b'Are Your Companys Debt Collection Practices or Policies Creating an Impermissible Disparate Impact?Your company is sued by a regulatory agency in a class-actionTo establish a prima facie case under a disparate impact theory, acould lead to claims of disparate impact. For example, the On August 23, 2017, the CFPB entered into a Consent lawsuit. The agency claims that your companys debt collectionplaintiff must identify a specific facially neutral policy or practiceOrder with American Express Centurion Bank andColorado Fair Debt Collection Practices Act prohibits debt practices and policies cause minorities to be treated differently.that results in discrimination. The plaintiff must also demonstrateAmerican Express Bank, FSB (the banks), resulting fromcollectors from communicating credit information to a consumer Your company has no discriminatory intent. However, the agencywith statistical evidence that the practice or policy has an adverseallegations of discrimination against consumers in Puertoreporting agency earlier than 30 days after an initial notice has contends that your companys practices and policies violate theeffect on the protected group. There is no violation of the ECOARico, the U.S. Virgin Islands, and other U.S. territories.been mailed to the consumer. Colo. Stat.5-16-108. To avoid Equal Credit Opportunity Act (ECOA). Your company thenif a policy or practice can be justified by business necessity andThe CFPB contended that the banks provided credit andthis state-specific requirement, collection agencies attempting pays a six-figure civil penalty to resolve the claim of discriminatorythere is no less discriminatory alternative. charge card terms that were inferior to those availableto collect debt from consumers in Colorado may decide against conduct. This scenario is more common than you may believe. in the 50 U.S. states. Specifically, the banks assignedcredit reporting, despite reporting in the other states in which they non-U.S. territory and U.S. territory delinquent accountscollect. The different collection practice in Colorado relative to Establishing a Disparate Impact ClaimThe ECOA protects borrowers seekingto different collection agencies. This resulted in lessother states could create a disproportionate adverse effect against The Consumer Financial Protection Bureau (CFPB) is taskedcredit. This legislation prohibits creditadvantageous debt settlements for similarly situatedmembers of a protected class. with ensuring that financial institutions comply with fairdiscrimination based on race, color,non-U.S. territory customers. In addition, the CFPB lending laws, including addressing discrimination in the consumerasserted that the banks discriminated against certainPrepare for the Futurecredit industry. The ECOA was enacted to protect borrowersreligion, national origin, sex, maritalconsumers with Spanish-language preferences. The banksIn a changing administration, there may be an increase seeking credit. This legislation prohibits credit discriminationstatus, age, or because the consumerpaid approximately $95 million in consumer redress duringin enforcement actions by the CFPB and DOJ relating to the review process and were required to pay an additional based on race, color, religion, national origin, sex, marital $1 million to compensate the harmed consumers.impermissible disparate impact. Thus, now is an ideal time for receives public assistance.status, age, or because the consumer receives public assistance.financial institutions to reevaluate the effect and unintended 15 U.S.C.1691(a)(1) (2012); see 12 C.F.R. pt. 1002.2.On February 2, 2016, the CFPB and Department of Justiceconsequences of their policies and practices. Please reach out toThree Recent Enforcement Actions (DOJ) entered into a Consent Order with Toyotayour Moss & Barnett attorney for assistance.There are two main theories of liability under the ECOA:Motor Credit Corporation (Toyota), resulting from On July 15, 2020, the CFPB filed a lawsuit against1. Disparate Treatment.Townstone Financial, Inc. in federal district court in theallegations that Toyota violated the ECOA. Specifically, Northern District of Illinois. In the Complaint, the CFPBthe CFPB and DOJ asserted that Toyota adopted policies In cases of disparate treatment, the creditor treats an applicantasserted that from 2014 through 2017, the creditor drewthat resulted in African American and Asian and PacificAylix K. Jensendifferently based on protected class status. Proof of discriminatoryalmost no applications for properties in African AmericanIslander borrowers paying higher interest rates for their612-877-5434|Aylix.Jensen@lawmoss.comintent is required in these cases.neighborhoods and few applications from Africanauto loans than non-Hispanic white borrowers. As partLawMoss.com/people-aylix-k-jensen2. Disparate Impact.Americans. In addition, the CFPB alleged that the creditorof the resolution, Toyota was required to pay up to $21.9Aylix K. Jensen is a member of our Financial Services group. engaged in acts or practices that discouraged prospectivemillion in restitution and ordered to change its pricingAylix defends marketplace lenders, collection agencies, creditors, In cases of disparate impact, the creditors facially neutral practicesapplicants living in African American neighborhoodsand compensation system. and other businesses in consumer litigation. She has experience or policies have a disproportionate adverse effect on a memberfrom applying for mortgage loans. The CFPB soughtdefending individual and class action claims brought under the Fair Debt Collection Practices Act, the Fair Credit Reporting of a protected class. A disparate impact case does not requirean injunction against the creditor, as well as damages,Collection Agencies are Subject to the ECOA Act, and the Telephone Consumer Protection Act, as well as proof of discriminatory intent or proof that every member of theredress to consumers, and the imposition of a civil moneyLike lenders, the ECOA also applies to collection agencies.other related state and federal laws and regulations. Aylix also counsels organizations in the financial services industry on regulatory protected class was adversely impacted. penalty. The case is still pending.Inconsistent application of state specific debt collection practicescompliance.6 7'