Expanding Fair Banking Enforcement By William J. Showalter, CRCM, CRP, Senior Consultant; Young & Associates, Inc. In March 2022, the Consumer Financial Protection Bureau (CFPB) made a significant revision to its examination manual for Unfair, Deceptive, or Abusive Acts or Practices (UDAAP). The main intent of this action is, as the CFPB states in its press release, “to better protect families and communities from illegal discrimination, including in situations where fair lending laws may not apply.” While this action comes from the CFPB, which directly regulates large financial institutions, other federal supervisors can be expected to pay close attention to it. They may even follow the CFPB lead and adjust their supervisory approach in dealing with discrimination issues. Background In the late 1960s, the Fair Housing Act (FHA) was passed by Congress to prohibit discrimination in housing-related services, including lending, based on specified bases. Less than a decade later, Congress enacted the Equal Credit Opportunity Act (ECOA) to take similar action regarding all types of credit based on similar factors. These “prohibited bases” – race, sex, and age (other than the legal capacity to enter into a binding contract) – are deemed irrelevant to a borrower’s creditworthiness. The federal banking supervisors and other federal agencies have used these tools over the years to try to reverse inequalities in credit markets. However, they have not had similar legal avenues for dealing with concerns over discrimination related to other financial services, though some have argued that general civil rights laws might apply. “Unfairness” in UDAP/UDAAP The Federal Trade Commission (FTC) has had jurisdiction over “unfair or deceptive acts or practices” (UDAP) since at least the 1970s. The FTC spelled out three elements to the concept of “unfairness.” Those three elements are: • The act or practice must cause or be likely to cause substantial injury to consumers. • Consumers must not reasonably be able to avoid the injury. • The injury must not be outweighed by countervailing benefits to consumers or competition. The FTC issued interpretations and enforcement actions over the years that developed the scope of these concepts (as well as the “deceptive” concept). However, Congress determined after the financial crisis of 2008 that consumer protection policy and enforcement needed to be changed. As a result, the Dodd-Frank Wall Street Reform Act of 2010 moved much of the consumer protection rulemaking and interpretation responsibility from the individual financial regulators and placed it in a new federal agency – the Consumer Financial Protection Bureau. This law also added another element to UDAP – the “abusive” concept, which has added a letter to the acronym, giving us UDAAP. The CFPB is building on the UDAP structure that the FTC built. In fact, the Dodd-Frank Act ensconced much of the previous FTC policy concepts in federal law. The statutory elements of what constitutes “unfairness” are the same three (listed above) as originally developed by the FTC. Unfairness is discrimination Some have advocated for applying the “unfairness is discrimination” theory to fill what they see as important gaps in the existing patchwork of anti-discrimination laws, which currently leave large parts of the economy unregulated GUEST ARTICLE 20 The Community Banker mibonline.org
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