CFPB's Use of its UDAAP Authority to Address Illegal Discrimination

Francis X. Riley III


CFPB's intended use of its UDAAP authority to investigate, and regulate and enforce against illegal "discrimination" in financial products and services breaks open the proverbial damn, with such authority washing over every consumer financial product/service, as well as those that support or facilitate same.  In short, the use of this catch-all authority to address illegal discrimination will result in more risk and liability for financial institutions for the advertising, pricing and other practices of their agents, vendors and those third parties who - through their own products and services - support the end consumer financial transaction.  This mechanism for targeting  "discriminatory" conduct will be applied updated the bureau's exam manual's outline of how discriminatory conduct will be treated as unfair, deceptive and/or abusive acts and practices.  It will be seen in expansive RFIs and CIDs.  Specifically, and as Marx Sterbcow and I previously warned, the CFPB's examination of a "financial institution's decision-making in advertising, pricing and other areas to ensure . . . [it is] appropriately testing for and eliminating illegal discrimination" will be extend beyond its internal practice, to include what testing and control mechanism the institution has to root out and eliminate  illegal discrimination by their agents, vendors and those other companies that facilitate the end transaction, and hold them responsible for the latter's conduct; This is the ultimate third-party vendor management.  The comments by Enforcement Chief Halperin and Supervision Chief Salas make this clear:  They are looking for bias "embedded within systems and technologies" relied upon by the financial institutes to facilitate their transaction.  And, if you are a third party supporting lenders and thought you did not fall under the CFPB's authority or was unrelated to fair lending or fair housing concerns, think again because now, at the very least, your lender partners need to examine your conduct and processes to be responsive to the CFPB's UDAAP exam. 

Francis X. Riley III
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