4 banking associations & 3 business groups unite to sue CFPB
The banking industry basically told the Consumer Financial Protection Bureau: “We’ll see you in court.”
Four banking associations, plus the U.S. Chamber of Commerce and two other business-driven organizations in the Lone Star State, filed a lawsuit in the Eastern District of Texas on Wednesday against the CFPB for exceeding its statutory authority when amending its examination manual.
Other co-plaintiffs include the American Bankers Association, Consumer Bankers Association, Independent Bankers Association of Texas, Longview Chamber of Commerce, Texas Association of Business, and the Texas Bankers Association.
The co-plaintiffs are challenging the CFPB’s recent update to the unfair, deceptive, or abusive acts or practices (UDAAP) section of its examination manual to include discrimination and in particular disparate impact.
The groups said Congress has not given the CFPB the power to do so, as allegations of discrimination are handled by other agencies through statutes such as the Equal Credit Opportunity Act, the Fair Housing Act, and the Home Mortgage Disclosure Act.
According to a news release from the U.S. Chamber, the failure by Congress to grant such authority raises a “major questions” issue as recently decided by the Supreme Court.
The groups believe importing disparate impact into UDAAP will likely result in the disappearance of products consumers currently enjoy and benefit from.
For example, no-fee checking accounts are more often offered to customers with higher balances, which often are individuals further into their careers as opposed to those who are just beginning to work.
The groups said 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 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,” U.S. Chamber executive vice president and chief policy officer Neil Bradley said in a news 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 Consumer Bankers Association recapped that on March 16, the CFPB revised its examination manual to reflect a new belief that the “unfairness” prong of the UDAAP definition can be applied to conduct the CFPB deems discriminatory.
“Throughout the course of many decades, Congress never used the statutory concepts of ‘unfairness’ and ‘discrimination’ interchangeably. Rather, they are distinct, and each has a well-established meaning and scope of application,” CBA said in a news release. “Congress did not authorize or intend for the CFPB to ‘fill gaps’ between the clearly articulated boundaries of antidiscrimination statutes with its UDAAP authority.”
The CBA went on to state that the CFPB’s action has created significant uncertainty in the financial marketplace to the detriment of consumers and banks alike.
Because these changes constitute the issuance of a substantive rule without following the required notice-and-comment process, the lawsuit alleges the CFPB’s actions were procedurally invalid under the Administrative Procedures Act (APA) and must be set aside as unlawful.
Moreover, the CFPB’s actions are also subject to challenge on substantive grounds as “not in accordance with law” and “in excess of statutory jurisdiction, according to the lawsuit.
“CBA and our members firmly oppose discrimination in any form and remain fully committed to expanding access to financial products among underserved communities across this nation,” CBA president and CEO Lindsey Johnson said in the news release. “We wholeheartedly support fair, objective, and transparent enforcement of civil rights and fair lending laws, but recent changes made to the UDAAP Exam Manual by the CFPB represent an enormous self-expansion of the agency’s authority that stands contrary to law and the intent of 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. If the CFPB believes additional authority is necessary to address alleged discriminatory conduct, we stand ready to work with legislators and the Bureau to ensure the just administration of the law,” Johnson went on to say.
Wednesday’s action follows a recent legal analysis by ABA and other banking groups shared with the CFPB in June detailing how the bureau’s actions exceed its legal authority. The analysis concluded that the new exam manual and related CFPB actions are “contrary to law and subject to legal challenge.”
ABA president and CEO Rob Nichols said in another news release: “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. This is a step we did not want to take, but it was a necessary step given the extraordinary actions of the CFPB.”
The lawsuit — which can be downloaded via this website — also arrived on the same day that the CFPB ordered Regions Bank to pay $50 million into the bureau’s victims relief fund and to refund at least $141 million to customers harmed by its illegal surprise overdraft fees.
From August 2018 through July 2021, the CFPB said in another news release that Regions charged customers surprise overdraft fees on certain ATM withdrawals and debit card purchases. The bank charged overdraft fees even after telling consumers they had sufficient funds at the time of the transactions, according to the bureau.
The CFPB said financial regulators have long cautioned banks against charging this type of overdraft fee.
The CFPB also said it found that Regions leadership knew about and could have discontinued its surprise overdraft fee practices years earlier, but “they chose to wait while Regions pursued changes that would generate new fee revenue to make up for ending the illegal fees.”
CFPB director Rohit Chopra added in the news release: “Regions Bank raked in tens of millions of dollars in surprise overdraft fees every year, even after its own staff warned that the bank’s practices were illegal.
“Too often, large financial firms make a calculation that continuing to break the law is more profitable than following it. We have more work to do to change this mentality,” Chopra went on to say.