On April 14, the CFPB filed a statement of interest in a case currently pending before the United States District Court for the Southern District of Florida in an attempt “to help protect consumers from discriminatory targeting.” In a press release announcing the filing of the statement of interest, the CFPB explained that “discriminatory targeting” is the act of directing predatory or otherwise harmful products or practices at certain groups, neighborhoods, or parts of a community.
The plaintiffs in the case allege that the defendant, a for-profit nursing school, intentionally targeted its program on the basis of race and that the defendant knew that students were highly likely to require loans to pay for their enrollment in the program. The plaintiffs further allege that the defendant imposed new grading policies and graduation requirements while students were enrolled in the program, increasing the time and corresponding cost of completing the program beyond what the defendant advertised. Based on these allegations, the plaintiff claims that the defendant’s conduct constituted discriminatory targeting in violation of the Equal Credit Opportunity Act.
The defendant has moved to dismiss the case, arguing that the plaintiffs’ failed to identify any specific credit transaction or loan term that was unfair or predatory. In its statement of interest, the CFPB took a contrary position, instead arguing that Equal Credit Opportunity Act’s prohibition on discriminatory targeting applies with respect to any aspect of a credit transaction, not only the specific terms of a loan. The CFPB further asserted that the Equal Credit Opportunity Act applies where, like the case at issue, students are allegedly targeted on a prohibited basis with unfair or predatory lending practices, such as misrepresenting the cost of the program when students take out loans to enroll or other predatory conduct relating to the performance of goods and services obtained with credit.
Putting it into Practice: As evidenced by the CFPB’s statement of interest, federal regulators remain focused on combatting alleged discriminatory lending practices (see previous blog posts here and here). In light of this recent focus, which appears to be sharpening, lenders and their affiliates should review their lending practices and ensure that they remain compliant with federal regulations, especially those governing discriminatory conduct.
Separately, lenders may wish to review the guardrails that the CFPB expects lenders to take in implementing special purpose credit programs, which are permissible under ECOA and allow lenders to consider otherwise prohibited bases such as race, national origin, or sex in extending credit to meet special social needs. Specifically, the CFPB issued an advisory opinion in 2020 that clarifies the (i) requirements for a written plan to establish a special purpose credit program, and (ii) the type of research and data that may be appropriate to inform a for-profit organization’s determination that a special purpose credit program is needed to benefit a certain class of persons.