Report: CFPB Can Fix Fair Lending Laws, Improve Consumer Protection and Access to Credit


A new Competitive Enterprise Institute report urges the Consumer Financial Protection Bureau to remedy Obama-era misuse of a 1970s law, the Equal Credit Opportunity Act (ECOA), meant to protect minorities from discrimination in consumer lending practices.

“The Equal Credit Opportunity Act was intended to ensure all consumers have equal opportunity in credit applications, not as a political tool to intimidate lawful businesses,” said Daniel Press, CEI policy analyst and author of The CFPB and Equal Credit Opportunity Act: How Regulators Can Improve Consumer Protection and Access to Credit.

“Fighting against discrimination is important, but wrongfully persecuting lenders will only make it harder for consumers to obtain access to credit, especially minorities and consumers who lack good or established credit scores,” Press explained.

The report urges current CFPB Acting Director Mick Mulvaney to keep his word to faithfully enforce consumer protection laws as written but not attempt to regulate beyond that mandate.

Though Congress last week overturned the auto lending rule, one of the most controversial CFPB regulatory actions related to the misuse of ECOA, that’s not enough to fix the problem. The report urges the Bureau to re-focus on prosecuting demonstrated instances of discrimination and stop using a “disparate impact” standard for judging whether discrimination has occurred.

Under the disparate impact theory, the government does not need to prove a firm had any intent to discriminate. Rather, claims can be brought based on statistical calculations that suggest a neutral policy disparately affects individuals in minority groups—even if that company had no intent to discriminate and undertook no action to do so.

The report urges the CFPB to rescind Obama-era guidance documents on this policy or else issue new guidance. This action would not change the law but would ensure that regulators prosecute lenders based on demonstrated discriminatory treatment, rather than how neutral lending practice may impact minority groups.