A banking industry lawsuit against the Consumer Financial Protection Bureau over new anti-discrimination guidelines will likely spur more challenges to the agency’s fast-paced actions to rewrite rules.
The agency under Director Rohit Chopra has shifted its interpretations of several laws and regulations using advisory opinions, circulars, interpretive guidance and other tools that don’t follow the notice and comment process required by the Administrative Procedure Act (APA).
Banks and other companies under CFPB oversight have objected to some of those interpretations as being novel, and have decried the process by which the CFPB reached those interpretations without input from industry.
The Wednesday lawsuit in a Texas federal court may spur other challenges to the CFPB’s methods for altering the regulatory landscape, said Joseph T. Lynyak, a partner with Dorsey & Whitney LLP.
“The director is taking relatively interesting perspectives and interpretations, particularly of regulations, that are contrary to the accepted norm and issuing them by fiat rather than public consideration. This is the tip of the iceberg,” Lynyak said.
Banking industry groups and the US Chamber of Commerce allege the agency violated the APA by using its examination manual to reinterpret its powers to go after discriminatory actions in bank account openings and other financial products that aren’t covered by fair lending laws. The bureau instead used its Unfair, Deceptive and Abusive Acts or Practices (UDAAP) authority to claim oversight of such products.
That change constituted a major “legislative rule” that should’ve been subject to notice-and-comment rulemaking, the groups allege.
The suit “is probably just the beginning of what is likely going to be a prolonged legal battle over the legality of the aggressive legal positions taken by Chopra,” said Jonathan Pompan, the chair of Venable LLP’s Consumer Financial Services Group.
Other challenges may look different. It’s more likely that individual companies affected by agency interpretations will look to challenge the CFPB either when facing an enforcement action or other unwanted attention from the bureau, Pompan said.
The CFPB under Chopra has issued four advisory opinions that changed the way credit reporting, debt collection and lending companies operate.
Among the changes to those documents—which aren’t subject to notice and public comment—are tweaking the ways that consumer credit reporting companies like Equifax Inc., Experian PLC and TransUnion identify customers and how credit reports are furnished, used, and obtained.
The CFPB also said that lenders can’t make changes to loan terms that violate the Equal Credit Opportunity Act, a key fair lending law, after the loan has been issued. The bureau, using an advisory opinion, barred certain debt collection “convenience fees.”
There have also been circulars, interpretive letters and other more informal documents outlining bureau stances on data security and other issues that have already drawn objections from business groups.
Chopra has defended these moves as a way to “offer much more transparency about how we would think about exercising our authorities.”
His claims are unlikely to assuage opponents.
“What this may imply is a desire by the industry for clear lines of demarcation in the application of CFPB regulatory authority,” said Shelley Metz-Galloway, a managing director at consulting firm Protiviti, referring to the banking groups’ lawsuit. “So where the lines are blurred, we may see more challenges.”