CFPB Updates Regulatory Exam Manual to Expand UDAPP Enforcement
On March 16, 2022, the Consumer Financial Protection Bureau (“CFPB”) announced it had updated its examination procedures manual to expand its view of “unfairness.”
Traditionally, fairness of a financial institution or consumer financial product provider was assessed under the Equal Credit Opportunity Act (“ECOA”), a fair lending law governing extensions of credit. However, under the new view, the CFPB will enforce the Consumer Financial Protection Act ("CFPA"), which prohibits unfair, deceptive and abusive acts and practices (“UDAAPs”) in issuing or maintaining a consumer financial product or service.
Under this new approach, policies and practices which would not necessarily fall under the scope of the ECOA—such as opening a deposit account, any add-on products or services, incurring banking or service fees, processing consumer payments or remittances, and advertising or offering certain products and services—will be subject to scrutiny for unfair or discriminatory impact by causing substantial harm to consumers that they cannot reasonably avoid or which outweighs the benefit to the consumer.
The review process is intended to encompass “all aspects of consumer financial products or services.” In fact, according to a statement by CFPB Director Rohit Chopra, “[w]hen a person is denied access to a bank account because of their religion or race, this is unambiguously unfair. . . [w]e will be expanding our anti-discrimination efforts to combat discriminatory practices across the board in consumer finance.”
The updated manual[1] outlines the manner in which financial regulators should evaluate UDAAPs and, essentially, provides financial institutions with a list of items, practices, policies, and procedures to review to ensure they do not present any potential UDAPP compliance issues. If financial institutions take efforts to proactively mitigate or resolve any potentially violating actions on the part of their institution, they will be well-prepared for their next regulatory examination.