Diversity and Inclusion

In this week’s podcast, we review the four key focus areas of the 2015 diversity and inclusion standards adopted by the Offices of Minority and Women Inclusion at the CFPB and other federal financial regulators, identify issues regulated entities should consider in addressing those areas and deciding whether to conduct D&I self-assessments, and discuss the evolving Congressional and regulatory D&I landscape since 2015, including recent letters sent to regulated entities regarding D&I efforts and self-assessments and D&I benefits for letter recipients to consider.

Click here to listen to the podcast.

We recently learned that several clients have received letters from the CFPB’s Office of Minority and Women Inclusion (OMWI) indicating that the Bureau will be inviting them to submit a self-assessment of their diversity and inclusion (D&I) policies and practices and requesting contact information for the individuals leading their D&I efforts.

The letters reference the D&I standards issued in June 2015 by the CFPB’s OMWI and the OMWIs of the other federal financial regulatory agencies to implement Section 342 of the Dodd-Frank Act.  Those standards contemplated that a regulated entity would, on a voluntary basis, conduct an annual “self-assessment” of its D&I policies and practices and submit the assessment to the Director of the OMWI of its primary federal financial regulator.  The standards also indicated that the agencies would not use their examination or supervisory processes in connection with the standards but instead envisioned that the agencies would use the information submitted to them to monitor progress and trends in the financial services industry with regard to D&I in employment and contracting activities, identify and highlight policies and practices that have been successful, and potentially publish best practices based on information provided to them.

Nothing in the CFPB’s letters appears to be inconsistent with the standards (e.g. they note that a D&I self-assessment is voluntary, is outside of the supervisory process, and will be used to inform the industry and develop best practices).  However, by sending these letters and noting in them that Director Kraninger supports the work of the CFPB’s OMWI, the CFPB is sending a strong signal to industry that D&I policies and practices will be a Bureau focus under Director Kraninger’s leadership.  In addition, as we recently reported, one of the first actions taken by Democratic Congresswoman Maxine Waters upon becoming Chairwoman of the House Financial Services Committee was to announce the creation of a new D&I subcommittee.  The CFPB’s letters and the creation of the subcommittee signal that financial institutions are likely to find their D&I policies the subject of greater attention and scrutiny in the coming months.

A financial institution should consult legal counsel in determining whether to undertake a self-assessment, publicly disclose information regarding an assessment, or submit an assessment to its regulator.  Ballard Spahr’s D&I counseling team advises financial institutions on the development, enhancement, and implementation of their D&I programs.  As attorneys, we offer a perspective that blends D&I consulting and development with a sensitivity to important legal issues—including regulatory compliance, the interplay of equal employment opportunity and affirmative action laws, reverse discrimination risks, and the role of D&I in potential discrimination litigation.  Our D&I team performs assessments, develops D&I strategic plans, advises on existing programs, develops policies and communications materials, conducts training, and assists with the implementation of D&I programs.

 

One of the first actions taken by Democratic Congresswoman Maxine Waters upon becoming Chairwoman of the House Financial Services Committee was to announce the creation of a new Subcommittee on Diversity and Inclusion (D&I).

According to Politico, the new subcommittee held its inaugural hearing earlier this week at which the focus was a review of diversity trends in the finance industry, specifically a GAO report that found the representation of African-Americans and women in management roles had lagged in recent years.  Democratic Subcommittee Chairwoman Joyce Beatty is reported to have indicated that she plans to analyze diversity trends and data, exercise oversight of businesses and regulators, and consider legislation to “change the culture in government and industry.”  Republican Congresswoman Ann Wagner, who serves as the new subcommittee’s ranking member, is reported to have sent letters to regulatory agencies inquiring about their D&I efforts.

Chairwoman Waters was among the chief architects of Section 342 of the Dodd-Frank Act which created Offices of Minority and Women Inclusion (OMWI) at all federal financial regulatory agencies, including at the CFPB.  OMWIs are responsible for developing standards to assess the D&I policies and practices relating to employment and third party contracting of their own agencies and of the financial entities they regulate.   In June 2015, the CFPB and the other federal financial regulatory agencies jointly issued a final policy statement establishing such standards (Final Standards).  The Final Standards became effective in June 2015 and envision that an entity will conduct an annual “self-assessment” of its D&I policies and practices and submit them to the Director of the OMWI of their primary federal financial regulator.

