Shoppers Help U.S. Regulators Fight Racial Discrimination
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
"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 applicants."
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 the
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 with
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 apartments.
"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
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 objected.
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
"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 tool.