With a change in administrations, we often see changes from a regulatory perspective. One area receiving attention from the current administration are targeted efforts at protecting “protected classes” and serving the underserved, for example the NCUA’s recent letter reminding credit unions about prohibited acts under the Equal Credit Opportunity Act (ECOA). This week, the Consumer Financial Protection Bureau (“CFPB”) has announced it is expanding its anti-discrimination efforts to combat discriminatory practices across the board in consumer finance, beyond the current fair lending laws.
On March 16, 2022, CFPB issued an updated exam manual for evaluating Unfair, Deceptive or Abusive Act and Practices (UDAAPs). In its accompanying press release, the CFPB stated that while regulators commonly rely on the ECOA, certain discriminatory practices may also trigger liability under the Consumer Financial Protection Act (CFPA) which prohibits UDAAPs. The updated exam manual states that discrimination may meet the “unfairness” criteria under UDAAP. As a refresher, the standard for unfairness includes three elements:
· It causes or is likely to cause substantial injury to consumers;
· The injury is not reasonably avoidable by consumers; and
· The injury is not outweighed by countervailing benefits to consumers or to competition.
In addition, CFPB has stated that consumers can be harmed by discrimination whether it is intentional or unintentional. There may be a UDAAP claim where the conduct is prohibited by the ECOA, and also in instances the ECOA does not apply.
Going forward, when examining compliance with consumer protection rules, the CFPB will also scrutinize discriminatory conduct that violates this prohibition against unfair practices. The CFPB will be looking for discriminatory conduct in all consumer finance markets, including credit, servicing, collections, deposits and more. CFPB will be looking to see how decision-making processes are tested and monitored for unfair discrimination as well as discrimination under the ECOA.
While many credit unions are not regulated by the CFPB, it is reasonable that the NCUA may also begin to look at the connection between UDAAP and discrimination. While it is likely that there will be legal challenges to this change in policy, credit unions should begin looking at how they assess risk and possible discriminatory outcomes and how they monitor their practices.
You can read the press release here.
You can read the updated exam manual on UDAAPs here.
If you have any questions on UDAAP generally or unfair practices specifically and how this may impact your credit union, please contact our office.