The Consumer Financial Protection Bureau’s (CFPB) contested update to how it will assess bank practices could mean new business for regulatory technology (regtech) providers. 

The March update to the CFPB’s Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) examination manual would expand anti-discriminatory rules to include not only fair-lending laws, but also checking and savings account openings, international remittances, advertising and pricing. 

Regtechs, which offer software to help companies stay in compliance with regulations, have an opportunity to step in, as the update is likely to force banks to open their wallets, Anthony Alexis, partner at law firm Goodwin Procter and former assistant director and head of the Office of Enforcement at CFPB, told Bank Automation News.  

“[N]o one’s going to give you access to their regtech for free, so that’s another cost driver,” he said.   

In addition, banks might have to hire new teams just to ensure that product offerings stay in compliance with CFPB’s anti-discriminatory rules, Alexis noted. 

While the update still hangs in the air, bank trade groups filed a lawsuit last week in the U.S. District Court for the Eastern District of Texas arguing that CFPB is violating its statutory authority. 

Concerning lack of guidance

CFPB’s lack of guidance on which products and services it will scrutinize could make it harder for banks to know what systems to update, Stefanie Jackman, partner at law firm Troutman Pepper, told BAN. 

Banks’ existing systems outside of credit and lending are not necessarily built to identify discriminatory practices, she said. 

“Do you even have the information you need to assess if a servicing-related strategy of how you waive late fees or disposition accounts for treatment if they go past due has a discriminatory impact?” Jackman asked. 

While supportive of transparent enforcement of civil rights and fair lending laws, UDAAP exam manual changes stand contrary to the intent of the U.S. Congress, according to the Consumer Bankers Association, one of the seven trade groups behind the lawsuit. 

“Not only do these actions raise profound substantive and procedural legal concerns, they also threaten banks’ ability to deliver the products and services millions of Americans rely on to meet their financial needs,” the association stated in the release. 

Other plaintiffs include the American Bankers Association, U.S. Chamber of Commerce, Longview Chamber of Commerce, Texas Bankers Association, Independent Bankers Association of Texas and Texas Association of Business. 

CFPB declined to comment on the lawsuit, but a spokesperson told BAN the agency is “one of the most transparent regulatory agencies, and voluntarily publishes exam manuals laying out how it will assess banks’ compliance with the federal laws Congress charged the Bureau with enforcing. The CFPB’s exam manuals allow banks to ensure they are following the law.”