Consumer Finance Insights (CFI)

Synchrony Bank (formerly known as GE Capital Retail Bank) made two direct mail offers to its credit card holders, but it did not send the offers to Spanish-speaking customers.  The Bank self-reported its actions, resulting in consent orders with the Consumer Financial Protection Bureau and the Department of Justice, which further highlight how fair lending laws apply to servicers.

The consent orders stemmed from two offers made by the Bank to cardholders who met certain criteria.  One of the offers provided a credit to certain customers who brought their accounts current.  The other offer allowed certain cardholders to settle their account balances at a discount. But cardholders whose accounts were marked “Spanish-preferred” did not receive the offers.  Cardholders with Puerto Rico addresses were also excluded.  The CFPB and DOJ concluded that Synchrony’s actions in excluding Spanish-speaking customers violated the Equal Credit Opportunity Act, which prohibits creditors from discriminating based on prohibited characteristics – like national origin – “with respect to any aspect of a credit transaction.”

That prohibition on discrimination applies not just at the origination of loans, but can affect decisions made while servicing loans across asset classes, as Goodwin Procter CFS Litigation Attorneys Dan Zytnick explained in “Fair Servicing: Regulators Watch For Discrimination By Servicers” published in the May/June issue of ABA Bank Compliance Magazine (subscription required).   In Synchrony’s case, the Bank promptly reported its conduct to the CFPB and initiated remediation.  Although the Bank agreed to pay $169 million in remediation, the CFPB did not assess a civil monetary penalty because of the Bank’s “responsible business conduct.”  (The CFPB did assess a $3.5 million penalty for a different violation involving deceptive marketing of add-on products, however.).

The Synchrony consent orders are a reminder that, whether servicing mortgage loans, credit card accounts, or other consumer credit accounts, servicers may violate ECOA if their loan modification efforts or other credit decisions disfavor customers in a protected class.  Servicers can mitigate their fair servicing risks by proactively detecting and preventing discrimination, and especially by acting quickly to remediate any discriminatory conduct they find in reviewing the company’s servicing compliance with ECOA.