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The Consumer Finance Protection Bureau (CFPB) is operating beyond its statutory authority and without accountability, according to the American Bankers Association (ABA), US Chamber of Commerce and others.
The co-plaintiffs are challenging the CFPB’s recent update to the Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) section of its examination manual to include discrimination and, in particular, disparate impact.
The reasoning behind the lawsuit is that the US Congress has not given the CFPB the power to do so.
The CFPB is, the lawsuit says, exceeding its statutory authority outlined in the Dodd-Frank Act, and that the updated manual is “arbitrary” and “capricious”.
According to the co-plaintiffs, it also violates the Administrative Procedure Act’s procedural requirements because it constitutes a legislative rule that failed to go through notice and comment.
The suit further challenges the CFPB by calling into question the bureau's funding structure.
The trade associations argue that allegations of discrimination are handled by other agencies through statutes such as the Equal Credit Opportunity Act, the Fair Housing Act and the Home Mortgage Disclosure Act.
"The CFPB's decision to dramatically expand its regulatory reach without any input from the public was not authorised by statute and has significant implications for consumers, banks and the broader financial markets," said ABA president Rob Nichols. "This is a step we did not want to take, but it was a necessary step given the extraordinary actions of the CFPB."
According to the co-plaintiffs, which also include state trade associations from Texas, importing disparate impact into UDAAP will likely result in the disappearance of products consumers currently enjoy and benefit from.
For example, they cite no-fee checking accounts are more often offered to customers with higher balances, which often are individuals further into their careers as opposed to those who are just beginning to work.
A disparate impact analysis could find that no-fee policies for customers with larger balances constitute age discrimination against younger customers and, therefore, banks may no longer be willing to offer such products to consumers for fear that they will be declared unlawful.
“The Consumer Financial Protection Bureau is operating beyond its statutory authority and in the process creating legal uncertainty that will result in fewer financial products available to consumers,” said US Chamber of Commerce policy chief Neil Bradley.
“The CFPB is pursuing an ideological agenda that goes well beyond what is authorised by law and the chamber will not hesitate to hold them accountable.”
Bradley continued that the CFPB has important responsibilities to protect consumers, including against discrimination. However, rather than focusing on that mandate, the CFPB is attempting to pretend that it is Congress and impose new theories of disparate impact through an extra-legal process.
“By doing this, everyday consumers will find they have less access to banking and credit products as companies will be forced to divine what the CFPB may or may not say is now illegal under the undefined standard they have created,” said Bradley.
This is not the first time the CFPB’s authority has been subject to a lawsuit.
In 2017, Seila Law, a California law firm alleged that the agency’s leadership structure was unconstitutional. The law firm argued that the CFPB statute violated the separation of powers by placing a single director on top of the agency who could only be removed from office "for cause".
In 2020, the Supreme Court sided with Seila Law, confirming that the CFPB leadership structure was unconstitutional and the President should be able to remove the director “at will”.
CFPB director Rohit Chopra, who is also targeted by the ABA’s lawsuit, has faced a number of criticisms for overstepping his authority.
Last year, Chopra aggressively pushed for the Federal Deposit Insurance Corporation (FDIC) to revisit bank merger guidelines, which eventually led to the resignation of the agency’s chair.
Subsequently, Republican senators, including top banking Republican Pat Toomey (R-PA), blasted Chopra for being “out of control” and leading “a hostile and illegitimate takeover of the FDIC”.
At the same time, similar to the ABA’s lawsuit, Toomey also accused the CFPB director of “abusing and exceeding its authorities to pursue a far-left agenda” by adding disparate impact liability into the scope of UDAAP.
