CFPB Announces Crackdown on Discrimination in Consumer Finance

The Consumer Financial Protection Bureau (CFPB) recently announced changes to its supervisory operations, expanding its authority to crack down on discrimination associated with all financial products. This includes payments, deposit and checking accounts, prepaid cards, remittances and debt collection, and others.

“When a person is denied access to a bank account because of their religion or race, this is unambiguously unfair,” said CFPB Director Rohit Chopra in a press release. “We will be expanding our anti-discrimination efforts to combat discriminatory practices across the board in consumer finance.”

American Banker highlighted that for the first time, the CFPB said that discrimination based on race, age, or sex violates the federal prohibition on Unfair, Deceptive or Abusive Acts or Practices (UDAAP). In its press release, the Bureau noted that it had published an updated exam manual for evaluating UDAAPs, “which notes that discrimination may meet the criteria for ‘unfairness’ by causing substantial harm to consumers that they cannot reasonably avoid, where that that harm is not outweighed by countervailing benefits to consumers or competition.”

In addition to its expansion into non-credit products, the CFPB will also examine decision-making in areas like advertising and pricing to ensure that companies are adequately eliminating illegal discrimination.

In a blog post, the CFPB noted that increased reliance on machine learning models in the financial industry can lead to more biased outcomes, as data harvesting and consumer surveillance incite complex algorithms that can target specific consumer demographics to exploit vulnerabilities and strengthen inequities. Thus, the Bureau will closely examine companies’ reliance on automated decision-making models. 

The updated exam manual on Unfair, Deceptive, or Abusive Acts or Practices is available here.