CFPB Consent Order to Banking Subsidiaries Resolves Discriminatory Credit Card Term Practices in Puerto Rico and U.S. Territories

Consumer Finance CFPB Credit Cards ECOA Fair Lending

On August 23, the CFPB announced it was taking action against two banking subsidiaries of a multi-bank holding corporation for violating the Equal Credit Opportunity Act (ECOA) by allegedly offering credit card products and services to consumers in Puerto Rico, the U.S. Virgin Islands, and other U.S. territories that were inferior to those offered to consumers in the 50 states and discriminating against certain consumers with Spanish-language preferences. The consent order alleges the pattern of discrimination started in January 2005 and continued through November 2015. In 2013, the subsidiaries began self-reporting to the Bureau differences between credit cards and charge cards offered to consumers in the territories versus those offered to consumers in the 50 states, including disparities in pricing, terms and conditions, underwriting, rebates, promotional offers, customer and account management services, credit score requirements, credit limits, and debt collection practices. During the course of the CFPB’s review, the subsidiaries provided monetary and non-monetary relief to more than 200,000 affected consumers, resulting in approximately $95 million of remediation broken into the following amounts paid or credited to consumers: (i) roughly $55.7 million towards pricing, rebates, and promotional offer differences; (ii) approximately $3.2 million towards disparities in underwriting; and (iii) $35.7 million towards customer service, account management, collections, debt mitigation, and line assignment differences. The order also states that the subsidiaries instituted enhancements to their policies and procedures and compliance management systems. Pursuant to the consent order, the subsidiaries must (i) pay at least a $1 million more in restitution to fully compensate affected consumers; and (ii) develop and implement a compliance plan to ensure credit and charge card provisions are handled in a non-discriminatory manner in compliance with ECOA, make any necessary changes to their compliance management systems based on an annual compliance audit program assessment of current business structure, and correct any identified deficiencies. The Bureau further notes that penalties were not assessed due to efforts undertaken by the subsidiaries to self-report deficiencies, self-initiate remediation, and cooperate with the CFPB’s investigation. Furthermore, the Bureau concluded through its review that the subsidiaries did not intentionally discriminate against the consumers, but that the differences occurred as a result of business units utilizing different card management structures in the territories versus in the states.