CFPB Adds Friction to Fintech Inclusion Efforts


Many fintech companies tout their ability to use non-traditional tools to promote financial access to underserved and unbanked communities. Banks can even partner with fintech companies to help reach new customers within these communities.

These financial inclusion efforts are part of the environmental, social and corporate governance framework, the importance of which continues to grow.

Despite their laudable goals, these fintech companies may be subject to even greater regulatory risks, especially from the Consumer Financial Protection Bureau. Recent announcements from this consumer protection watchdog highlight the need to develop appropriate policies and procedures to avoid regulatory action.

Defining Discrimination in Financial Services

The CFPB’s consumer protection mission has focused on the same communities targeted by ESG efforts since its inception. Over the past year, the CFPB has taken significant steps towards a broader approach to protecting consumers from fair lending and potential discrimination, following a decade of traditional fair lending reviews under the Fair Lending Act. equal opportunity in credit.

In March 2022, the CFPB announced that it had updated its examination manual to address discriminatory practices by expanding the definition of unfair, deceptive, or abusive acts and practices, or UDAAPs, under the Dodd- Frank. According to this new definition, discriminatory practices can meet the criteria of “unfairness” even if they do not involve “credit” as required by the ECOA.

For example, if a customer is denied access to a product or is harassed in a discriminatory manner by a debt collector, the financial company involved may have violated the UDAAP prohibition. The review manual update also announced the CFPB’s intention to review decision-making in “advertising, pricing and other areas ‘to ensure that consumer-facing businesses’ test and eliminate unfair and unlawful discrimination”.

This extension of the CFPB’s authority under the UDAAP doctrine may allow the CFPB to pursue discrimination claims against a broader range of financial services markets such as credit services, collections, consumer reporting, payments, remittances, deposits and digital wallets.

Even traditional ECOA stocks can be expanding. In May 2022, the CFPB issued an advisory opinion announcing its view that the ECOA consumer protections apply to discriminatory practices after the initial credit decision. The CFPB held that the ECOA prohibits lenders from lowering credit limits for certain borrowers’ accounts or subjecting certain borrowers to more aggressive collection practices on a prohibited basis, such as race. The advisory also outlines the requirement for lenders to provide “adverse action notices” explaining adverse decisions against both applicants and existing borrowers.

Impact on Fintechs

At the same time, the CFPB announced that it would invoke its dormant authority under the Dodd-Frank Act to “compel non-banks to the same standards…[as] banks…” Until recently, the CFPB exercised review power only over a limited number of non-bank financial services companies that were either identified in the DFA or by CFPB regulations as a “larger participant ” in a particular market.

In April 2022, the CFPB announced its intention to use a forgotten DFA clause to oversee non-banks or fintechs without rulemaking if there are reasonable grounds to believe that the business “poses risks to consumers”. Under this new process, the CFPB can publicly announce that a fintech “poses a risk to consumers” before a review even takes place. This new authority is not specific to any consumer financial product or service, allowing the CFPB to regulate a variety of fintech companies.

The increase in reviews will provide more opportunities for investigations and public actions against fintech companies. This is exactly the kind of activity that financial services stakeholders want to see. In a rare partnership, the Center for Responsible Lending and the Consumer Bankers Association recently joined forces to call on the CFPB to increase oversight of Buy Now Pay Later (BNPL) companies and fintechs.

On the same day, the CFPB released a report on BNPL with a statement from Director Rohit Chopra directing his staff to ensure that these BNPL fintech companies “adhere to many of the basic protections that Congress has already established for cards. credit”.

why is it important

The CFPB is about to redouble its enforcement and monitoring efforts. Its expanded authority and recent interpretations of ECOA and UDAAP provide it with additional tools to regulate potential discrimination.

While these increased efforts are being felt across various sectors, fintechs that promote financial inclusion are likely to face greater regulatory scrutiny due to their stated focus.

If the CFPB finds that a fintech has engaged in discriminatory practices with these new tools, it has the power to impose severe monetary penalties and injunctions, and demand full redress from those affected.

And after?

Recent extensions of CFPB authority over fintechs and UDAAP and ECOA definitions are likely the first steps in a flurry of surveillance and enforcement activity. Fintech companies that focus on financial inclusion or ESG efforts should take note. The regulatory risks of unfair, deceptive or abusive acts or practices have become more complex. Companies should consider developing appropriate compliance structures to manage these risks.

This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Author Information

Melissa Baal Guidorizzi is an Orrick partner and previously worked eight years with the CFPB, including as senior policy and strategy counsel for the agency’s enforcement.

Caroline Frantz is a senior advisor at Orrick and leads the firm’s ESG practice.

David Devich is a legal assistant at Orrick.


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