U.S. Chamber, trade groups sue CFPB over policy to root out discrimination

The U.S. Chamber of Commerce and six trade groups sued the Consumer Financial Protection Bureau on Wednesday for enacting a policy earlier this year that aims to root out discrimination in all consumer financial products

The American Bankers Association, Consumer Bankers Association and four trade groups in Texas joined the Chamber in a 116-page lawsuit that alleges the CFPB exceeded its authority in March when it adopted a policy that, for the first time, claimed discrimination on the basis of age, race or sex — regardless of intent — violates the federal prohibition on "unfair, deceptive or abusive acts or practices," or UDAAP. 

Under the new policy, the CFPB sought to look for discrimination in a wide range of noncredit financial products including deposit and checking accounts, payments, prepaid cards, remittances and debt collection practices.

The CFPB enacted the policy by updating its supervisory exam manual and announcing it in a press release and blog post. The trade groups said the change amounted to a power grab that was "arbitrary" and "capricious," and in violation of the Administrative Procedure Act. The APA requires federal agencies to give public notice and allow for comments when issuing new rules.

"The CFPB's decision to dramatically expand its regulatory reach without any input from the public was not authorized by statute and has significant implications for consumers, banks and the broader financial markets," said Rob Nichols, president and CEO of the American Bankers Association. 

In the lawsuit, the trade groups stated that they fully support the fair enforcement of the nation's nondiscrimination laws, but claimed the policy had created regulatory uncertainty and imposed costly burdens on the business community.

Nichols added that the lawsuit was "a step we did not want to take, but it was a necessary step given the extraordinary actions of the CFPB."  

Lindsey Johnson, president and CEO of the Consumer Bankers Association, said the changes the CFPB made to its exam manual was "an enormous self-expansion of the agency's authority," that was not intended by Congress. 

"Not only do these actions raise profound substantive and procedural legal concerns, they also threaten banks' ability to deliver the products and services millions of Americans rely on to meet their financial needs," she said. 

The trade groups sought in June to convince the CFPB that it was legally exceeding its authority. At the time, the Chamber launched a six-figure ad campaign alleging that CFPB Director Rohit Chopra was leading a "radical agency and reckless approach."

The move by the CFPB marked a departure from existing anti-discrimination laws which do not extend to all financial products, the trade groups allege. The lawsuit said that the Equal Credit Opportunity Act bans discrimination against credit applicants, the Fair Housing Act does the same for housing, and the Home Mortgage Disclosure Act requires lenders to submit data on home loan applicants.

Financial institutions have long pushed back against the CFPB's so-called UDAAP authority. The Dodd-Frank Act, which also created the CFPB, expanded UDAAP to include the term "abusive," in addition to "unfair" and "deceptive." Last year, the bureau rescinded guidance issued under the Trump administration that sought to define an "abusive" act or practice as one in which the harm to consumers outweighs the benefit. Trade groups have been fighting regulators for decades over the specific terms and how to define them in an effort to reduce enforcement.

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Neil Bradley, chief policy officer at the U.S. Chamber, said in a press release that the CFPB's policy had created uncertainty for financial institutions "that will result in fewer financial products available to consumers." 

Four groups in Texas joined the lawsuit including the Longview Chamber of Commerce, Independent Bankers Association of Texas, Texas Association of Business and Texas Bankers Association. The lawsuit was filed Wednesday in the U.S. District Court for the Eastern District of Texas. 

The Independent Community Bankers of America did not join the suit, in part, because many of its community banks are too small to be subject to CFPB supervision. The CFPB supervises depository institutions and credit unions with more than $10 billion in assets.