CFPB Shows Interest in Federal Case on "Discriminatory Targeting"
The CFPB filed a "Statement of Interest" in a federal case to address issues of "discriminatory targeting" under the Equal Credit Opportunity Act ("ECOA").
Before the United States District Court for the Southern District of Florida, the CFPB explained that the "ECOA is a civil rights law that prohibits creditors from discriminating against any applicant 'with respect to any aspect of a credit transaction' on a prohibited basis, including 'race, color, religion, national origin, sex or marital status, or age.'" The agency defined discriminatory targeting as "the act of targeting unfair or predatory lending acts or practices to certain groups on a prohibited basis, which may be proven through either intentional targeting or disparate impact."
In this case, the plaintiffs, black students enrolled in a for-profit nursing school, claimed that (i) the school "extended and arranged for students to take out credit to pay for the program in the form of federal and private student loans;" (ii) the school adopted new policies that "increased the amount of time and money it would take students to complete the program;" and (iii) the school "intentionally targeted its program to individuals on the basis of race, with the understanding that they were highly likely to require an extension of credit to pay for the program." The plaintiffs argued that the school engaged in "reverse redlining"—discriminatory targeting—in violation of ECOA.
In its Statement of Interest, and in response to the defendant school's Motion to Dismiss, the CFPB asserted that the ECOA's prohibition on discriminatory targeting applies to any aspect of a credit transaction, not just specific loan terms. The CFPB also asserted that the ECOA covers cases where students are targeted based on prohibited grounds with unfair or predatory lending practices, such as misrepresenting program costs related to student loans or other predatory conduct connected to credit-related goods and services.
Commentary
While redlining issues have been given much attention in the context of fair lending, this CFPB development is a further reminder of how discriminatory targeting (sometimes called "reverse redlining" or "targeted predatory lending") is, and remains, another top regulatory concern. It's important for creditors to carefully manage and monitor every aspect of their credit transactions, which encompasses each and every one of their interactions and dealings with borrowers, not simply the loan terms in the contract. As the CFPB states in its brief, "even where loan terms are not themselves unfair or predatory, a plaintiff may still proceed with a discriminatory targeting claim because … ECOA covers every aspect of a credit transaction, not just the loan terms in the four corners of the contract."