The Consumer Financial Protection Bureau (“CFPB”) announced that it would be using its supervisory and enforcement powers to investigate and combat unlawful discriminatory practices in auto lending.
“Whether they are applying for an auto loan, student loan, or home loan, consumers need to know their rights and they need to know what red flags to look for that may indicate their rights are being violated,” said CFPB Director Richard Cordray. “We want consumers to be able to recognize when they may be victims of discrimination.”
The CFPB also reaffirmed that it would use the doctrine of “disparate impact” to find credit discrimination. Also called “the effects test,” this principle can hold a creditor liable for credit discrimination without needing to prove discriminatory intent or even knowledge. If a practice that seems neutral on its face has a disproportionate, negative effect on borrowers that are protected under the Equal Credit Opportunity Act (“ECOA”) (persons on the basis of sex, marital status, race, color, religion, national origin, age or the fact that all or part of an applicant’s income is derived from any public assistance program), then the practice is unlawful unless it meets a legitimate business need that can’t be met by an alternative that has a less disparate impact.
Patrice Ficklin, the CFPB’s Asssistant Director for the Office of Fair Lending and Equal Opportunity, made it clear that the CFPB will look at auto credit for signs of credit discrimination, whether by overt evidence of discrimination or disparate treatment (deliberate discrimination) or under the disparate impact doctrine.
“Today we are giving fair notice on fair lending,” said Ficklin. “We are letting both lenders and consumers know that in our examination and enforcement work, we will combat unlawful, discriminatory practices—including those that have an illegal disparate impact on protected borrowers. We will look not only at mortgage lending, but also at other types of credit including student loans, loans for cars, and credit cards.”
Civil liability for ECOA violations (typically asserted in a class action) include actual damages and up to $10,000 in punitive damages, not to exceed the lesser of $500,000 or 1% of the creditor’s net worth, plus attorney’s fees. The U.S. Attorney General can also bring an action if the CFPB believes the creditor has engaged in a pattern or practice of violations under the Act. The Attorney General can recover actual and punitive damages without limitation as well as injunctive relief.