The Consumer Financial Protection Bureau (CFPB) has issued a Consent Order addressing alleged disparate treatment by banks in overseas territories of the United States.  The Consent Order illuminates the CFPB’s approach to disparate treatment claims and provides a caution for financial institutions in their collection practices.

On Aug. 23, 2017, the CFPB issued a Consent Order regarding the charge and credit card practices of American Express Centurion Bank and American Express Bank, FSB (together, Amex or the banks), two American Express banking subsidiaries. Under the Order, the CFPB and the banks agreed to a compliance plan and audit, in addition to the banks’ voluntary provision of $95 million in remediation. At issue were the banks’ practices in overseas territories of the United States, including Puerto Rico, the U.S. Virgin Islands, Guam, American Samoa and the Northern Mariana Islands.

The CFPB alleged that Amex issued and managed cards in overseas territories, including its Green, Gold and Platinum cards, from a different division than its mainland consumer services division. This separate management allegedly resulted in a number of violations of the Equal Credit Opportunity Act, 15 U.S.C. § 1691, which prohibits a creditor from discriminating on the basis of race, color, religion, national origin, sex or marital status, or age.

Amex’s alleged violations included:

(1) higher fees and interest rates, and lower rebates than comparable mainland cards;

(2) underwriting and line assignment differences that were established on geographic and product levels rather than the individual creditworthiness of applicants;

(3) adverse credit actions that were not imposed on comparable mainland cardholders; and

(4) the use of different collection agencies than those used in the mainland, resulting in higher debt settlements, in addition to other collection disparities.

The CFPB has stated its intention to enforce the Equal Credit Opportunity Act under both disparate treatment and disparate impact theories. See Disparate Impact Continues to be a Viable Discrimination Theory for the CFPB under the ECOA. This Consent Order, however, appears directed to disparate treatment, by utilizing geography and demography as a proxy for more overt discrimination.

The Consent Order noted that Puerto Rico’s population is 99 percent Hispanic or Latino; the U.S. Virgin Island’s is 76 percent black or African American; and that the population of Guam, the Northern Mariana Islands and American Samoa is 81 percent Asian Pacific Islander, 72 percent Asian Pacific Islander and 91.6 percent Asian Pacific Islander, respectively. The Order provides that Amex’s “application of specific different policies to U.S. States cardholders and similarly situated [overseas territories residents] resulted in discrimination which negatively impacted … consumers on the basis of national origin, and … race … according to U.S. Census data indicating a high racial and ethnic minority composition in these territories.”

While the Consent Order could be seen as simply addressing the redlining of overseas territories of the United States, it imparts other lessons. Of note is the Order’s discussion regarding collection agencies. Financial institutions often use multiple providers for such services. Consideration should be given to the geographic and demographic composition of the debtor markets served by collections providers.