The Consumer Financial Protection Bureau recently began using “mystery shoppers” to discreetly “test out” a company’s compliance practices, said Molly Calkins, partner of the Consumer Financial Services Practice Group at Akerman LLP.
Mystery shoppers are investigators posing as consumers to apply for loans and to “test” the lender, Calkins told attendees at PowerSports Finance 2016. “For example, they will send in pairs of equally qualified borrowers, one white and one non-white, to see whether the minority applicants were treated worse, given a higher interest rate, or the denial rate is higher,” she said.
The CFPB’s first use of “mystery shoppers” was in June, to support an allegation of discrimination. The CFPB and the Department of Justice announced a joint action against BancorpSouth Bank for discriminatory mortgage lending practices that harmed minorities, which was discovered using the “mystery shopper” tactic, according to a press release.
Other government agencies, including the DOJ, have used “mystery shoppers” for decades as a method of identifying discrimination, according to the release, and courts have long recognized testing as a “reliable” investigative tool.
“We tell clients that their best practice, regardless of company size, is to treat each customer as if he or she is a potential undercover regulator,” Calkins said. Lenders should maintain that motto year-round, she added.
Additionally, the CFPB has been accused of legislating by enforcement, rather than by rulemaking, Calkins said, which means the CFPB will often find alleged violations sometimes before it has issued any rules about a certain practice. “CFPB Director Richard Cordray has embraced that characterization,” Calkins added. “In fact, he expects companies to study enforcement orders for compliance guidance.”
The bureau’s enforcement work provides the “best description and forecast” of what powersports lenders need to do to stay out of the regulator’s crosshairs, she added.