CFPB Says Ruling on Bias Hurts Its Power to Prevent ‘Debanking’

Consumer Financial Protection Bureau examiners would be blocked from protecting customers who lose access to bank accounts for religious or other reasons if a Texas federal judge’s decision on the CFPB’s efforts to combat discrimination is allowed to stand, the agency told a federal appeals court.

There is no dispute “across the political spectrum” that discrimination based on race, religious belief, or other factors is improper, the CFPB said in its opening brief before the US Court of Appeals for the Fifth Circuit filed Wednesday. As a result, the agency said, the appeals court should restore a March 2022 update to the CFPB’s examination manual allowing its supervisors to determine discrimination is an “unfair” practice under the 2010 Dodd-Frank financial regulatory law.

Without that power, the CFPB would be unable to determine whether customers had been denied bank accounts or charged higher fees because of discriminatory activity, the agency said.

The CFPB cited the potential ‘debanking’ of Christians that could cause substantial injury to victims but would be unknown without CFPB examiners discovering the conduct.

“Under the district court’s logic, the Bureau could not even investigate this intentional religious discrimination to determine if it’s unfair,” the CFPB said in its brief.

The agency cited an April letter from Kansas Attorney General Kris W. Kobach to Bank of America Corp. Chairman and CEO Brian Moynihan citing concerns the bank is discriminating against customers based on religious or political views. It also pointed to legislation from Senate Democrats seeking to extend protections from the 1964 Civil Rights Act to financial services.

CFPB Director Rohit Chopra has repeatedly raised concerns about companies denying services and even punishing customers for political and other beliefs that don’t violate federal law. Florida and Tennessee have passed fair access laws intended to prevent discrimination.

Unfair Definition

The CFPB is attempting to overturn a September 2023 ruling from Judge J. Campbell Barker of the US District Court for the Eastern District of Texas blocking the update to the CFPB’s examination manual.

The US Chamber of Commerce, the American Bankers Association, and the Consumer Bankers Association, along with three Texas trade groups, sued to block the exam manual update soon after its release. Barker’s decision in the case, including a permanent injunction on following the exam manual update, applied only to current and potential future members of the plaintiff trade groups.

The update said CFPB examiners should designate discriminatory conduct they discovered as “unfair” under the agency’s Dodd-Frank powers to go after unfair, deceptive, or abusive acts and practices. Examiners could use disparate impact reviews during examinations to determine whether there was discrimination in lending patterns, the update said.

The CFPB traditionally has brought discrimination claims under fair lending laws such as the Equal Credit Opportunity Act.

Barker misinterpreted the statute and didn’t consider that the Federal Trade Commission and other federal agencies consider discrimination to be an unfair practice, the CFPB said in its brief.

“Unfairness is a broad concept, the statute does not specifically enumerate any unfair practices, and there is no exception for discrimination,” the CFPB said. “The best interpretation of the statute, then, is that ‘unfairness’ encompasses discrimination.“

Banks and their trade groups have argued that the CFPB’s exam manual update was an unlawful power grab.

Major Question

The CFPB also argued that Barker improperly invoked the “major questions” doctrine, which says agencies must have clear authorization from Congress on actions with significant political or economic effects.

While banks and other financial services firms will incur some compliance costs as a result of the exam manual change, the millions of dollars they may have to spend doesn’t constitute a significant expense in the context of the total US economy, the CFPB said.

“Indeed, if millions in expenditure sufficed, then, given the size and scope of the American economy, the major questions doctrine would no longer be reserved only for ‘extraordinary cases,’” the CFPB said.

The agency also said standing was improperly granted in the case because none of the named plaintiffs are individual banks subject to CFPB exams. Instead, the only plaintiff with any connection to the Eastern District of Texas is the state’s Longview Chamber of Commerce, which has no major banks as members, the CFPB said.

Consovoy McCarthy PLLC; Ward, Smith & Hill PLLC; and the US Chamber Litigation Center represent the Chamber and the other trade groups.

The case is Chamber of Commerce v. CFPB, 5th Cir., No. 23-40650, Brief of Appellants 8/7/24.