By John Zasada, Shareholder, Financial Institutions Group

On March 16, 2022, the Consumer Financial Protection Bureau (CFPB) announced the application of Unfair, Abusive, or Deceptive Acts of Practices (UDAAP) to unfair discrimination practices, including situations where fair lending laws do not apply.

The CFPB is expanding anti-discrimination efforts to combat illegal discrimination in any form in financial institutions. The Equal Credit Opportunity Act (ECOA) and the Fair Housing Act have traditionally been used to cover fair lending, which, of course, covers loans. Their exam manual has been updated for evaluating UDAAP, and for example, denying access to a checking account because the individual is of a particular race could be an unfair practice even if the ECOA does not apply. Consequently, the CFPB indicated they will examine for discrimination in all consumer finance markets, including credit, servicing, collections, consumer reporting, payments, remittances and deposits.

On March 16, 2022, the CFPB also issued a blog post about the change and spoke about the work the CFPB will undertake to focus on the widespread and growing reliance on machine learning models throughout the financial industry and their potential for perpetuating biased outcomes. It will be closely examining companies’ reliance on automated decision-making models and any potential discriminatory outcomes.

Need assistance with UDAAP compliance? Contact our regulatory compliance specialists today.