CBA In American Banker: CFPB’s Expanded Definition of Discrimination Will Harm, Not Help, Underserved Communities

February 24, 2023

In a new American Banker op-ed, Consumer Bankers Association (CBA) President & CEO Lindsey Johnson outlined why recent changes made by the CFPB to the Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) Exam Manual will hinder banks’ ability to promote economic advancement among underserved communities. In addition to conveying the significant legal and procedural questions posed by the Bureau’s actions, the piece also reiterates how even the most well-intentioned rules without defined expectations can lead to unintended consequences for the millions of Americans we’re all working to serve. 

To full op-ed is available HERE and below. 

Why the CFPB is doing more harm than good

American Banker
Lindsey Johnson
February 23, 2023

For more than a century, the nation's leading banks have proudly served as financiers of the American dream for millions of families and small businesses. Consumer Bankers Association members oppose discrimination in any form and remain fully committed to promoting economic advancement among underserved communities. However, recent changes made by the Consumer Financial Protection Bureau to the Unfair, Deceptive, or Abusive Acts or Practices exam manual serve only to hinder these efforts.

Recognizing their important role in addressing systemic injustices through economic empowerment, banks are expanding financial inclusion initiatives and access to credit for low- and moderate-income communities and neighborhoods of color. Banks also have taken steps to bring more Americans into the financial system.

Over the past decade, a growing share of the industry introduced new "BankOn" accounts — which have to meet certain criteria designed to increase access to affordable banking services, including low or no fees. The expanded reach of these accounts, coupled with early direct deposit, real-time alerts, overdraft reforms and other innovations are designed to strengthen the financial well-being of all consumers.

Well-supervised banks adhere to higher federal oversight standards than any other institutions in the financial services ecosystem. In accordance with these requirements, they comply with an extensive list of existing rules and statutes intended to prevent discrimination, whether the Equal Credit Opportunity Act, Fair Housing Act or the Community Reinvestment Act, among others. 

Accordingly, banks conduct their own fair-lending analytics, including comparative file reviews and regression analyses, to meet their legal responsibilities and minimize any potential of discriminatory outcomes.

These laws were developed and implemented by Congress through the statutorily defined rulemaking process — one which considers stakeholder input and yields clear, transparent expectations. As a result, banks are empowered not only to adhere to them but to deliver on their intent across every region they serve. This approach to regulation comes in stark contrast to actions taken by policymakers at the CFPB last spring, when the bureau made sweeping revisions to its examination manual to reflect a new interpretation or legal theory that the "unfairness" prong of the UDAAP definition can be applied to any conduct the CFPB deems discriminatory — even in markets where specific fair-lending laws may not apply.

As CBA and other leading financial groups argue in a lawsuit challenging the CFPB's UDAAP announcement, such changes represent an enormous self-expansion of the agency's authority that stands contrary to the intent of Congress, which never authorized or intended for the CFPB to "fill gaps" between the clearly articulated boundaries of antidiscrimination statutes with its UDAAP authority. Further, by announcing revisions to the exam manual in conjunction with a press release and blog post, rather than through a rulemaking process, the bureau also set a concerning precedent regarding the manner in which policymakers can implement regulatory priorities.

In addition to these significant legal authority questions, procedurally the agency provided no necessary notice and comment opportunities and virtually no details about what classes of consumers or which products and services will be subject to new expectations or concurrent regulatory implementation materials, thus creating significant uncertainty in the financial marketplace. This lack of clarity will force banks to shift additional resources toward compliance.

If history is any guide, even the most well-intentioned rules without defined expectations can lead to unintended consequences when applied to the marketplace. According to a GAO report, persistent regulatory uncertainty coupled with a general lack of clear guidelines served as a significant impediment to banks' ability to offer small-dollar loans.

The scope of financial areas that could soon be subject to scrutiny under the revised exam manual is extensive and would include servicing, collections, consumer reporting, payments, remittances and deposits. Remittances, for example, are a valued product among underserved populations, providing the ability to send money made here in the U.S. to loved ones in another country. Uncertainty as to whether this product would be subject to examination under the bureau's new definition may lead banks to leave this market.

Banks recognize that expanding access to banking through initiatives and investments is one way the industry can help to promote upward economic mobility for underserved populations. Equally important to these efforts is a commitment to prevent discrimination in any form, which is why banks support fair and transparent enforcement of civil rights and fair-lending laws.

Lindsey Johnson, President & CEO of the Consumer Bankers Association