On March 16, 2022, the Consumer Financial Protection Bureau (CFPB) announced that it will use its supervisory operations to evaluate discrimination in all consumer finance markets including credit, servicing, collections, consumer reporting, payments, remittances, and deposits.
Acknowledging this is new territory and an expansion of its supervisory authority, CFPB Director Rohit Chopra stated, "we will be expanding our anti-discrimination efforts to combat discriminatory practices across the board in consumer finance.” Though fair lending laws may not apply to these markets, according to the CFPB, since discrimination meets the definition of "unfairness" it has the authority to make a determination regarding discrimination and disparate impacts to consumers. As such, the CFPB will use its authority to ensure companies are appropriately testing for and eliminating discrimination.
To meet its newly expanded efforts, the CFPB updated the UDAAP exam manual. The exam manual, which notes that consumers can be harmed whether or not discrimination is intentional, requires examiners to look at a covered entities process for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups. The CFPB will also use its authority to look at how companies test and monitor their decision-making processes for unfair discrimination.
Additionally, the updated exam manual includes questions related to:
- whether the entity has a process in place to percent discrimination, including the evaluation of all policies and procedures for discrimination and continued monitoring (Question 1(f) page 13)
- whether the company's compliance management system includes a process for periodic analysis and monitoring of all decision-making processes (Question 2(j) page 14)
- policies, procedures, and training to prevent discrimination (Question 2(k)(m) page 14)
- the decision-making process for collections (Question 3(l) page 15)
- how the entity evaluates and makes necessary adjustments and corrections to prevent discrimination.
Let's get this piece out of the way: discrimination is a terrible thing. No one in the ARM industry is advocating for the ability to discriminate. That said, in order to go down this path (and setting aside whether the CFPB has the authority to do this), the CFPB needs to provide the industry more information regarding what it intends to look for than the vague, loose, open-ended questions found in the exam manual.
Additionally, the CFPB should explain how it intends to look at subjective issues which might affect its analysis of a debt collector. For example, if the biggest client of an ARM entity is an inner-city hospital or a retail chain located in a heavily minority populated area, it would make sense for that ARM entity to have more monitory consumers in certain stages of collections. Instead, the new exam manual seems to take an entirely objective approach and does little to explain how an ARM entity can comply.
When the CFPB announces new expectations and new exam manual updates to go along with those expectations, it's a good time to think about the gaps in your CMS. One of the best tools for this job is a risk and gap assessment.
Find out how to start your own assessment with the on-demand webinar, A Complete Guide to Risk and Gap Assessments - How to Get Started (from insideARM and Research Assistant). You'll learn what you can expect from a good risk and gap assessment, plus, find out how to test, how to break an assessment into manageable chunks and assign responsibility, how to win support from operations, and how to build towards ongoing audits so you get all the benefits of an assessment without having to put in all the work. Get it here.