CFPB Broadens Scope of UDAAP Authority to Discrimination and Consumer Reviews

Executive Summary

The Consumer Financial Protection Bureau (CFPB) has been actively reshaping the scope of its supervisory and enforcement priorities with respect to unfair, deceptive, or abusive acts or practices (UDAAPs) under the Consumer Financial Protection Act (CFPA). On March 16, 2022, the CFPB updated its UDAAP Examination Procedures to guide examiners in identifying unfair discrimination in the offering or providing of consumer financial products or services. Then, on March 22, the CFPB published policy guidance on prohibited conduct under the CFPA relating to consumer reviews. These developments call for covered institutions to engage their change management processes and update their compliance management system (CMS) to mitigate UDAAP risk.

Discrimination

Traditionally, the sole remedies at the federal level for discrimination in the provision of consumer financial products and services have been the Fair Housing Act and the Equal Credit Opportunity Act (ECOA) and its implementing Regulation B. These remedies were limited to consumer financial products relating to mortgages and other forms of credit.

However, the CFPB has now made clear that any form of discrimination in offering or providing any consumer financial product or service, including overt discrimination, disparate treatment, or disparate impact, could be an “unfair” act or practice that violates the CFPA. In determining whether a discriminatory act or practice is unfair, the CFPB will consider whether the act or practice is likely to cause substantial injury to consumers, whether the injury is not reasonably avoidable by consumers, and whether the injury is not outweighed by countervailing benefits to consumers or to competition. As an example, the CFPB has concluded that denying access to a checking account because an individual is of a particular race could be an unfair practice even in those instances where ECOA may not apply.

While the CFPB has customarily reserved UDAAP as a last resort to right wrongs that might otherwise evade the scope of more specific Federal consumer financial laws under the CFPB’s purview, the CFPB now appears prepared to double down on discriminatory acts or practices by applying UDAAP in addition to more direct regulatory violations. For example, failing to make certain disclosures clearly and conspicuously under the Truth in Lending Act (TILA) or discriminating against a class of people protected under ECOA may be violations of TILA or ECOA, respectively, but the CFPB could also find such violations to be UDAAPs, exposing violators to additional penalties under the CFPA.

Based on the CFPB’s changes to its UDAAP Examination Procedures, providers of consumer financial products or services can expect the CFPB to request and review any models, algorithms, decision-making processes, demographic research or analysis, or information collected, retained, or used relating to customer demographics. In addition, the CFPB will likely review the usual materials requested in a CMS examination with an eye toward discriminatory acts or practices — for example: board or committee meeting minutes discussing strategies or analyses related to demographics, policies, procedures, and training addressing discrimination outside of credit products, monitoring or audits that account for potential discriminatory impact on consumers, handling and addressing of consumer complaints indicative of discrimination, and third-party service provider controls for preventing discrimination.

Consumer Reviews

Consumer reviews can be any written, oral, pictorial, or electronic review, performance assessment of, or other similar analysis of a provider’s goods, services, or conduct by an individual in a contractual relationship with the provider.^[1]

Both the CFPB and the Federal Trade Commission (FTC) have recognized the importance of consumer reviews in helping consumers to select financial products and services and ensuring a competitive marketplace in which businesses are incentivized to provide quality services.^[2] Upon this premise — the sanctity of consumer reviews — the FTC has issued ample guidance^[3] and pursued action^[4] against businesses that would seek to impair public trust in consumer reviews.

The CFPB has now followed suit with its own policy guidance for banks, financial companies, and their service providers, warning that even interference with consumer reviews that is unenforceable under the Consumer Review Fairness Act (CRFA) could still be considered a UDAAP under the CFPA. Such interference may include posting fake reviews, disliking or refusing to publish unfavorable reviews, removing or pressuring consumers into removing a review, or otherwise using contract terms, whether or not enforced, to discourage consumers from posting reviews. However, any act or practice that would unfairly deprive consumers of information posted in reviews or deceive consumers about the nature of reviews could be considered a UDAAP by the CFPB.

Compliance Strategy

While it is not yet clear which standard the CFPB will use in defining “discrimination” — whether it will be limited to protected classes under ECOA, state fair lending laws, or some new, broader standard — or how the CFPB might deviate from the FTC’s current guidance on consumer reviews, there are measures that businesses can take right now to mitigate their compliance risk in the face of the CFPB’s new UDAAP guidance, including specific enhancements that we recommend relating to board and management oversight, compliance policies and procedures, employee training, monitoring and audit functions, consumer complaint management, and service provider oversight.

Providers of consumer financial products or services updating their CMS to account for the CFPB’s recent UDAAP guidance might also consider whether their CMS is adequately prepared for the CFPB’s recently introduced Compliance Management Review — Information Technology (CMR-IT) Examination Procedures.

For specific recommendations on how to mitigate your compliance risk in light of the CFPB’s new UDAAP guidance, or if you would like additional information about any of the issues discussed in this client alert, please contact Josh Burlingham, Anthony Alexis, Kimberly Monty Holzel, Levi Swank, or the Goodwin lawyer with whom you typically consult.

^[1] 15 U.S.C. 45b(a)(2). The statute clarifies that the term “pictorial” includes pictures, photographs, video, illustrations, and symbols. 15 U.S.C. 45b(a)(4).
^[2] https://files.consumerfinance.gov/f/documents/cfpb_bulletin-2022-05_unfair-deceptive-acts-practices-impede-consumer-reviews.pdf; https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-policy-on-contractual-gag-clauses-and-fake-review-fraud/; https://www.ftc.gov/business-guidance/blog/2022/01/ill-pay-you-give-blog-post-five-stars.
^[3] https://www.ftc.gov/business-guidance/resources/featuring-online-customer-reviews-guide-platforms; https://www.ftc.gov/business-guidance/resources/soliciting-paying-online-reviews-guide-marketers; https://www.ftc.gov/business-guidance/blog/2022/01/ill-pay-you-give-blog-post-five-stars.
^[4] https://www.ftc.gov/news-events/news/press-releases/2019/05/ftc-announces-first-actions-exclusively-enforcing-consumer-review-fairness-act; https://www.ftc.gov/news-events/news/press-releases/2019/06/ftc-announces-two-actions-enforcing-consumer-review-fairness-act.