On May 9, 2022, the CFPB announced it issued an advisory opinion stating that in its opinion, the Equal Credit Opportunity Act (ECOA) applies to every aspect of dealing with a creditor, not just to the credit application process. The advisory opinion indicates ECOA protections apply to revocation, collection procedures, alteration or termination of credit, and anything else that takes place after credit has been extended.
ECOA bans credit discrimination based on race, color, religion, national origin, sex, marital status, and age. It also protects those receiving money from any public assistance program or exercising their rights under certain consumer protection laws. According to CFPB Director Rohit Chopra, the advisory opinion "makes clear that anti-discrimination protections do not vanish once a customer obtains a loan."
To explain why anti-discrimination protections continue after a customer obtains a loan, the advisory opinion walked through the history of ECOA, Regulation B, and their amendments. Specifically, the opinion points out how ECOA and Regulation B refer to accounts in the past tense and refer to debtors. According to the CFPB, despite this "well-established interpretation," the advisory opinion is necessary because some creditors fail to acknowledge that ECOA and Regulation B plainly apply to events that take place after credit has been granted.
As a reminder, the CFPB also pointed out that in addition to protecting borrowers after applying for and receiving credit, ECOA requires lenders to provide "adverse action" notices to borrowers with existing credit. These notices should be sent when credit is denied, an existing account is terminated, or an account’s terms are unfavorably changed.
The full advisory opinion can be found here.
This advisory opinion should not be read in a vacuum. Considering the CFPB's other recent announcements that (1) its UDAAP authority allows it to review for discrimination and (2) that it has the power to supervise all nonbank financial institutions which pose a risk to consumers, the picture of where this CFPB is going is becoming more evident. It seems this version of the CFPB plans to laser focus on the effects practices and policies have on consumers, and if it finds the net effect of procedures to be unfair, it will take action.
The issue, of course, is not that anyone wants to mistreat people or wants to discriminate. Any such entity doing so is a bad actor and should be treated as such. Instead, the issue here is that those subject to the CFPB's scrutiny still don't know the proverbial rules of the game. While the CFPB has made its desire to look at the net result clear, it hasn't alerted those subject to its oversight of which processes they will be looking at, what they will consider unfair, or any other insight into their expectations regarding processes and policies. Without this insight, we will continue to see rule-making by enforcement, which is not good for the industry or the consumers the CFPB is there to protect.
Any entity subject to the CFPB's oversight should heed these warnings, watch developments closely, and ensure they are prepared to handle compliance proactively. We will continue to keep you informed about the CFPB's actions.