CFPB Urged to Strengthen Protections Against Discrimination

Earlier this month, 48 consumer, civil rights, and public interest groups, including CFA, submitted comments in response to the Consumer Financial Protection Bureau’s (CFPB) Request for Information (RFI) on the Equal Credit Opportunity Act (ECOA) and Regulation B. The groups urged the Bureau to use its authority for oversight of and compliance with the Equal Credit Opportunity Act (ECOA) to strengthen protections against discrimination and ensure that all consumers have access to credit.

The ECOA prohibits creditors from discriminating against an applicant for any part of a credit transaction on the basis of race, color, national origin, sex, marital status, age, source of income, public assistance, and religion,” the groups wrote. “The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) gave the CFPB the primary authority for oversight and compliance for ECOA and Regulation B…To play its role effectively, the CFPB must exercise its authority with regards to the ECOA and Regulation B in a manner that aligns with Congressional intent to make the financial marketplace fair and free from discrimination,” they continued.

The groups’ letter highlights 10 areas in which the CFPB should enhance its oversight and more vigorously pursue enforcement actions for ECOA violations.

1. Disparate Impact

“Disparate impact liability occurs when government or private actors unjustifiably pursue practices that have a disproportionately harmful effect on women, people of color, people with disabilities, families with children, and other groups protected by civil rights statutes. Federal courts have consistently acknowledged that disparate impact claims are cognizable under the ECOA for the past 40 years.”

“By focusing on the consequences of unfair credit practices, the disparate impact standard provides a crucial mechanism to address hidden discrimination and practices that may be neutral on their face, but in reality, perpetuate the effects of systemic racism and inequality.”

2. Limited English Proficiency

“Greater language accessibility is needed for all credit transactions to allow limited English proficient (LEP) consumers to fully participate in the financial marketplace…Facially neutral policies may have an unjustified discriminatory effect when LEP individuals do not have equal opportunity because they cannot understand the terms of their transactions or access services in their language.”

“The CFPB should require the institutions under its supervision to develop a language access plan to expand access over time in a way that makes sense for each company’s market and the consumers that they serve. It is in the best interest of companies to ensure that their policies do not have an unintended discriminatory effect on LEP consumers.” In addition, the Bureau should adopt the Department of Justice’s four-factor process used in creating language access plans under Title VI and require lenders and servicers to consider the same four factors in developing their plans.

3. Special Purpose Credit Programs (SPCPs)

“Properly designed, SPCPs can play a critical role in promoting equity and inclusion, building wealth, and removing stubborn barriers that have contributed to financial inequities, housing instability, and residential segregation… The Bureau should take steps to encourage and facilitate the development of more SPCPs… Features of SPCPs should be focused not just on increasing access to credit but on designing products that are affordable and facilitate equity and wealth building, including down payment assistance, waivers of fees and closing costs, and targeted alternative underwriting.”

“The CFPB should also coordinate with other government agencies, including the banking regulators, HUD and the Federal Housing Finance Agency, to clarify that SPCPs designed to benefit applicants on the basis of a protected class in compliance with the ECOA and Regulation B also do not violate other federal antidiscrimination statutes.”

4. Affirmative Advertising

“Affirmative advertising directed to a specific clientele based on their characteristics could be particularly useful for groups that may not normally apply for credit, either due to a lack of knowledge, perceived un-welcomeness, or other barriers.”

“It is important, [however,] to make sure the products and services advertised to specific groups are quality products, and not subpar options that are more expensive or come with problematic terms.”

5. Small Business Lending

“Data released by the Federal Reserve Board in 2017 revealed that banks denied credit to more than half of Black small business owners and nearly 40% of LatinX small business owners. Over 30% of women-owned businesses were also denied loans… The CFPB should incorporate fair lending examinations as part of its supervision over small business lending for supervised institutions to make sure that all small businesses are treated fairly and that companies do not have policies or procedures in place that are causing discriminatory effects for women and minority-owned businesses.”

6. Sexual Orientation and Gender Identity Discrimination

Several studies have found that LGBTQ+ people often experience credit discrimination when seeking credit. “In Bostock v. United States, the Supreme Court held discrimination against an individual for being transgender constitutes unlawful sex discrimination, and found that the Title VII prohibition of sex discrimination covers discrimination based on sexual orientation and gender identity… In line with the Supreme Court’s Bostock decision, the Bureau should continue to interpret ECOA’s prohibition of discrimination on the basis of sex to include sexual orientation and gender identity discrimination.”

7. Scope of Federal Preemption of State Law

“The CFPB must not take any action that could interfere with states’ ability to further protect their residents from other forms of discrimination. The Bureau’s preemption authority under the ECOA is narrow, and it must be exercised only in ways that will strengthen protections against credit discrimination.”

8. Public Assistance Income

“The CFPB should ensure that persons who receive public assistance have an even playing field with those who do not. Currently, the amount of discretion within ECOA and the additional guidance do not provide consumers receiving public assistance with an equal opportunity because creditors often require more invasive and stringent documentation to use public assistance income to qualify for credit.”

9. Artificial Intelligence (AI) and Machine Learning (ML)

“While AI/ML models may offer some benefits, they raise serious risks of discrimination because they have the potential to replicate, amplify, and exacerbate discriminatory lending practices.”

“Creditors that use complex, opaque algorithmic models that have a discriminatory impact on protected classes must not be shielded from liability. The Bureau must not allow the use of algorithms to become a way to avoid scrutiny for a company’s credit decisions. Financial institutions should not be able to hide behind ‘black boxes’ for their decisions to offer or deny credit, or the terms of the credit they offer.”

10. Adverse Action Notices

“Currently, adverse action notices do not provide the level of specificity or clarity needed for consumers to understand credit decisions. The CFPB should insist that creditors provide more understandable and consumer-friendly reasons in adverse action notices. A key purpose of the adverse action requirements is to provide transparency into the credit underwriting process so that consumers understand what information is being used to judge their applications. The knowledge should allow consumers to take steps to correct inaccuracies in the information used and improve their chances of being approved for credit in the future. Current notices do not provide sufficient information for consumers to use these notices as intended.”

“ECOA remains one of the strongest tools that existing law provides to promote equity and, ultimately, achieve equality in the financial services space. If enforced properly and overseen in a manner consistent with the recommendations made in this letter, the statute could achieve its intended result by significantly diminishing credit disparities for traditionally underserved consumers,” stated Mitria Wilson-Spotser, CFA Director of Housing Policy.

Consumer Federation of America (CFA) is a non-profit organization advancing the consumer interest through research, advocacy, and education.

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