American consumers rely on credit to finance homes, buy cars, and pay for educations or other financial matters. Having fair access to credit provides consumers with an essential tool necessary for achieving their financial goals and a certain standard of living. The Equal Credit Opportunity Act (ECOA), passed by the U.S. Congress in 1974, makes it illegal for companies that provide financial product and services to discriminate against certain groups (FTC) had the primary task of monitoring the ECOA. Lenders who have business practices that discriminate against anyone who fall under the protected groups will face action from the Consumer Financial Protection Bureau. (CFPB). In force since 2010, the CFPB has the responsibility of acting as consumer watchdog for financial markets and will focus on discriminatory lending practices.
CFPB Lending Practices Oversight
The CFPB have oversight over consumer markets mortgages, automobile loans, credit cards, student loans, payday loans, non-depository institutions and other consumer–related product and services. The CFPB’s Office of Fair Lending & Equal Opportunity has direct responsibility for enforcing statutes covering the Equal Credit Opportunity Act and the Home Mortgage Disclosure Act (1975), which requires mortgage lenders to report data pertaining to their fair lending practices.
The CFPB has two primary aims:
1) To ensure all consumers have equal access to consumer markets for finance products and services
2) The consumer markets treat consumer fair, have competitive products and services and have transparency.
Focus on Educating Consumers
The CFPB plans to provide consumers with the information they need to identify discriminatory practices– referred to as “silent pickpocket,” by CFPB director Richard Cordray. Cordray envisions a financial market where consumers can easily obtain information to determine prices and risks associated with products and services. The idea being that a well-informed consumer can make proper comparisons and decisions when shopping for any type of financial product or service.
In addition, the director wants to discourage companies from building “business models” with “unfair, deceptive or abusive” practice inherent within the system. The CFPB want the financial markets to work for all parties – consumers and lenders, which ultimately benefits the general economy.
Consumers who believe they have been the target of discriminatory lending practices can go to the CFPB website to file a complaint or call a toll–free number to a third-party call center. The also have TTY/TDD capabilities for hearing impaired consumers who wish register a complaint.
Policies with Unintentional Discriminatory Effects
The CFPB will also monitor the disparate impact policy. Disparate impact denotes business practices or doctrines that may not have overt prejudicial intentions, but produces discriminatory outcomes. According to the CFPB, practices may seem necessary to meet justifiable business objective. However, the CFPB wants to ensure companies do not over look other approaches with “less disparate effects.
In December 2011, the Bank of America settled a suit with the U.S. Department of Justice for a record amount of $335 million. The Justice Department charged that Bank of America’s Countrywide Financial division (purchased in 2008) discriminated against Hispanics and Black Americans by saddling them with sub prime mortgages with higher fees and interest rates.
The investigation verified that these consumers qualified for the same conventional mortgage products given to white consumers. Recently, news broke that Wells Fargo may face civil actions for discriminatory lending practices in its mortgage division.