A lawsuit, led by the U.S. Chamber of Commerce and bank lobbyists, aims to prevent the Consumer Financial Protection Bureau (CFPB) from using its authority to assess if banks engage in racial discrimination in the provision of financial services.
The lawsuit was initially filed on September 28 in The United States District Court For The Eastern District Of Texas Tyler Division. The parties suing the CFPB include American Bankers Association, the Consumer Bankers Association, and several Texas groups.
First, the lawsuit claims the CFPB is exceeding its statutory authority outlined in the Dodd-Frank Act. The recent update to the examination manual says the CFPB can examine entities for alleged discrimination under its UDAAP authority — Unfair, Deceptive, or Abusive Acts or Practices. The lawsuit states that Congress did not give the CFPB authority to enforce anti-discrimination principles except in specific circumstances.
Secondly, the lawsuit claims CFPB’s updated manual is “arbitrary” and “capricious.” The UDAAP authority is modeled on the FTC’s similar authority, yet CFPB did not address Congress’s decision to define the FTC’s unfairness authority to screen out the same kind of power that the CFPB is now claiming for itself.
The plaintiffs also take issue with the fact the CFPB is taking broad authority to regulate disparate treatment and impacts. In regard to the update, the CFPB stated that “consumers can be harmed by discrimination regardless of whether it is intentional,” so examiners will consider “discriminatory outcomes.” The lawsuit claims Dodd-Frank does not give the CFPB permission to take such authority.
Thirdly, plaintiffs argue that the CFPB updated manual violates the APA’s procedural requirements because it constitutes a legislative rule that failed to go through notice and comment.
The lawsuit also complains that the CFPB update is causing significant compliance costs. In March, the CFPB announced in a blog post that “examiners will require supervised companies to show their processes for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups.”
When the CFPB first announced its update to its supervisory operations in March, the CFPB stated it would closely examine financial institutions’ decision-making in advertising, pricing, and other areas to ensure that companies are appropriately testing for and eliminating illegal discrimination.
“When a person is denied access to a bank account because of their religion or race, this is unambiguously unfair,” said CFPB Director Rohit Chopra. “We will be expanding our anti-discrimination efforts to combat discriminatory practices across the board in consumer finance.”
The CFPB declined to comment on the lawsuit.
Americans for Financial Reform called on the five big banks — JPMorgan Chase, Bank of America, Wells Fargo, Truist, and U.S. Bank — to stand against racial injustice and demand the Chamber drop the lawsuit against the CFPB.
“Suing the CFPB for the right to discriminate against people of color and alleging that it is operating outside of its statutory authority is absurd and raises red flags about how, exactly, these banks are doing business,” said Elyse Hicks, consumer policy counsel at Americans for Financial Reform. “The CFPB has clear authority, as the top consumer watchdog, to watch out for discrimination of all kinds in consumer finance, penalize offenders, and correct bank practices.”
The plaintiffs state in the lawsuit that they discourage discriminatory practices, but firmly believe the CFPB is acting beyond its authority with these new updates to its supervisory operations.
“[The associations and their respective members] fully support the fair enforcement of nondiscrimination laws. Yet they cannot stand by while a federal agency exceeds its statutory authority, creates regulatory uncertainty, and imposes costly burdens on the business community. Especially when the CFPB did not even give the public an opportunity to raise concerns through the APA’s notice-and-comment process,” the lawsuit states.
After requesting a statement, the American Bankers Association referred this excerpt in the lawsuit: “This Court’s intervention is needed to ensure that the CFPB is accountable to legal constraints, the rule of law, and the public as it pursues an aggressive agenda with far-reaching implications for the American economy, Plaintiffs, and their members.”