With the creation of the new D&I Subcommittee, financial institutions are likely to find their D&I policies the subject of greater attention and scrutiny.  Ballard Spahr’s D&I counseling team advises financial institutions on the development, enhancement, and implementation of their D&I programs.  As attorneys, we offer a perspective that blends D&I consulting and development with a sensitivity to important legal issues—including regulatory compliance, the interplay of equal employment opportunity and affirmative action laws, reverse discrimination risks, and the role of D&I in potential discrimination litigation.  Our D&I team performs assessments, develops D&I strategic plans, advises on existing programs, develops policies and communications materials, conducts training, and assists with the implementation of D&I programs.

 

The CFPB and its Acting Director are facing a proposed class action lawsuit alleging discrimination against minority and female workers based on allegations of lesser pay and fewer promotions than their white male counterparts. The case is captioned at, Jones et al v. Mulvaney, U.S. District Court, District of Columbia, No. 18-2132.

The Complaint, filed on September 13, 2018, in the D.C. District Court, alleges violations of the 1866 Civil Rights Act, Title VII of the 1964 Civil Rights Act and the 1963 Equal Pay Act. The lawsuit is seeking punitive damages and compensation for lost pay and benefits for minorities and women who have worked as consumer response specialists at the CFPB.

The plaintiffs contend that while the CFPB and Acting Director Mulvaney are tasked with providing justice to American consumers, they have failed in their responsibility to their own employees. The plaintiffs, Ms. Carzanna Jones and Mr. Heynard Paz-Chow, are seeking certification to join in the case a class of racial minority and female employees, both past and present, working in the consumer response division, whom the plaintiffs allege were subjected to the same discrimination and retaliation while working for the CFPB. Ms. Jones is a current employee of the CFPB, and her allegations cover the length of her career at the bureau dating back to 2012. Mr. Paz-Chow is a former employee of the bureau from 2011-2014, and his allegations occurred under the leadership of former CFPB Director Richard Cordray. The consumer response division of the bureau is responsible for investigating consumer complaints and determining whether laws or regulations have been violated.

The pending lawsuit alleges that through an agency-wide pattern and practice of discrimination and retaliation, the CFPB has sought to disparately impact racial minority and female workers despite the continued objections of CFPB employees. Specifically, it is alleged that the CFPB instituted discriminatory policies and procedures in its training, assigning, evaluating, and compensation of minority and female employees. The Complaint also details specific instances of discrimination and retaliation alleged to have been suffered by the individual named plaintiffs including:

  • Denial of training and promotion opportunities
  • Unequal assignment of investigations leading to disproportionate case closings which impact employee evaluations
  • Denial of transfer requests
  • Pay disparities
  • Failure to abide by the requirements of the ADA and FMLA
  • Retaliatory actions after employees complained about inequalities

The allegations in the Complaint stretch back as far as 2011 and address statistical studies and congressional reports that have highlighted equality issues at the CFPB under multiple directors. According to the Complaint, those analyses and investigations have shown deficiencies in the pay and promotion of both racial minorities and female employees in line with the allegations of the Complaint. The Complaint cites to a Congressional Investigation by the U.S. House of Representatives initiated in 2014 and an Office of Inspector General (“OIG”) report from 2015. Both authorities found significant issues with widespread disparities negatively impacting racial minority and female employees with regard to performance ratings, pay, promotion and related areas. During a hearing of the U.S. House of Representatives Financial Services Committee, a CFPB attorney testified that the white males in authority at the bureau gave themselves the best performance evaluations to garner better raises and bonuses.

On Thursday, April 27, the CFPB released a report which outlines a number of strategies for promoting diversity and inclusion (D&I) in the mortgage industry, presents the business case for diversity, and provides current D&I approaches and practices used by mortgage industry participants.

D&I has been a foundational principle of the CFPB since the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  Specifically, Section 342 of the Act created Offices of Minority and Women Inclusion (OMWI) at all federal financial regulatory agencies, including the CFPB. OMWIs are responsible for promoting diversity and inclusion in employment and procurement practices at their own agencies, and within the financial entities they regulate.  Pursuant to that mission, the April 27 report came out of a roundtable meeting from CFPB’s OMWI which included representatives from larger and smaller banks, nonbank financial companies, and federal agencies.

The report first highlights the notion that a diverse and inclusive workforce is important to help mortgage industry participants attract and retain the talent and perspective necessary to solve complex issues, create innovative solutions, and improve business outcomes.

