Fair Lending Groups Sue CFPB Over ECOA Final Rule
A little over a month after the CFPB finalized its Regulation B rewrite – the one that indicates that ECOA never really authorized disparate-impact liability after all – fair lending advocates have taken the Bureau to court. On May 27th, the National Fair Housing Alliance, Rise Economy, BLDS, and SolasAI filed suit in federal court in Washington, D.C., seeking to block the CFPB’s final rule before it takes effect on July 21st.
The plaintiffs argue that the CFPB’s final rule dismantles core fair-lending protections that have existed, in one form or another, for decades. As we discussed last month, the challenged rule essentially aims to do three big things – it removes disparate-impact liability from Regulation B, narrows what counts as unlawful discouragement of applicants or prospective applicants, and tightens the conditions around Special Purpose Credit Programs. Now, according to this iteration of the CFPB, this is “clarifying” ECOA. But, according to the plaintiffs, it is an about-face so sharp it could slice right through 50 years of history.
And, to that end, the heart of the challenge is simple enough – the plaintiffs say the CFPB cannot just wave away half of a century of regulatory, congressional, and judicial understanding simply because the agency has suddenly discovered a new “best reading” of the statute.
And the complaint does more than simply accuse the CFPB of changing its mind. It argues that the Bureau changed its mind without identifying a concrete problem with the existing framework, without meaningfully grappling with contrary evidence, without adequately weighing costs and benefits, without giving small entities the required procedural protections, and without responding in any serious way to significant comments.
On that latter procedural point, the complaint argues that when an agency proposes one of the most sweeping fair-lending rewrites in decades, gives the public 32 days over Thanksgiving to respond, receives roughly 64,000 comments, and then changes essentially nothing, “reasoned decision-making” starts to look less like the standard.
More plainly, their complaint argues that the rule is arbitrary and capricious, contrary to ECOA, procedurally defective, and unsupported by meaningful evidence. They also challenge Acting Director Russell Vought’s authority to issue the rule (arguing that the administration could not simply fire the confirmed CFPB Director, plug in an acting replacement, and call that a lawful vacancy).
But beneath the many plausible legal claims is the more practical concern – this rule doesn’t merely change how lawyers argue fair-lending cases. No – it changes what kinds of discrimination the law itself is built to see.
If it’s been said once, it should be said a thousand times – the final rule may reduce one federal theory of liability, but it does not erase fair-lending risk. Nor does it repeal the Fair Housing Act. Nor does it preempt state law. Nor does it eliminate redlining risk, marketing risk, model risk, reputational risk, or – starkly – the possibility that a future CFPB – perhaps one less eager to mistake political errands for legal clarity – tries to swing the pendulum back with interest.
The Plaintiffs have issued a joint statement / Press Release, and it can be found here: [Fair Housing and Lending Advocates Sue CFPB Over New Rule Gutting Key Anti-Discrimination Protections]
The complaint itself can be found here: [COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF]
Brett Goodnack, JD, CAMS
Compliance Advisor