CFPB Urged to Strengthen Protections Against Discrimination

Earlier this month, 48 consumer, civil rights, and public interest groups, including CFA, submitted comments in response to the Consumer Financial Protection Bureau’s (CFPB) Request for Information (RFI) on the Equal Credit Opportunity Act (ECOA) and Regulation B. The groups urged the Bureau to use its authority for oversight of and compliance with the Equal Credit Opportunity Act (ECOA) to strengthen protections against discrimination and ensure that all consumers have access to credit.

“The ECOA prohibits creditors from discriminating against an applicant for any part of a credit transaction on the basis of race, color, national origin, sex, marital status, age, source of income, public assistance, and religion,” the groups wrote. “The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) gave the CFPB the primary authority for oversight and compliance for ECOA and Regulation B…To play its role effectively, the CFPB must exercise its authority with regards to the ECOA and Regulation B in a manner that aligns with Congressional intent to make the financial marketplace fair and free from discrimination,” they continued.

The groups’ letter highlights 10 areas in which the CFPB should enhance its oversight and more vigorously pursue enforcement actions for ECOA violations.

1. Disparate Impact

“Disparate impact liability occurs when government or private actors unjustifiably pursue practices that have a disproportionately harmful effect on women, people of color, people with disabilities, families with children, and other groups protected by civil rights statutes. Federal courts have consistently acknowledged that disparate impact claims are cognizable under the ECOA for the past 40 years.”

“By focusing on the consequences of unfair credit practices, the disparate impact standard provides a crucial mechanism to address hidden discrimination and practices that may be neutral on their face, but in reality, perpetuate the effects of systemic racism and inequality.”

2. Limited English Proficiency

“Greater language accessibility is needed for all credit transactions to allow limited English proficient (LEP) consumers to fully participate in the financial marketplace…Facially neutral policies may have an unjustified discriminatory effect when LEP individuals do not have equal opportunity because they cannot understand the terms of their transactions or access services in their language.”

“The CFPB should require the institutions under its supervision to develop a language access plan to expand access over time in a way that makes sense for each company’s market and the consumers that they serve. It is in the best interest of companies to ensure that their policies do not have an unintended discriminatory effect on LEP consumers.” In addition, the Bureau should adopt the Department of Justice’s four-factor process used in creating language access plans under Title VI and require lenders and servicers to consider the same four factors in developing their plans.

3. Special Purpose Credit Programs (SPCPs)

“Properly designed, SPCPs can play a critical role in promoting equity and inclusion, building wealth, and removing stubborn barriers that have contributed to financial inequities, housing instability, and residential segregation… The Bureau should take steps to encourage and facilitate the development of more SPCPs… Features of SPCPs should be focused not just on increasing access to credit but on designing products that are affordable and facilitate equity and wealth building, including down payment assistance, waivers of fees and closing costs, and targeted alternative underwriting.”

“The CFPB should also coordinate with other government agencies, including the banking regulators, HUD and the Federal Housing Finance Agency, to clarify that SPCPs designed to benefit applicants on the basis of a protected class in compliance with the ECOA and Regulation B also do not violate other federal antidiscrimination statutes.”

4. Affirmative Advertising

“Affirmative advertising directed to a specific clientele based on their characteristics could be particularly useful for groups that may not normally apply for credit, either due to a lack of knowledge, perceived un-welcomeness, or other barriers.”

“It is important, [however,] to make sure the products and services advertised to specific groups are quality products, and not subpar options that are more expensive or come with problematic terms.”

5. Small Business Lending

“Data released by the Federal Reserve Board in 2017 revealed that banks denied credit to more than half of Black small business owners and nearly 40% of LatinX small business owners. Over 30% of women-owned businesses were also denied loans… The CFPB should incorporate fair lending examinations as part of its supervision over small business lending for supervised institutions to make sure that all small businesses are treated fairly and that companies do not have policies or procedures in place that are causing discriminatory effects for women and minority-owned businesses.”

6. Sexual Orientation and Gender Identity Discrimination

Several studies have found that LGBTQ+ people often experience credit discrimination when seeking credit. “In Bostock v. United States, the Supreme Court held discrimination against an individual for being transgender constitutes unlawful sex discrimination, and found that the Title VII prohibition of sex discrimination covers discrimination based on sexual orientation and gender identity… In line with the Supreme Court’s Bostock decision, the Bureau should continue to interpret ECOA’s prohibition of discrimination on the basis of sex to include sexual orientation and gender identity discrimination.”

