On Sept. 28, 2022, a coalition of banking and business groups filed a lawsuit in the District Court for the Eastern District of Texas against the Consumer Financial Protection Bureau (CFPB) and Rohit Chopra in his capacity as Director of the Bureau. The plaintiffs – the American Bankers Association, the U.S. Chamber of Commerce, the Longview Chamber of Commerce, the Texas Bankers Association, the Independent Bankers Association of Texas, the Texas Association of Business and the Consumer Bankers Association – challenged the CFPB’s recent changes to the Unfair, Deceptive or Abusive Acts or Practices (UDAAP) section of the bureau’s exam manual.

While the plaintiffs fully support the fair enforcement of the nation’s anti-discrimination laws, the petition sets forth their arguments that the expansion of the CFPB’s authority in these changes to the exam manual exceeds the authority granted to the bureau by the law as written:

The CFPB exceeds its statutory authority outlined in the Dodd-Frank Act. The recent update to its examination manual adopts the novel position that the CFPB can examine entities for alleged discriminatory conduct under its UDAAP authority. But the CFPB cannot regulate discrimination under its UDAAP authority at all because Congress declined to give the CFPB authority to enforce anti-discrimination principles except in specific circumstances.

The updated exam manual is “arbitrary” and “capricious” in violation of the Administrative Procedure Act (APA). The CFPB reads Dodd-Frank as giving it the broadest possible authority to regulate both disparate treatment and disparate impacts. In touting the update, the CFPB stated that “[c]onsumers can be harmed by discrimination regardless of whether it is intentional,” so examiners will consider “discriminatory outcomes.”

The CFPB’s updated manual violates the APA’s procedural requirements because it constitutes a legislative rule that failed to go through notice and comment. The CFPB unilaterally acted to expand its authority to enforce anti-discrimination laws and to apply that authority to all entities it examines, the equivalent of “rulemaking” for which the process under the APA is designed but was not followed. The APA requires that agency action be set aside if it is promulgated “without observance of procedure required by law.”

The petition further states that 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.

The KBA applauds the bold move by the plaintiffs as they carefully weighed the costs of pursuing such a lawsuit against the risks of allowing such behavior to go unchecked. The unilateral action by this agency is bigger than the banking industry alone. The CFPB examiners, under this expanded authority, could seek detailed records of bank customers to investigate potential discrimination, which could require customers to maintain records unrelated to the purpose of the loan or other financial transaction they need from their bank. In addition, if rulemaking without any input from the public or time for the affected industry to react and prepare is allowed to stand, the implications for other industries and consumers from other similarly positioned agencies could be
devastating.