Weekly Fintech Focus

  • The CFPB issued an interpretive rule clarifying that sexual orientation and gender identity are protected classes under ECOA’s prohibition against sex discrimination.
  • The CFPB rescinded a policy statement issued last year that limited the CFPB’s enforcement efforts related to the abusiveness standard under UDAAP.

CFPB Clarifies That Sexual Orientation and Gender Identity Are Protected Under ECOA

On March 9, CFPB issued an interpretive rule clarifying the prohibition against sex discrimination under the Equal Credit Opportunity Act (ECOA) and Regulation B. The CFPB Acting Director David Uejio stated, “we’re making it clear that lenders cannot discriminate based on sexual orientation or gender identity.” Moreover, he said, “[t]he CFPB will ensure that consumers are protected against such discrimination and provided equal opportunities in credit.”

This interpretive rule not only follows an earlier clarification by the CFPB in response to an inquiry in 2016 that the law affords broad protection from discrimination based on sexual orientation and gender identity and ECOA but also the U.S. Supreme Court decision in 2020. In Bostock v. Clayton County, the Supreme Court held the prohibition against sex discrimination in Title VII of the Civil Rights Act includes gender identity and sexual orientation discrimination. In July 2020, CFPB had issued a request for information to solicit comments on whether the Bostock decision affected the CFPB’s interpretation of ECOA.

In its interpretive rule, the agency provides examples of activities that would violate ECOA. In one example, the CFPB notes that it would be a violation of ECOA by a lender if a small business owner is turned away from a lender’s office for wearing clothing seen as mismatched to their gender.

The CFPB has identified the following as its next steps. One, it plans to review its publication and examination guidance documents in order to update them in light of the interpretive rule. Two, the CFPB will take enforcement action under ECOA to hold financial institutions accountable. Three, the CFPB hopes to work with Congress on the Equality Act, which if enacted would codify protections against such discrimination in financial products and services. Some authors predict this CFPB ruling is only the start with fair lending “expected to be a focus of Biden’s nominee for permanent CFPB Director, Rohit Chopra, if he is confirmed.”

CFPB Rescinds Prior Abusiveness Standard Policy Statement

At the beginning of 2020, the CFPB issued a policy statement that clarified the agency’s interpretation of its “abusiveness” standard under its authority to prohibit unfair, deceptive, and abusive acts or practices. We discussed it on our blog here. On March, 11, 2021, the CFPB under a new administration, rescinded that policy statement because it found the 2020 policy statement to be counter to Congress’s intent and to not actually bring clarity to the industry.

In its announcement of the rescission, the CFPB explained that the prior policy statement “was inconsistent with the Bureau’s duty to enforce Congress’s standard and rescinding it will better serve the CFPB’s objective to protect consumers from abusive practices.” As defined in the Dodd-Frank Act, the abusiveness standard prohibits companies from:

  • Materially interfering with someone’s ability to understand a product or service;
  • Taking unreasonable advantage of someone’s lack of understanding;
  • Taking unreasonable advantage of someone who cannot protect themselves; and
  • Taking unreasonable advantage of someone who reasonably relies on a company to act in their interests.

The CFPB now considers that the 2020 policy statement incorrectly limited the CFPB’s authority to enforce against abusive acts or practices. For example, the 2020 policy statement stated that the CFPB would “generally avoid challenging conduct as abusive that relied on all or nearly all of the same facts that the Bureau alleged are unfair or deceptive.” The 2020 policy statement also stated that the CFPB would decline to seek civil money penalties and disgorgement for certain abusive acts or practices. Going forward, the CFPB intends to consider numerous factors when setting penalties for abusive acts or practices, including the company’s good faith, size, and other factors that the CFPB may consider under its prosecutorial discretion.