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  • CFPB: ECOA prohibits discrimination in any aspect of a credit transaction

    Federal Issues

    On April 14, the CFPB filed a statement of interest saying ECOA’s prohibition on discrimination applies “to any aspect of a credit transaction,” and therefore covers every aspect of a borrower’s dealings with a creditor, not just specific loans terms such as the interest rate or fees.

    The case, which is currently pending in the U.S. District Court for the Southern District of Florida, concerns a putative class of Black students enrolled at a for-profit nursing school who took out credit in the form of federal and private student loans to pay for the program. Plaintiffs alleged that the school adopted new policies while they were enrolled that increased the time and money it would take to complete the program, and asserted the program was intentionally targeted to individuals on the basis of race “with the understanding that they were highly likely to require an extension of credit to pay for the program.” Plaintiffs claimed the school violated ECOA by engaging in “reverse redlining” and brought other claims under state and federal law. The school moved to dismiss, arguing that the plaintiffs failed to specify any aspect of any credit transaction that is discriminatory based on race or another protected class under ECOA, and failed to identify any specific loan term that was unfair or predatory (based on race or otherwise), the Bureau said in a corresponding blog post.

    The statement of interest addressed two questions concerning ECOA’s applicability raised in the school’s motion to dismiss. First, the Bureau refuted the school’s argument that in order to state a claim for discriminatory targeting under ECOA, the plaintiff must allege that the individual (i) is a member of a protected class; (ii) applied and qualified for a loan; (iii) the loan was made on “grossly unfavorable terms”; and (iv) the lender intentionally targeted the plaintiff for unfair loans or gave more favorable terms to others. Calling this contention “mistaken,” the Bureau explained that to state a claim under ECOA, “a plaintiff need allege only facts to plausibly suggest that a defendant discriminated on a prohibited basis with respect to an aspect of a credit transaction; they need not allege the elements of a prima facie case, which is an evidentiary standard and not a pleading requirement.” The Bureau pointed to allegations showing that the school allegedly targeted Black students by, among other things, engaging in race-targeted advertising and marketing, enrolling a disproportionate number of Black students as compared to the surrounding neighborhoods’ populations, and making a greater percentage of loans in majority Black census tracts, as examples of discriminatory targeting.

    Second, the Bureau disagreed with the school’s assertion that plaintiffs failed to identify any aspects of the credit transactions that were discriminatory based on race, or any specific loans terms that were allegedly unfair or predatory. Emphasizing that even if the loan terms are not themselves unfair or predatory, plaintiffs may proceed with a discriminatory targeting claim because ECOA prohibits discrimination “with respect to any aspect of a credit transaction,” which encompasses more than just the loan terms in a contract, the Bureau explained. According to the Bureau, the plaintiffs alleged discrimination in relation to multiple aspects of their credit transactions with the school and have accordingly stated a claim under ECOA.

    CFPB Director Rohit Chopra issued a statement emphasizing that courts have consistently upheld that discriminatory targeting violates ECOA when a company targets consumers on a prohibited basis for harmful and predatory loans. The Bureau will continue to work with the DOJ, federal agencies, and the states to ensure lenders that engage in discriminatory targeting are held accountable, Chopra said.

    Federal Issues Courts CFPB Discrimination Consumer Finance ECOA Class Action Student Lending Reverse Redlining

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