and unprotected from a variety of discriminatory practices, including those with a disparate impact. Then-FTC Commissioner Rohit Chopra said at a conference in 2020, “Discriminatory practices often are three for three [under the unfairness elements], causing grievous harm that cannot be avoided.” Mr. Chopra is now the Director of the CFPB. CFPB UDAAP exam manual This has led to the revisions announced in the spring to the CFPB UDAAP examination manual. By revising its examination manual rather than going through the formal rulemaking process, the CFPB did not have to put the changes out for comment beforehand. The revisions have just been announced as an accomplished fact, effective immediately (in March 2022). Now that the CFPB explicitly recognizes discriminatory practices as “consumer harm,” they are considered “unfair,” and the product scope covered by standards in fair lending laws has expanded beyond just credit to include any financial product or service. The UDAAP examination procedures provide general guidance on: • The principles of unfairness, deception, and abuse in the context of offering and providing consumer financial products and services • Assessing the risk that an institution’s practices may be unfair, deceptive, or abusive • Identifying unfair, deceptive or abusive acts or practices (including by providing examples of potentially unfair or deceptive acts and practices), and • Understanding the interplay between unfair, deceptive, or abusive acts or practices and other consumer protection and antidiscrimination statutes The exam procedures deal with the three elements of unfairness, much of which is not new. The first prong, substantial injury, usually involves monetary harm. Monetary harm includes, for example, costs or fees paid by consumers as a result of an unfair practice. An act or practice that causes a small amount of harm to a large number of people may be deemed to cause substantial injury. Foregone monetary benefits or denial of access to products or services, like that which may result from discriminatory behavior, may also cause substantial injury. The CFPB notes that actual injury is not required in every case. A significant risk of concrete harm is also sufficient. Trivial or merely speculative harms are typically not sufficient for a finding of substantial injury. Similarly, emotional impact and other more subjective types of harm also will not ordinarily amount to substantial injury. However, in certain circumstances, such as unreasonable debt collection harassment or discriminatory conduct, emotional impacts or dignitary harms may amount to or contribute to substantial injury. The exam procedures then deal with the second element of “unfairness,” whether the consumer may reasonably avoid the injury. An act or practice is not considered unfair if consumers may reasonably avoid injury. Consumers cannot reasonably avoid injury if the act or practice interferes with their ability to make decisions effectively or to take action to avoid injury. According to the CFPB, a key question is not whether a consumer could have made a better choice. Rather, the question is whether an act or practice hinders a consumer’s decision-making. For example, not having access to important information could prevent consumers from comparing available alternatives, choosing those most desirable to them, and avoiding those inadequate or unsatisfactory. For an injury to be reasonably avoidable, consumers must have practical means to avoid it, and the actions that a consumer is expected to take to avoid injury must be reasonable. There are many instances where consumers simply have no mechanism to avoid the injury. For example, consumers typically cannot avoid the harms of discrimination. Regarding the third element – injury outweighed by consumer or competitive benefits – to be unfair, the act or practice must be injurious in its net effects. That means, the injury must not be outweighed by any offsetting consumer or competitive benefits that also are produced by the act or practice. Offsetting consumer or competitive Continued on page 22 The Community Banker 21
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