7. Scope of Federal Preemption of State Law

“The CFPB must not take any action that could interfere with states’ ability to further protect their residents from other forms of discrimination. The Bureau’s preemption authority under the ECOA is narrow, and it must be exercised only in ways that will strengthen protections against credit discrimination.”

8. Public Assistance Income

“The CFPB should ensure that persons who receive public assistance have an even playing field with those who do not. Currently, the amount of discretion within ECOA and the additional guidance do not provide consumers receiving public assistance with an equal opportunity because creditors often require more invasive and stringent documentation to use public assistance income to qualify for credit.”

9. Artificial Intelligence (AI) and Machine Learning (ML)

“While AI/ML models may offer some benefits, they raise serious risks of discrimination because they have the potential to replicate, amplify, and exacerbate discriminatory lending practices.”

“Creditors that use complex, opaque algorithmic models that have a discriminatory impact on protected classes must not be shielded from liability. The Bureau must not allow the use of algorithms to become a way to avoid scrutiny for a company’s credit decisions. Financial institutions should not be able to hide behind ‘black boxes’ for their decisions to offer or deny credit, or the terms of the credit they offer.”

10. Adverse Action Notices

“Currently, adverse action notices do not provide the level of specificity or clarity needed for consumers to understand credit decisions. The CFPB should insist that creditors provide more understandable and consumer-friendly reasons in adverse action notices. A key purpose of the adverse action requirements is to provide transparency into the credit underwriting process so that consumers understand what information is being used to judge their applications. The knowledge should allow consumers to take steps to correct inaccuracies in the information used and improve their chances of being approved for credit in the future. Current notices do not provide sufficient information for consumers to use these notices as intended.”

“ECOA remains one of the strongest tools that existing law provides to promote equity and, ultimately, achieve equality in the financial services space. If enforced properly and overseen in a manner consistent with the recommendations made in this letter, the statute could achieve its intended result by significantly diminishing credit disparities for traditionally underserved consumers,” stated Mitria Wilson-Spotser, CFA Director of Housing Policy.

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Misinformation and Inaction Stall Proper COVID Auto Insurance Relief in Texas

In another setback to ensuring that Texans get appropriate auto insurance refunds due to COVID-related reductions in claims and driving, the Texas Department of Insurance (TDI) released misleading information to public officials in November asserting an unsupported claim that drivers have seen $1.4 billion in overcharges returned to their wallets.

Five consumer groups, including CFA, sent a letter to TDI and Texas legislators highlighting the erroneous and misleading information that TDI has used to justify their failure to provide premium relief to consumers. In their letter, the groups point out that the $1.4 billion dollar figure is “…at best, a compilation of non-comparable actions by insurers – combining future rate reductions with second quarter premium rebates – and, at worst, a misleading statement to obscure TDI’s lack of action to protect consumers.”

The letter comes after months of conversations and letters between the consumer groups and the agency. The organizations first urged the agency to act starting in the spring, when there were widespread stay-at-home orders. The groups then provided additional information and data as the pandemic continued, and had a follow up meeting with the Department in August. In one of these meetings, TDI noted that it “needed to wait for more data to assess the situation – despite the fact that insurers themselves were able to determine by the beginning of April that their rates were excessive.”

“Instead of ensuring that insurers’ premium relief was sufficient, TDI waited for data. When public insurers announced to investors for the second quarter 2020 windfall profits for auto insurance due to huge reductions in claim costs, TDI waited for data. When public insurers announced to investors more windfall profits for the third quarter of 2020, TDI waited for data. Based on our November 23 conversation, TDI indicated a need to wait further, until January or February of 2021 for additional data,” the consumer advocates stated.

“We have been evaluating different state responses to the pandemic all year, and while some have required refunds for consumers, Texas’ response has fallen short,” said CFA Director of Insurance J. Robert Hunter. “The Texas Department of Insurance has not ensured that all Texans get the relief they deserve. As a former Texas Insurance Commissioner, I am very disappointed,” Hunter added.

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Genetic Testing Kits—Are You Getting What You Think You Are?

With direct-to-consumer (DTC) genetic testing companies advertising more during the holidays, you’ve likely seen the commercials featuring people who discovered things about their families they never knew. However, as CFA found when it studied marketing for DTC genetic tests, the results aren’t 100 percent accurate and vary from one company to another. This is because these tests are estimates based on comparing your data to that of the company’s other customers. As DTC genetic testing companies add more customers and collect more data, the results of their tests may change.

These are some of the findings of a new report, released by CFA late last month, which examines the claims DTC genetic testing companies make for their services, the information they provide to consumers about them, the variance of results from one company to another, the up-selling that occurs, and the companies’ terms of service and privacy policies. The report provides specific information about each of these practices for each of the leading services.

