On May 11, 2022, Alex Megaris was quoted in American Banker on the Consumer Financial Protection Bureau’s (CFPB) new anti-discrimination policy, which states that any form of discrimination is "unfair" and constitutes a federal violation. The policy went into effect in March immediately after the bureau announced in a press release and blog post that it had updated its exam manual.
According to the article, the policy states that discrimination on the basis of age, race, national origin, religion, sex, or marital status — regardless of intent — violates the prohibition on “unfair, deceptive or abusive acts or practices," known as UDAAP violations. The move is a significant departure from past practices, some experts said, and is seen as expanding the scope of the CFPB's scrutiny to non-credit products.
Megaris said the CFPB likely will be challenged on the policy because of the “highly problematic” way in which it was released, without a rulemaking. “Fundamentally making law through press releases and blog posts evades the basic notice-and-comment process that we all expect,” she said. “Even further, this is an interpretation of a statute for which it’s not clear that [any] practices outside of lending violate [the Equal Credit Opportunity Act].”
Megaris also said the issues related to ECOA are not settled. “Any financial service other than lending has now been included within the gamut of making sure there is not overt or unintentional discrimination, and that’s when it gets difficult to be in compliance,” she added.
Banks are especially concerned that the CFPB is signaling a big shift in compliance management that now entails additional work and, by extension, additional costs. Many are looking at systems testing for alleged discrimination or discriminatory effects. The CFPB said it will closely examine financial institutions’ choices in advertising, pricing, and other areas to ensure that companies are “appropriately testing for and eliminating illegal discrimination.”
“The testing of discriminatory impact is very tricky and very difficult to get right, no matter what size of organization you are,” Megaris said. “It remains to be seen how that will play out in real exams. It will be easily an add-on claim in enforcement actions that are already there.”