Next, the report shares strategies and best practices for creating a D&I program, including:

  • Sustaining a D&I program requires “buy-in” and accountability from leadership. A top-down approach reduces organizational resistance and causes employees to more likely understand the company’s position and be an active participant in D&I efforts. In addition, proper accountability creates a focus that directs D&I efforts to the goals set by management and enhances the organization’s likelihood of achieving its goals.
  • The need to clearly define “diversity and inclusion” so that both employees and consumers can more clearly understand the broad nature of D&I programs and be able to see themselves included in such definitions.
  • The need to make the business case for diversity, which includes diversifying workforces and employee bases in order to more effectively meet the needs of diverse consumers, as well as capitalize on a robust and diverse talent pool. More specifically, the report notes that when the diversity of the workforce is aligned with the demographics of targeted consumers, there is a greater likelihood of increasing business opportunities.
  • The importance of data as data collection and analysis play an integral role in supporting many D&I programs. In fact, the report explains that understanding the demographics of an organization’s workforce is key to ensuring that it reflects the available talent pools as well as customer bases.

In addition to the CFBP OMWI, the Bureau plans to work with the other OMWIs to host additional roundtables that will expand upon the business case for diversity and inclusion. The report concludes by encouraging entities to develop a D&I program that best fit their needs.

Ballard Spahr’s Diversity & Inclusion Team advises clients on the design and implementation of diversity and inclusion programs and is counseling regulated entities on developing and implementing diversity programs. The team consists of Ballard Spahr lawyers from several practice groups who regularly advise financial institutions and publicly traded companies on regulatory compliance issues, including those under consumer financial services laws.

 

The CFPB’s Office of Minority and Women Inclusion (OMWI) has issued its annual report to Congress covering the OMWI’s activities in FY 2016.  The Dodd-Frank Act required the CFPB and various other federal agencies, including the Fed, OCC, FDIC, NCUA, and SEC, to establish an OMWI, and also requires each OMWI to submit an annual report to Congress.

From industry’s perspective, the most noteworthy task Dodd-Frank assigned to each OMWI was the development of standards to assess the diversity policies and practices relating to employment and third party contracting of the institutions regulated by the OMWI’s agency.  As the report notes, in June 2015, the CFPB and the agencies listed above jointly issued a final policy statement establishing such standards (Final Standards).  The Final Standards became effective on June 10, 2015 and envision that an entity will conduct an annual “self-assessment” of its diversity policies and practices.  Last July, the CFPB and other agencies required to establish an OMWI published a notice in the Federal Register that informed regulated entities that they could begin to submit self-assessments of their diversity policies and practices to the Director of the OMWI of their primary federal financial regulator.

In its report, the OMWI states that in 2016, it “continued the planning needed for initiatives related to the new standards.”  The planning work included creating a self-assessment tool that will be offered to entities to assess their diversity and inclusion policy and practices.  The report indicates that the CFPB hosted “an initial roundtable listening session” in November 2016 with mortgage industry members to learn more about their experiences, practices and challenges with diversity and inclusion management practices.

Another task of an OMWI is to develop standards for creating diversity in an agency’s own workforce and increasing participation of minority-owned and women-owned businesses in the agency’s programs and contracts.  According to the report, the CFPB had a workforce of 1633 employees in 2016 (representing an increase of 124 employees from 2015), of whom almost 49% were female and 51% were male.  (The percentage of women represents about a 1% increase from 2015’s percentage.)  In addition, of those employees, approximately 62.3% self-identified as White, 19.8% as Black/African-American, 5.8% as Hispanic, 8.7% as Asian American, and 3.2% as another racial group or belonging to two or more racial groups.  The report indicates that this represents a slight increase of 1.81% in the percentage of minority employees in 2016 from 2015, with a corresponding slight decrease in white employees.

With regard to procurement, the report indicates that in FY 2016, the CFPB entered into “contract actions” totaling approximately $190.0 million.  Of the total contract dollars awarded in FY 2016, the report states that 8.75% went to women-owned businesses and 17.50% went to minority-owned businesses (consisting of businesses owned by Hispanic Americans, African-Americans, Asian/Pacific Islander Americans and American Indians/Alaskan Natives and “Others”).

As noted above, the Final Standards cover not only a regulated entity’s diversity policies and practices relating to employment, but also cover its procurement and business practices.  Thus, banks and other regulated entities may want to take note of the section of the report describing the CFPB’s efforts to increase vendor diversity.  Such efforts include participating in procurement events and conducting other outreach targeted at establishing connections and recruiting diverse suppliers.