It also includes a number of tips for consumers considering purchasing the services. It notes, for example, that the government does not review and approve these kinds of tests before they’re marketed to confirm that the claims made for them are valid. DTC genetic tests for health risks, such as developing cancer or reacting negatively to certain medications, are required to be preapproved by the U.S. Food and Drug Administration before they’re sold. However, there can be false positives and false negatives, and the results are not conclusive since other factors such as environment and lifestyle can affect your health. Furthermore, these tests are not intended to diagnose or treat health conditions.

Also, the information provided may be limited. Access to historical records, if available from the company, typically requires paying for an upgrade or a separate service. You will still have to do a lot of sleuthing yourself to identify the right records and put the pieces of the puzzle together. And consumers should keep in mind that the results of ancestry or health tests can be unexpected, and in some cases upsetting, the report warns.

Privacy is another concern, and companies’ privacy policies are not always clear, as the table below indicates. You can generally control what other customers of the DTC genetic testing company can see about you and how they can communicate with you, but you may have little control over whether the company uses your personal information to try to sell you other products and services and with whom the company shares it for marketing.

Your data may also be shared with law enforcement agencies under certain circumstances.

And, of course, there is always the possibility of data breaches that could expose your personal information. Finally, when you close your account with a DTC genetic testing company, it doesn’t mean that your personal information is erased. You may have to take an extra step to have it deleted, and it’s possible that some information may still be kept for legal purposes.

“There is a lot of helpful information on DTC genetic testing companies’ websites about genetics and how their services work, but we’re concerned that not many consumers will delve into it and [will] assume they’ll get more detailed and conclusive results than they actually will,” said Susan Grant, CFA Director of Consumer Protection and Privacy and report author. “As awful as it is to read companies’ privacy policies, it’s really important to do so before you purchase a DTC genetic test kit, and to use the controls the company provides when you set up your account,” she added.

Based on its findings, CFA called on DTC genetic testing companies to do a better job of bringing important information to consumers’ attention on their websites and in their packaging, suggested that they should not make claims about accuracy, and urged them to make their privacy policies easier to read and understand.

CFA also identified steps that state legislatures and Congress could take to protect individuals’ privacy and to outlaw unfair practices or ban forced arbitration clauses.

The bottom line, according to Grant: DTC genetic testing is not a genealogy or a medical service. If you’re thinking of taking one of these tests, consider the benefits and risks, and don’t buy a test kit for someone else without checking with that person first to ensure that it would be a welcome gift.

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Groups Urge Airlines Not to Force Consumers to Fly on the Boeing 737 Max

Boeing’s 737 Max aircraft, which was grounded last year following two accidents that cost 346 lives, could return to the skies as early as this month thanks to a U.S. Federal Aviation Administration (FAA) order that will enable the aircraft to return to service and the progressing certification of the aircraft by the European Union Aviation Safety Agency (EASA). In response, a coalition of consumer and travel groups, including CFA, joined together on a letter to the CEOs of Alaska, American, Southwest, and United Airlines urging them to adopt traveler-friendly policies – in writing – providing concerned travelers with a variety of options when the plane returns to service.

In order to ease passenger worries and provide flexibility, the groups’ letter urged the CEOs of the four airlines to agree to a five-point “737 MAX 8/9 Passenger Protection Plan.” The five protections are:

1. Allowing passengers concerned about flying on a 737 MAX 8 or 9 to change to flights operated with other aircraft without any financial penalties, such as an increase in fare over the ticket they already purchased, all the way up to departure time. This includes flights operated by the airline itself and those operated by that airline’s “code-share” partners.
2. If no other aircraft is operated on a passenger’s itinerary, offering consumers the option of either a full refund or the ability to apply the full value of the ticket to a ticket to a different destination, without incurring a change fee, administrative fee, or other financial penalty.
3. If a consumer is concerned about flying on a 737 MAX 8 or 9 to a degree that they’d rather not travel at all, provide them with a full refund on a timely basis.
4. Updating the airlines’ “Contract of Carriage” to reflect these changes and make them binding.
5. Providing consumers and travel agents with easily viewable information on the type of aircraft that will be used to operate a flight in advance so that consumers have full knowledge of whether a flight being considered is being operated with a 737 MAX 8 or 9, well before making a decision to purchase an airline ticket on a specific flight.

“Consumers shouldn’t be forced to fly on the 737 MAX or have to pay more if they don’t feel comfortable doing so,” said Susan Grant, CFA Director of Consumer Protection and Privacy. “If this plane is put back in service, it’s crucial for the airlines to adopt formal policies to accommodate consumers’ concerns.”

