WASHINGTON—The CFPB has disclosed it has been using “mystery shoppers,” or its own undercover investigators, posing as customers inside banks as it investigates discrimination in lending practices.
The practice was disclosed as part of an action the CFPB took against BancorpSouth Bank in Madison, Ala., in 2015 following a 2013 mystery shop by the CFPB in which it said it sent two people with similar profiles within 10 days of each other, both saying they were first-time home buyers—one white, the other black, into the bank. The CFPB alleged a bank employee pointed the black customer to a smaller and more expensive loan, even though her stated income and credit score were higher than the white applicant’s, according to The Wall Street Journal.
“The case is the latest example of the five-year-old CFPB testing boundaries with its enforcement tactics, a pattern that has sparked clashes between the agency and the financial industry and Republican lawmakers,” the Wall Street Journal said.
The Wall Street Journal noted that such undercover operatives are rarely used by regulators in civil law-enforcement cases because of limits imposed under the 1974 Privacy Act and other concerns. That law maintains that government officials must identify themselves if seeking information from individuals, the Journal noted, before adding, “the CFPB and others argue it doesn’t apply to ‘mystery shopping,’ because that tactic is used only to seek information that would be available to any member of the public, and doesn’t involve eliciting personal information about individuals.”
Quyen Truong, a partner at Stroock & Stroock & Lavan LLP who served as the agency’s deputy general counsel until May, told The Wall Street Journal that implementing the mystery-shopping program “took significant efforts but it’s been up and running” and that the agency developed the program “after evaluating all the potential legal restrictions.”
The CFPB said it has used the mystery shoppers as it investigates redlining, or the practice of refusing to lend to residents in certain neighborhoods marked by a hypothetical red line on a map.