On April 14, the Consumer Financial Protection Bureau (CFPB) submitted a statement of interest to the U.S. District Court for the Southern District of Florida arguing that the Equal Credit Opportunity Act’s (ECOA) prohibition on discrimination covers every aspect of an applicant’s dealings with a creditor, not just the specific terms of a loan (like the interest rate or fees). This statement shows that the CFPB is continuing to press its position for a broad view of the scope of ECOA, notwithstanding that another federal district court recently rebuffed the CFPB’s position.
The new CFPB effort comes in Roberson v. Health Career Institute, LLC, et al., where a putative class of Black students enrolled at Health Career Institute (HCI), a for-profit nursing school, alleged that after HCI arranged for students to take out federal and private student loans to pay for the program, HCI adopted new policies that increased the amount of time and money it would take students to complete the program. The plaintiffs further alleged that HCI intentionally targeted its program to individuals on the basis of race, with the understanding that they were more likely to require an extension of credit to pay for the program, thereby engaging in “reverse redlining” or “discriminatory targeting” in violation of ECOA.
HCI moved to dismiss the plaintiffs’ complaint arguing that the plaintiffs failed to specify any aspect of any credit transaction that was discriminatory based on race and failed to identify any specific loan term that was unfair or predatory based on race. The CFPB submitted a statement of interest to “assist the Court in its evaluation of Plaintiffs’ claim under the [ECOA].”
To state an ECOA claim, a plaintiff must allege that a defendant engaged in discrimination “with respect to any aspect of a credit transaction.” In its statement of interest, the CFPB argues the court should take an expansive view of credit transaction. “Courts have found, for example, that aspects of credit transactions include not just the credit terms in the four corners of the contract — such as interest rates or repayment terms — but also sale prices or down payments; determinations of borrowers’ ability to repay; rates of default, repossession, or foreclosure; and the delivery of services in connection with offering credit.”
In Roberson, the plaintiffs alleged that HCI steered its students into retail installment contracts, even when other, more favorable financing options existed. The plaintiffs also alleged that HCI represented to students that its program would last five semesters and cost $10,000 per semester, but while students were enrolled HCI imposed new grading policies and graduation requirements, which coerced students into repeating semesters they had already taken, which in turn increased the amount of time and money it took for them to complete their program. According to the CFPB, the plaintiffs “allege discrimination with respect to multiple aspects of a credit transaction — including the contract terms (such as repayment terms), the cost of the product and the amount of credit needed to pay for it, the likely ability of students to repay the credit, the consequences of nonpayment, and the performance of goods and services obtained with credit — any one of which is a sufficient ‘aspect of a credit transaction’ under ECOA.”
In conclusion, the CFPB urged the court to find ECOA’s prohibition on discrimination “with respect to any aspect of a credit transaction” extends to discrimination beyond the four corners of the loan contract.
The CFPB recently lost an effort to expand the scope of ECOA to include prospective applicants. In CFPB v. Townstone Financial, Inc., discussed here and here, the CFPB brought a case against the Chicago mortgage lender for purportedly discouraging prospective Black applicants in the Chicago metropolitan area from applying for mortgages. The Illinois federal court dismissed the case, finding that ECOA used the word “applicant” 26 times whereas the statute did not prohibit or discuss conduct prior to the filing of an application. The court found that because the text of the ECOA is unambiguous, it held, “[t]he CFPB cannot regulate outside the bounds of the ECOA, and the ECOA clearly marks its boundary with the term ‘applicant.'”
Roberson appears to us to be another aggressive attempt by the CFPB to expand the scope of ECOA outside of its statutory limits. We also note that while Regulation B protects “prospective” applicants against discouragement based on race, the Roberson case appears to be a case of encouragement based on race.