CFPB to Use "Unfairness" to Address Gaps in Antidiscrimination Coverage

On March 16, 2022, the Consumer Financial Protection Bureau (CFPB) issued a press release and an updated UDAAP exam manual setting forth its intentions to use the Consumer Financial Protection Act's (CFPA) prohibition against unfair, deceptive, or abusive acts or practices (UDAAPs) as a supervisory and enforcement tool against alleged discriminatory practices, including in instances where the Equal Credit Protection Act (ECOA) does not apply.

More specifically, the CFPB explains that, in its view, discrimination could be deemed unfair under UDAAP "by causing substantial harm to consumers that they cannot reasonably avoid, where that harm is not outweighed by countervailing benefits to consumers or competition." It also vows to examine for discrimination in "all consumer finance markets" including those beyond credit-related exams—such as servicing, collections, consumer reporting, payments, remittances, and deposits.

There is some precedent (but not much) for using UDAAP laws to address discriminatory practices in the manner the CFPB suggests. For example, in 1999, the Florida attorney general alleged that a hotel discriminated against African American guests in violation of Florida's Deceptive and Unfair Trade Practices Act.

But a white paper published in April 2021 by the Student Borrower Protection Center—when current-CFPB general counsel Seth Frotman served as the Center's executive director—provides the helpful insight to the legal underpinnings of the theory. The paper advocates the use of unfairness to address gaps in antidiscrimination laws, citing then-FTC Commissioner Chopra throughout. As evident from the white paper, the use of unfairness to address discrimination appears to be untested in the courts.

Based on the revised UDAAP exam manual, entities under examination by the CFPB should prepare to provide information regarding their processes for assessing risks of discrimination related to all consumer financial products and services they offer and some processes conducted by third parties. This information includes details related to things such as:

• The use of models, algorithms, and decision-making processes.
• Information collected, retained, or used regarding customer demographics (this will include demographics of customers using various products or services as well as demographic breakdowns for various product uses, fees, revenue sources, and costs, or the impacts of various products and services on specific demographics).
• Marketing or advertising demographic research or analysis.
• The processes in place to prevent discrimination (such as the evaluation of all policies, procedures, and processes for potential discrimination risks prior to implementation or making changes) and continued monitoring for discrimination post-implementation. This includes being able to show that policies and procedures and practices do not target or exclude consumers from products and services or offer different terms and conditions in a discriminatory manner.
• Anti-discrimination training for customer service personnel.
• Compliance policies, procedures, and processes established to periodically analyze and monitor all decision-making processes and corrective action processes and requirements to mitigate and/or address potential concerns.

The CFPB's revised UDAAP exam manual includes potential transaction testing to determine if customers are given improper or inferior treatment, terms, or access to products or services based on their demographics, or whether the entity conducts discriminatory targeted marketing (including digital advertising) or decision-making.

Though significant for CFPB-supervised entities, this development comes as no surprise given the CFPB's public statements promising to focus on discrimination and its recent statements and actions (e.g., regarding algorithmic bias in home valuations, Special Purpose Credit Programs, fair and equitable access to credit for minority and women-owned businesses, discrimination against religion in offering credit, just to name a few). Likewise, CFPB Director Rohit Chopra's writings at the FTC—especially his concurrences and dissents in enforcement matters—have proved to be a reliable indicator of his agenda and intentions at the helm of the CFPB.