consumer decision-making."8 Unfairness analysis focuses on consumers' awareness of the potential for harm and their ability to mitigate it; indeed, the Federal Trade Commission ("FTC") regulations based on unfairness have generally required...

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