Senior Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce
September 26, 2022
Americans need access to credit and financial services to meet their financial goals and achieve success. Yet a Consumer Financial Protection Bureau (CFPB) policy change will undermine access to these products, despite consensus that credit access and financial services are a boon to all Americans.
Congress has specifically prohibited discrimination in the consumer banking and financial services sectors in laws such as the Equal Credit Opportunity Act, the Fair Housing Act, and the Home Mortgage Disclosure Act. Various federal agencies are charged with enforcing these laws. When Congress created the CFPB, it specifically did not include discrimination in the charge to the agency to police unfair, deceptive, or abusive acts or practices, leaving that instead to existing discrimination statues.
The business community strongly supports effective anti-discrimination policies and adherence to the laws prescribed by Congress, but the CFPB is now trying to impose new discrimination policies through its unfair, deceptive, or abusive acts or practices authority. Its method of doing so muddies the water for financial institutions who are trying to adhere to the law while providing services for consumers. The result will mean less competition in the financial services sector and less access for consumers to the products and services they rely on.
Background and history
In March 2022, the CFPB updated its Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) section of its Supervision and Examination Manual to adopt the position that it can examine entities for alleged discriminatory conduct under its UDAAP authority. The agency also asserted it can use its authority to prohibit “unfair” acts or practices to impose what is known as disparate impact liability on credit products and noncredit products alike. Disparate impact refers to different outcomes for protected classes, despite no intent to discriminate.
The CFPB’s examination of banks and financial service providers is not just a paper tiger. The examination process was established to empower the agency to obtain virtually any document from a company, to decide what corrective actions should be taken, to examine whether a company has significant measures in place to prevent future violations, and to prohibit companies from disclosing details of the examination.
The CFPB’s amendment to its examination manual to include discrimination, and potentially “disparate impact,” has created confusion and increased compliance costs for companies that are already adhering to applicable antidiscrimination laws. For its part, the CFPB has provided almost no instruction as to what would constitute discrimination or disparate impact under its new legal theory. For example, the agency did not specifically identify protected classes of persons as non-discrimination statutes passed by Congress do.
A real world example
Take for example, two consumers with personal checking accounts. The first is a recent college graduate with little employment history or monetary assets. The second is a seasoned business professional in his or her late fifties with a well-capitalized checking account. The college graduate, due to her low account balance and risk of overdraft, faces an annual fee, while the business professional has that fee waived due to their history with the bank and the amount of money deposited with it. This is a common scenario and one most people intuitively understand. But because age is a protected class under some antidiscrimination laws, and the bank’s no-fee accounts are typically maintained by older customers, financial institutions are left wondering if this would constitute discrimination in the eyes of a CFPB examiner. The agency doesn’t provide any guidance to address the thousands of scenarios that raise similar questions.
Now, thousands of banks, credit unions, and other financial institutions will have to decide whether a new product that consumers want will run afoul of the CFPB’s expanded view of its UDAAP authority.
The unclear and unlawful actions the CFPB took in amending the Manual will ultimately cause banks and financial services companies to simply stop creating and offering the innovative and convenient products that millions of consumers rely on.
The CFPB has put the financial sector in an untenable position. It has threatened to enforce an entirely new interpretation of the law, behind closed doors, and to demand information that the financial sector has never previously been asked to collect.
The Chamber is not questioning the CFPB’s authority to enforce the laws as prescribed by Congress; however, we dispute the way in which it is attempting to change the law. In July, the Chamber sent a letter to the CFPB requesting the withdrawal of the examination manual amendment. We will continue to fight on behalf of businesses to ensure the fair treatment of companies and consumers.