In addition to its annual OMWI report, the CFPB also issued its Equal Employment Opportunity (EEO) program status report for FY 2016 and its Notification and Federal Employee Antidiscrimination and Retaliation Act of 2002 (No FEAR Act) Annual Report for FY 2016 

Pursuant to a directive of the Equal Employment Opportunity Commission, a federal agency must submit an annual report that evaluates whether the agency is establishing and maintaining effective programs of equal employment opportunity under Title VII of the Civil Rights Act of 1964 and the Rehabilitation Act of 1973.  The CFPB’s EEO program status report includes a description of the CFPB’s EEO program activities, a description of  internal assessments conducted by the CFPB to identify and prevent barriers to employment in the workplace, a plan regarding future steps to correct deficiencies or improve the EEO program, and data regarding the race, national origin, gender, and disability status of the CFPB’s workforce.

The CFPB’s No FEAR Act annual report includes data regarding complaints filed against the CFPB involving federal laws covered by the No Fear Act, which include Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, and the Equal Pay Act of 1963.

Ballard Spahr’s Diversity Team advises clients on the design and implementation of diversity and inclusion programs and counsels regulated entities on developing and implementing diversity programs.

 

 

The CFPB released two items at year-end:  the results of its 2016 annual employee survey and its updated Diversity and Inclusion Strategic Plan (Strategic Plan) for 2016-2020.

Survey.  Of the 1,567 CFPB employees surveyed, 1,372 (almost 87.6%) responded to the 2016 survey.  We were pleased to see that the survey results appear to show that the CFPB has made progress in improving  its work environment.  In particular, in response to the question “what progress has the CFPB made in creating a workforce experience where everyone feels included, valued and empowered to do their best work,” 88.4% of the respondents found that the CFPB had made some degree of progress, ranging from “goal achieved” to “limited progress,” and of those respondents, 63% found that either “substantial progress” or “some progress” had been made.

Strategic Plan.  The plan takes guidance from Section 342 of the Dodd-Frank Act and other federal initiatives and regulations focused on advancing diversity and inclusion.  As released in November 2015, the plan was built around five pillars: workforce diversity, workforce inclusion, sustainability, minority- and women-owned businesses, and the transparency of diversity practices of regulated entities.

The updated plan adds a sixth pillar: employment practices of CFPB contractors.  The plan states that through its Office of Minority and Women Inclusion, the CFPB will “use good faith effort (GFE) standards developed under Dodd-Frank Act to determine efforts of Bureau contractors to utilize women and minorities in their workforces.”

The final diversity and inclusion standards adopted by the CFPB, the federal banking agencies and other federal agencies in June 2015 include standards directed at the promotion of contractor diversity by regulated entities.  However, those standards emphasize increased outreach to minority-owned and women-owned businesses.  The Strategic Plan takes a broad view of the standards to address not only the diversity of the owners of CFPB contractors but also the diversity of a contractor’s workforce.  The addition of this sixth pillar is likely an indication that the CFPB expects regulated entities to similarly consider not only the ownership of their contractors but also their contractors’ efforts “to utilize women and minorities in their workforces.”

Ballard Spahr’s Diversity Team advises clients on the design and implementation of diversity and inclusion programs and counsels CFPB-supervised entities on developing and implementing diversity programs.

Women in the real estate financing sector have a new opportunity to connect with others in their field and to access and exchange information about the industry.  On October 18, the Mortgage Bankers Association (MBA) announced the launch of mPower, a professional networking platform that aims to create “a strong, diverse network of women” in the real estate financial industry.  In addition to the benefits for women, financial services entities subject to regulation under the Dodd-Frank Act can look to the new MBA networking platform as an initiative for fostering diverse talent in connection with diversity and inclusion (D&I) programs adopted under the Dodd-Frank D&I standards.

mPower, an acronym for MBA Promoting Opportunities for Women to Extend their Reach, is accessible through the MBA website, where members are provided with exclusive access to resources and information, notices regarding upcoming events of interest to women in the industry, and the opportunity to interact with their peers in a private online forum.  According to David H. Stevens, president and CEO of the MBA, “addressing the needs of this important segment of our workforce is essential to our industry’s success.  MBA can be the catalyst for creating a strong, diverse network of women in our industry.”

The stated goals of mPower align with the Dodd-Frank D&I standards, which contemplate the “inclusion” component as “a process to create and maintain a positive work environment that values individual similarities and differences, so that all can reach their potential and maximize their contributions to an organization.”  As explained by MBA chief operating officer Marcia Davis, “mPower is designed to recognize and promote the rise of women in the real estate finance industry, as well as the overall workforce.  Our goal is to provide information, events and a networking platform to help women maximize their overall potential.”

