Banks can support racial equity and still disagree with the CFPB

To the editor,

Regarding the October 23 op-ed "Bank CEOs must make good on their pledges to advance racial equity" by Paulina Gonzalez-Brito:

In recent years, America's leading banks have made important, specific pledges to address near-term discriminatory business practices and to contribute to the important, interdisciplinary discussion around our country's racial wealth gap. Our members have brought thousands of families access to broadband internet; created tens of thousands of new home and small-business loans to underrepresented minorities; and financed the creation and preservation of hundreds of thousands of affordable housing units in underserved communities. Through specialty programs, like Bank On, or by engaging with public-private conversations, like the OCC's Project REAch, our members are working, brick by brick, to reduce barriers that could inhibit consumers' participation in our country's financial system.  

Our members' commitment to these issues, however, extends far beyond these specific programs. Racial equity, financial inclusion and consumer financial health must be at the very heart of the retail banking business model. In 2015, the Consumer Financial Protection Bureau brought all of our attention to the 45 million Americans that lacked sufficient credit histories for credit scoring. The CFPB found that credit invisibility disproportionately impacted Black and Hispanic consumers, across all age groups — "suggesting that these differences materialize early in the adult lives of these consumers and persist thereafter." Over time, the CFPB found that credit cards are, by far, the primary way for credit invisibles to become visible.

As the CFPB highlighted during the pandemic, when making ends meet, Black and Hispanic consumers disproportionately turned to payday, auto title or pawn loans for handling income shocks, when they actually had much lower costs of credit available via credit cards — and importantly, would be contributing to building their credit histories so they can eventually access home mortgages, auto loans and other financial tools they desire. Because of protections like ability-to-pay requirements, highly regulated fee and disclosure expectations and regular examination, credit cards and other bank products provide on-ramps for new-to-credit consumers that are far safer than nonbank alternatives.

The Consumer Bankers Association believes, however, that the banking industry can prioritize its work toward racial equity and financial resilience and, simultaneously, advocate for regulators that follow the law. As part of this, we support and, when necessary, will fight for regulators to follow the requirements of the Administrative Procedures Act before creating major financial regulatory policy.

In 2022, the CFPB issued a revision to a supervisory handbook for its examiners with new language, classifying discrimination as Unfair, Deceptive, or Abusive Acts or Practices (UDAAP). This was a remarkably sweeping policy change. Congress passed the Equal Credit Opportunity Act on October 28, 1974. In the 49 years since, industry and regulators have iterated through various forms of additional laws, new regulations, guidance, examination procedures, rules arrived through legal jurisprudence and compliance best practices on myriad issues, large and small, to support the statute's goal of eliminating discrimination in financial services. We believed the CFPB was wrong to unilaterally overlay, displace or disrupt this prior precedent with a simple examination manual update. These actions ultimately created significant uncertainty across the financial marketplace and impacted banks' ability to serve consumers.

Despite what surely must have been good intentions, we felt the CFPB was required to seek input from the public before engaging in a policy change of that magnitude. It must be required to conduct impact assessments, both for consumers and the industry, while also disclosing other options it considered. Accordingly, we brought suit because we believed that regulators must follow the law. The court agreed.

This isn't the first time that courts made clear that good intentions aren't sufficient reasons for regulators to exceed their authorities, particularly with respect to UDAAP. In 2021, a unanimous Supreme Court ruled in a separate case that the Federal Trade Commission had exceeded its authority by inappropriately obtaining monetary relief under its Section 13(b) authority. No one disagrees with the importance of protecting consumers from unfair, deceptive acts and practices. But even Justice Stephen Breyer, who authored the decision, recognized that regulators must follow the law, as well. Remarkably, the FTC had relied on this authority for years, ultimately bringing in billions of dollars it lacked the authority to seek.

America's leading banks remain committed to improving the lives of our consumers, eliminating discrimination, closing the racial equity gap and ensuring a high-functioning financial services marketplace for all participants. We look forward to working with policymakers and other stakeholders toward these shared priorities.