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DOJ Settlement with NAR Fails to Significantly Advance Price Competition

Late last month, the U.S. Department of Justice (DOJ) announced a major lawsuit and settlement with the National Association of Realtors (NAR) regarding anti-competitive practices related to commission practices that discourage price competition. While the settlement will help to discourage steering and discrimination, it does not go far enough according to CFA Senior Fellow Stephen Brobeck.

“The settlement will discourage blatant discrimination against discount brokers and the steering of buyers to high-commission properties, but will fail to significantly increase real price competition,” Brobeck explained.  “Only the uncoupling of commissions, so that both buyers and sellers negotiate and pay their own broker compensation, can foster the price competition that exists in most other consumer markets.”

The current commission structure protects realtors from this price competition, according to Brobeck. Sellers ostensibly pay the entire commission, which is typically split between listing agent and buyer’s agent. Sellers are limited in negotiating the commission both by listing agent intransigence – as documented by CFA’s 2019 report, Hidden Real Estate Commissions: Consumer Cost and Improved Transparency – and by the real fear that buyer agents will not show low-commission properties, about which the DOJ complains. “As a result, agents have been able to maintain fairly uniform commission rates in local markets whose national average in 2019, according to Real Trends, was 5.7 percent. These rates are much higher than those in almost all other developed countries,” Brobeck said.

As part of its settlement with DOJ, NAR has agreed to do the following:

1. Make publicly available the compensation offered to buyer agents on multiple listing service (MLS) listings;
2. Prohibit buyer agents from representing their services as free to buyers; and
3. Give all licensed agents, with the approval of sellers, access to the lockboxes of properties on MLS listings.

While these changes will likely curb some overt discrimination against discount brokers, depending on the specific rules, real estate agents may be able to thwart the intentions of the settlement, Brobeck warned.

• Buyer agents can inform buyers that their commission has been initially set, or just proposed, by the seller. That will convince most buyers that the buyer commission is not negotiable.
• Buyer agents can delay this disclosure until they have firmly established a relationship with their client, then refuse to negotiate the commission.
• When buyers are not negotiating commissions, it will still be accurate for listing agents to advise sellers that lowering the buyer broker commission will discourage the property from being shown.
• The disclosure will have minimal impact if access to information on buyer commissions in property listings is restricted just to individual buyers and sellers working with agents, and not made available to consumers early in their home sale or search and to third parties such as researchers and consumer groups.

“It is difficult to see how this settlement will increase the negotiation of commissions,” Brobeck said. “Consumers worried mainly about the timing of the sale and the sale price will still be denied opportunities to negotiate broker fees.”

Two class action lawsuits – Moehrl v. NAR and Sitzer v. NAR – seek remedies for lack of price competition that go well beyond the DOJ settlement. A recent CFA FAQ on the two real estate commission lawsuits explains how sellers and buyers would benefit. Separating commissions would immediately reduce the commission expenses of sellers and would give buyers the opportunity to negotiate buyer commission splits that previously had been difficult, often impossible, to negotiate. This uncoupling would also greatly free discounters and tech companies to offer an array of service options at lower prices. CFA estimates that the average commission would decline from the current 5.7% level to about 4%, saving consumers $20-30 billion dollars annually in lower commissions.

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Virtual Financial Services Conference

Earlier this month, CFA hosted its 33^rd Annual Financial Services Conference. Due to the COVID-19 pandemic, this event was transitioned to a virtual, two-day symposium.

During day one of the conference, attendees heard a keynote speech from Rep. Ayanna Pressley (D-MA), a conversation with New Jersey Attorney General Gurbir S. Grewal and Massachusetts Attorney General Maura Healey, and two panels – one focusing on how the credit reporting system perpetuates the racial wealth gap and how to fix it, and another highlighting systemic racism and unfair discrimination in auto insurance.

During day two, attendees heard two keynote conversations, one between Alice Rodriguez of JP Morgan Chase and CFA Executive Director Jack Gillis and another between Securities and Exchange Commission (SEC) Commissioner Caroline Crenshaw and CFA Director of Investor Protection Barbara Roper. Attendees also heard two panel discussions building on the topics laid out the day prior. The first panel focused on the relationships between race, federal policy, and the housing finance markets while the second panel discussed how Environmental, Social, and Governance (ESG) investing could play a role in a more inclusive economy.

Below you can see a graphic with all our panelists and keynote speakers. If you happened to miss a panel or keynote, you can re-watch the conference, or sections of it, on YouTube: link to day one here, link to day two here.