 

Members of Ballard Spahr’s Consumer Financial Services group recently participated in the American Bar Association Business Law Section Annual Meeting held in Boston, Massachusetts.  On September 8, Ballard partner, Dee Spagnuolo, joined Director Stuart Ishimaru of the CFPB’s Office of Minority and Women Inclusion, and other industry leaders for a panel discussion entitled, “Diversity and Dodd-Frank Section 342.”

The program included an informative discussion of the history of Section 342 of the Dodd-Frank Act, examined its effect on the industry, and provided guidance on how regulated entities might best comply with the Joint Diversity Standards issued in June 2015.

As part of his remarks, Director Ishimaru emphasized that, while the Standards themselves are not mandatory, regulated entities should follow their guidance because diversity and inclusion (D&I) policies and practices make “business sense.”  The Director noted that in an increasingly diverse world, D&I initiatives open opportunities in new markets and provide exposure to innovation and diversity of thought.  With respect to organizational commitment to D&I, the Director encouraged the leadership at regulated entities to play an integral role in articulating and advancing their organizations’ D&I plans.

The panel also engaged in a thoughtful discussion about transparency with respect to a regulated entity’s successes and challenges in promoting D&I.  Ms. Spagnuolo noted that annual reports submitted to regulators, such as the CFPB, may be subject to production under the Freedom of Information Act (FOIA).  Director Ishimaru expressed the view that FOIA should not deter an organization from sharing its annual reports with regulators because such reports are accessible through other means, such as discovery requests in litigation.  The Director invited regulated entities to be more transparent about their D&I efforts and to increase communication with regulators, with their communities, and with their own workforce.

Finally, with respect to the definition of “diversity” set forth in the Joint Standards, which focuses on minorities and women, several panelists encouraged regulated entities to use a broader definition of “diversity” to include, for example, veterans, LGBT, or people with disabilities.  The Director concurred with that advice, but reminded entities to ensure that the representation of minorities and women is not lost in more expansive programs.

Ballard Spahr’s Diversity Team advises clients on the design and implementation of diversity and inclusion programs.

 

On June 29, 2016, BancorpSouth Bank announced a proposed settlement and consent order with the CFPB and the U.S. Department of Justice of charges that the bank’s mortgage lending practices violated the Equal Credit Opportunity Act and Fair Housing Act by redlining majority-minority neighborhoods in the Memphis MSA and illegally discriminating against African Americans in the underwriting and pricing of certain mortgage loans.  The charges stemmed from what the CFPB characterized as its first use of testers or “mystery shoppers” posing as consumers to support discrimination charges.  Another unique aspect of the case is that the consent order, if approved, will require the Bank to adopt or revise diversity policies and practices as part of a written compliance plan to ensure that it does not engage in discrimination.

Under the consent order, the Bank agreed to engage a third-party compliance management system consultant to assist in the review and revision of its fair lending management system.  The consultant will conduct a detailed assessment, including a review of the Bank’s diversity policies and practices in the Memphis MSA.  This aspect of the assessment appears to parallel the Dodd-Frank Act diversity standards which call for regulated entities to conduct an annual self-assessment of their diversity policies and practices in four areas: (1) organizational commitment to diversity and inclusion, (2) workforce and employment practices, (3) procurement and business practices, and (4) practices to promote the transparency of organizational diversity and inclusion.

The consent order further will require the Bank to submit a written compliance plan which must include adoption or revision of its diversity policies and practices, as informed by the consultant’s findings.  The consent order also touches upon several recognized diversity and inclusion practices, including that the Bank must conduct fair lending training for covered employees with an implicit racial bias component and that the Bank must develop or expand community partnerships designed to enhance financial education around credit, homeownership, and foreclosure prevention.

Ballard Spahr’s Diversity Team is working with numerous financial institutions and publicly traded companies to undertake self assessments in the diversity and inclusion arena and to adopt measures in conjunction with the Dodd-Frank Act diversity standards.  On July 26, 2016, Ballard Spahr attorneys conducted a webinar on the BancorpSouth Bank consent order: “Fair Lending Lessons That Go Beyond Mortgages – The BancorpSouth Bank Consent Order.”  Last July, Ballard Spahr attorneys conducted a webinar on the Dodd-Frank Act diversity standards: “Complying with the Final Diversity and Inclusion Standards.”