CFPB Expands its Authority to Punish FIs for Discrimination

Source: American Banker (subscription may be required)
See also: Cracking down on discrimination in the financial sector (CFPB website)

The Consumer Financial Protection Bureau has declared that discrimination associated with any financial product — not just credit — is illegal.

The CFPB on Wednesday said for the first time that discrimination on the basis of age, race or sex — regardless of intent — violates the federal prohibition on “unfair, deceptive or abusive acts or practices." It vowed to use its UDAAP enforcement authority to root out discrimination in all consumer financial segments.

Under the new policy, the CFPB can now look for discrimination in a wide range of noncredit financial products including payments, deposit and checking accounts, prepaid cards, remittances and debt collection, among others.

The CFPB also said for the first time that the use of machine learning for targeting advertising and marketing is discriminatory.

Eric Halperin, the CFPB’s enforcement chief, also wrote in a blog post that the bureau “will fight to end discrimination in the financial sector.”

The move is a significant departure from anti-discrimination practices in the past that traditionally have focused on mortgage lending. The CFPB has been signaling all year that it plans to make racial equity and fair lending a major priority in investigations and supervisory exams.

But some critics said the new policy was a power grab that flies in the face of laws passed by Congress outlawing discrimination in housing, credit and employment— but not in all financial products.

Under the 1974 Equal Credit Opportunity Act, a civil rights law that bans discrimination against credit applicants, the CFPB is limited to addressing discrimination in lending. But under the new standard, the bureau said discriminatory practices may also trigger liability under the Consumer Financial Protection Act, which prohibits UDAAP violations.

As an example, Halperin said, preventing people of color from opening deposit accounts may be considered an unfair practice even though the equal credit act does not apply to noncredit products such as deposit or checking accounts.