Four leading trade groups are calling on the CFPB to rescind the recent updates to the UDAAP section of its Supervision and Examination Manual that instruct examiners to consider discrimination in connection with non-credit products and services as an unfair act or practice. The four groups are the American Bankers Association, the Consumer Bankers, the Independent Community Bankers of America, and the US Chamber of Commerce.
The trade groups made their request in a letter to Director Chopra, which was accompanied by a white paper setting forth the legal basis for their position: “Unfairness and Discrimination: Examining the CFPB’s Conflation of Distinct Statutory Concepts.The primary legal flaws identified in the white paper consist of the following:
- In conflating the concepts of “unfairness” and “discrimination,” the CFPB ignores the Dodd-Frank Act’s text, structure, and legislative history. For example, Dodd-Frank discusses “unfairness” and “discrimination” as two separate concepts and defines “unfairness” without mentioning discrimination. Also, its legislative history refers to the Bureau’s antidiscrimination authority in the context of ECOA and HMDA, while referring to the Bureau’s UDAAP authority separately.
- The CFPB’s treatment of “unfairness” is inconsistent with decades of understanding and usage of that term in the Federal Trade Commission Act and with the enactment of ECOA. In Dodd-Frank, Congress gave the same “unfairness” authority to the CFPB that it gave to the FTC in 1938. That authority has never included discrimination. It makes no sense that Congress would have enacted ECOA in 1974 to address discrimination in credit transactions if it had already prohibited discrimination through the FTC’s unfairness authority.
- In conflating unfairness with disparate impact, or unintentional discrimination, the CFPB is disregarding US Supreme Court precedent. The Supreme Court has recognized disparate impact as a theory of liability only when Congress uses certain “results-oriented” language in antidiscrimination laws, such as the Fair Housing Act. Dodd Frank neither contains the requisite language, nor is it an antidiscrimination law.
- The CFPB’s action is subject to judicial review because it constitutes final agency action – a legislative rule – that is invalid, both substantively and procedurally. Because the CFPB’s action carries the force and effect of law and imposes new substantive duties on supervised institutions, it is subject to the Administrative Procedure Act’s requirements for notice-and-comment rulemaking.
- Because the CFPB’s action constitutes a rule, it is subject to Congressional disapproval under the Congressional Review Act (CRA). A member of Congress can request a GAO opinion on whether the CFPB’s actions are a rule, which can trigger CRA review.
The white paper concludes as follows:
The CFPB’s action has tremendous implications for consumers, banks, and for financial markets at large. It represents an enormous self-expansion of the CFPB’s authority that stands contrary to law and the intent of Congress. Such sweeping changes that alter the legal duties of so many are the proper province of Congress, not of independent regulatory agencies, and the CFPB cannot ignore the requirements of the Administrative Procedures Act and the Congressional Review Act. The CFPB may well wish to ‘fill gaps’ it perceives in federal antidiscrimination law. But Congress has simply not authorized the CFPB to fill those gaps. If the CFPB believes it requires additional authority to address alleged discriminatory conduct, it must obtain that authority from Congress, not take the law into its own hands. The associations and our members stand ready to work with Congress and the CFPB to ensure the just administration of the law.
Law360 reported that in response to the trade groups’ letter, a CFPB spokesperson stated as follows:
Scare tactics orchestrated by lobbyists for Big Tech and Wall Street won’t deter the work of the CFPB to enforce the law. Less than a year in, our approach is already paying dividends, with significant changes in bank overdraft policies and major reforms in the reporting of medical debt to consumer credit reports. Big corporations and their lobbyists want to preserve a system where American families and small businesses are left to fend for themselves against those that repeatedly violate the law.
In a blog post, the Bank Policy Institute called the CFPB spokesperson’s statement “unprofessional” for “demoniz”[ing] commenters and dismissals[ing] their ideas out of hand ”and failing to“ recognize that people who work in a regulated industry are uniquely positioned to provide insights on the practical effects of a regulation. ” BPI also called the CFPB spokesperson’s statement “false and misleading,” stating:
Letters such as the one that the CFPB received are not written by lobbyists; they are written by lawyers, after consulting the executives who run the businesses affected by the agency action. The banking… industry is not filled with people who repeatedly violate the law, or prey on defenseless consumers. Successful businesses craft products that are valuable to consumers, and they retain those customers by serving them well.
In addition to joining with other trade groups in sending the letter and white paper to Director Chopra, the US Chamber of Commerce also sent two separate letters to Director Chopra as part of its announced campaign “to expose and defeat [Director Chopra’s] Ideologically driven agenda to radically change the nature of America’s financial services industry. ”
One letter addresses the UDAAP updates to the CFPB’s examination manual and raises legal arguments similar to those set forth in the white paper for why the Bureau’s action exceeds its authority. The second letter takes aim at four other CFPB actions that the Chamber calls “imprudent and unlawful.” These actions are: the Bureau’s “Policy Fellowship Program;” revisions to the Bureau’s Rules of Practice for Adjudication Procedures; the effective repeal of the Bureau’s 2013 rule that established the Bureau would not publish a final decision or order establishing supervisory authority over a covered person using its risk-based authority; and the Bureau’s interpretive rule regarding the authority of state attorney generals to enforce the enumerated consumer financial protection rules.
The Chamber concludes both letters with the statement that if the Bureau does not rescind its actions, the Chamber “will not hesitate to take legal action to defend businesses against the Bureau’s unlawful actions.”
Also part of the Chamber’s campaign are Freedom of Information Act requests submitted to the CFPB seeking detailed information on the following topics:
- Communications with State Attorneys General regarding enforcement of the CFPA;
- The establishment and use of the CFPB’s “Policy Fellowship Program;”
- The CFPB procedures manual and operating manual;
- Director Chopra’s determination that the FDIC should hold a vote without the consent of its chair;
- The CFPB’s communications with non-US Government policy or interest groups including the Student Borrower Protection Center with respect to changes to the CFPB’s examination procedures; and
- All records regarding the President’s Executive Order on Promoting Competition in the American Economy, including communications between the CFPB and the White House
The arguments made by the four trade associations regarding the invalidity of the recent UDAAP updates to the CFPB’s Supervision and Examination Manual are heavily strengthened by the US Supreme Court’s decision on June 30, 2022 in West Virginia v. Environmental Protection Agency in which the Court struck down an EPA regulation pertaining to carbon dioxide emissions because it constituted a major change in the law which was not contemplated by Congress. Similarly, the CFPB’s update to its Manual expanding the definition of a UDAAP violation to include discriminatory conduct in connection with non-credit products and services is a major change in UDAAP law which was not contemplated by Congress. We will soon be publishing a separate blog post about the implications of the EPA opinion for rules adopted by the CFPB, FTC, and other agencies that conduct rulemaking in the consumer financial services area.