Shoppers Help U.S. Regulators Fight
Racial Discrimination At Banks
by Chris Arnold
August 26, 2016
When the Consumer Financial Protection
Bureau looked into the Mississippi-based
regional bank BancorpSouth, it didn't
just review thousands of loan
applications. It sent in undercover
operatives some white, some black
who pretended to be customers
applying for loans.
"They had similar credit scores and
similar background and situations,"
says CFPB Director Richard Cordray.
"Our investigation had found that
BancorpSouth had engaged in illegal
redlining in Memphis, meaning refusing to
lend into specific areas of the
That is, neighborhoods where most
residents were African-Americans or other
minorities. Cordray says on top of that,
the bank "charged African-American
customers higher interest rates for
mortgages than similarly situated white
He also says the bank denied loans to
African-American applicants more often
than white applicants nearly twice
as often in relative terms, according to
When regulators get people to pose as
customers, it's called
"testing." This case marks the
first time the CFPB has said it is using
testers for enforcement. It just
disclosed that earlier this summer when
it announced a $10.6 million settlement
The bank did not admit wrongdoing and
said in a statement: "BancorpSouth
is fully committed to fair and
responsible lending practices."
The CFPB isn't disclosing the size and
scope of its testing operation but says
it will continue to use testers
also called "mystery shoppers"
when appropriate. Some consumer
groups are happy to hear that.
"It's an incredibly powerful
tool," says Fred Freiberg, founder
of the Fair Housing Justice Center in New
York. For years, he ran a testing
enforcement program at the U.S. Justice
Department. He used testers to enforce
fair housing laws. They posed as people
looking to buy or rent houses and
"Testers are the unmarked squad cars
in the housing market," he says.
"It is the most effective way of
finding out how people are actually being
treated in the marketplace."
Still, this approach costs money.
Freiberg says you need a large, diverse
pool of testers. Some regulatory agencies
just don't use this method at all.
Freiberg says it's encouraging that the
CFPB is doing this. "I hope to see
more government agencies understand that
this is a tool that they can't do
without," he says.
In the past, there's been some pushback
against using testers. A few years ago,
the Department of Health and Human
Services scuttled plans for a testing
program after Republican lawmakers
NPR reached out to one of those lawmakers
as well as industry groups and none of
them criticized the CFPB in this case.
The industry is definitely aware of the
undercover effort. Cordray says he hopes
that serves as a deterrent.
"I think it's important for
institutions to know that we're going to
be looking not just at what they say on
paper that they're supposed to be doing,
but what their people are actually doing
in individual cases with individual
customers," he says.
As far as when it's legal for regulators
to use testers, federal privacy law says
you can't do that if you're trying to get
personal information about individuals.
But Cordray says the CFPB is
investigating discrimination by entire
companies and that makes testing an
appropriate and powerful enforcement