Compliance Blog

Written by Bernadette Clair, Regulatory Compliance Counsel

CFPB Director Cordray recently spoke at the American Banker Regulatory Symposium. In his remarks, Director Cordray described what the CFPB is now calling the "Four D's" that plague consumers. That sounds ominous. So what are these "Four D's?"  In a nutshell, they are:

• Deceptive marketing

• Debt traps

• Dead ends

• Discrimination

The “Four D’s” may be a nifty new catchphrase, but there aren't really any surprises here. Unfair, deceptive, or abusive acts or practices (UDAAPs), debt collection practices, fair lending, and payday loans, are just some of the issues that have been on the CFPB’s radar for some time and which we have blogged about numerous times, for example here, here, and here.

Here’s a snippet from Director Cordray’s remarks on deception and discrimination, two of the “Four D’s.” On deception:

“The first problem is deception. Consumers cannot make sound financial choices if they are given false or  misleading information. Yet this happens surprisingly often in the financial marketplace. In the lead-up to the financial crisis, for example, some lenders marketed mortgages with misleading teaser rates that misrepresented the full cost of the loan. One result was that too many homebuyers ended up with complicated mortgage products they did not understand and could not afford, which were doomed to failure – products they may well have avoided if they had known better.

Sometimes the problem that consumers face is not necessarily deception, but confusion about crucial product information. This also happens in a variety of markets. Information may be buried in pages of fine print or written in language that requires an advanced degree to decipher. Various providers may describe the same fee very differently, making comparisons numbingly difficult. Consumers need to have key terms highlighted so the most important risks will stand out and can be easily comprehended.”

 And here are his remarks on discrimination:

“The fourth “D” that is a clear focus for us is combating discrimination. We have seen too many instances of consumers getting unequal treatment based on characteristics such as race or gender. When consumers sit down at the table to discuss their prospects for a loan, they are often unaware of the options available to them. In many instances, hidden incentives for brokers or loan officers to negotiate higher rates have resulted in African-American and Hispanic borrowers paying more than they should have for mortgages and auto loans. Nobody believes that is right.

We made it clear last year that – like the other banking regulators and the Justice Department – we will pursue discrimination in consumer financial markets based on disparate impact as well as disparate treatment. From the perspective of a consumer disadvantaged by policies that have a discriminatory effect, it makes no practical difference whether a lender consciously intended to discriminate. We also have made it clear that lenders are responsible for the operation of their lending programs, even if they are structured to work with some sort of middleman who stands between them and the borrower. The bottom line is that every consumer should have equal access to credit, as required by law. We also will be revising the process by which the financial institutions provide information about the mortgage market under HMDA, the Home Mortgage Disclosure Act – both to improve the categories of information that are gathered and to ease the operational and technological burdens on industry to comply with this law.”

For more details, you can read Director Cordray's full remarks here.