A group of banking and business associations sued the Consumer Financial Protection Bureau (CFPB) for overstepping its authority when the agency indicated it would begin actively searching for discrimination and disparate impacts during supervisory examinations.
The U.S. Chamber of Commerce, American Bankers Association, and five other banking and business groups filed a lawsuit against the CFPB and its Director Rohit Chopra on Wednesday in U.S. District Court for the Eastern District of Texas, challenging the agency’s recent update to the Unfair, Deceptive, or Abusive Acts or Practices section of its examination manual.
“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 U.S. Chamber Executive Vice President and Chief Policy Officer Neil Bradley in a press release. “The CFPB is pursuing an ideological agenda that goes well beyond what is authorized by law, and the chamber will not hesitate to hold them accountable.”
The lawsuit contends the CFPB’s update of its examination manual was “arbitrary and capricious” and exceeded the agency’s authority outlined in the Dodd-Frank Act. The lawsuit claims Congress only gave the CFPB the power to enforce anti-discrimination principles in specific circumstances while leaving other federal agencies to enforce anti-discrimination laws. The lawsuit also claims the change to the CFPB’s examination manual should have been made through rulemaking, including procedures for notice and comment, an alleged violation of the Administrative Procedures Act.
The CFPB announced the change to its examination manual in March, saying during supervisory examinations it would “scrutinize discriminatory conduct that violates the federal prohibition against unfair practices” and “closely examine financial institutions’ decision-making in advertising, pricing, and other areas to ensure that companies are appropriately testing for and eliminating illegal discrimination.”
In announcing the change, the CFPB expanded its remit from responding to consumer complaints about discrimination to actively looking for such discrimination as it pores over an institution’s records during a supervisory examination. And it’s not just banks whose behavior would be put under the microscope, but players in “all consumer finance markets, including credit, servicing, collections, consumer reporting, payments, remittances, and deposits,” the agency said.
In April, the CFPB added fintechs to that potential target list as well.
“CFPB 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,” the agency said when announcing the change in March. “The CFPB will look at how companies test and monitor their decision-making processes for unfair discrimination, as well as discrimination under the ECOA (Equal Credit Opportunity Act).”
The U.S. Chamber and other business groups claim the CFPB’s changes to its supervisory procedures could spell the end of banking products people enjoy, like free checking.
“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 chamber said.
The CFPB did not return a request for comment.
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