Texas Judge Bars CFPB From Probing ‘Unfair’ Bank Discrimination

A federal judge in Texas blocked the Consumer Financial Protection Bureau from expanding its policing of banks and other financial companies for discriminatory acts using its power to crack down on “unfair” practices.

The CFPB exceeded its authority under the 2010 Dodd-Frank Act by instructing examiners to review companies for discrimination, Judge J. Campbell Barker of the US District Court for the Eastern District of Texas said in a Sept. 8 ruling blocking an expansion of the CFPB’s examination manual.

The US Chamber of Commerce, the American Bankers Association, and the Consumer Bankers Association sued in September 2022 to block the revisions. Several Texas banking and business trade associations joined in the litigation. The final judgment applies only to companies represented by the trade groups that sued.

“We strongly support the fair enforcement of nondiscrimination laws, but the Bureau’s extraordinary expansion of its regulatory reach crossed the line,” ABA President and CEO Rob Nichols said in a Friday statement.

The CFPB believes it’s “common sense” that discrimination meets the statutory definition of unfairness, and the agency is reviewing its options for an appeal, an agency spokesperson said Monday.

“The CFPB will continue to root out invidious discrimination to protect American families, using any available tool at our disposal while abiding by the court’s order,” the spokesperson said.

The case revolves around a March 2022 change to the CFPB’s manual directing examiners to designate discriminatory conduct they turned up as an “unfair” practice under the agency’s unfair, deceptive, or abusive acts or practices (UDAAP) powers. The CFPB said examiners could use disparate impact reviews of lending and other data to determine whether there was discrimination in a company’s practices, and apply the unfairness standard alongside fair lending violations.

Prior to the exam manual update, the CFPB could bring discrimination claims only under existing fair lending laws, like the Equal Credit Opportunity Act (ECOA).

Banks and their trade groups argued that the expansion of the CFPB’s unfairness authority was an unlawful power grab.

“As we have conveyed, these actions were especially concerning given that they were taken without industry input and outside of the rulemaking process required by the Administrative Procedure Act,” the CBA said in a statement.

Barker agreed, arguing that the case fell under the “major-questions doctrine” under which agencies must have clear authorization from Congress for an action that has significant economic or political consequences.

The Dodd-Frank provision defining the CFPB’s power to go after unfair practices “forgoes any mention of discrimination, any mention of protected classes, and any mention of disparate-impact standards. The text and structure of the Act thus make its definition of ‘unfairness’ at least vague as to the topic of discrimination,” Barker wrote.

Barker also said the exam manual changes are invalid due to the US Court of Appeals for the Fifth Circuit’s October 2022 decision determining the CFPB’s funding to be unconstitutional and vacating the agency’s payday lending rule.

The US Supreme Court is set to hear oral arguments in that case, CFPB v. Community Financial Services Association of America, on Oct. 3. A ruling is expected by June.

The exam policy case is Chamber of Commerce of the United States of America v. CFPB, E.D. Tex., No. 6:22-cv-00381, Opinion and Order Granting Motion for Summary Judgment 9/8/23.