To the chagrin of the Consumer Financial Protection Bureau (CFPB), the Texas Bankers Association (TBA) and several co-plaintiffs succeeded in their motion for summary judgment against the CFPB in a case that challenged the legality of changes made by the CFPB last year to its Unfair, Deceptive, or Abusive Acts or Practices (UDAAPs) examination procedures which had adopted a sweeping anti-discrimination policy. The U.S. District Court for the Eastern District of Texas’ (the “Court’s”) final judgment declared that “the pursuit of any examination, supervision, or enforcement action against any member of a plaintiff organization based on the (CFPB’s) interpretation of its UDAAP authority” is “unlawful as exceeding statutory authority.”
The CFPB adopted this policy in March 2022, via an update to its exam procedures, stating that discrimination in any financial product is an “unfair” practice that can trigger liability under the federal prohibition against UDAAPs. This was generally seen as an expansive view of its statutory authority. Essentially, the CFPB was using its authority to combat unfair, deceptive, or abusive acts or practices to target discriminatory conduct even where traditional fair lending laws may not apply, such as in the context of deposits. It was taking the position that discrimination, whether intentional or unintentional, may meet the criteria for “unfairness” by causing substantial harm to consumers that they cannot reasonably avoid. This was seen as a major expansion of the CFPB’s UDAAP authority and many institutions were proactively reviewing all their consumer products and services broadly under “unfairness” and anti-discrimination principles.
As expected, many industry groups, including TBA, promptly challenged this action which has now culminated with the vacating of the CFPB’s exam manual update and the injunction of the CFPB from enforcing the exam procedures with respect to members of the plaintiff trade organizations that challenged the policy. The Court ruled that the CFPB had exceeded its statutory authority under the Dodd-Frank Act, finding, in part, that Congress had not conferred upon the CFPB such sweeping authority to regulate the financial-services industry for discrimination and, as such, any attempt by the CFPB to expand its mandate was unlawful.
How does this proceed from here? The CFPB has since indicated that it is considering its options for appeal so this fight might not be over. Any appeal would go to the United States Court of Appeals for the Fifth Circuit which in recent years issued other rulings against the CFPB and, while that is no guarantee the Plaintiffs would win again on appeal, it may be indicative of a favorable environment.
Nevertheless, despite a separate pending challenge to the CFPB’s constitutionality, the Bureau is continuing to issue rules and proceed with enforcement actions in other areas. Therefore, it would be prudent for banks to carefully consider their examination management approach. For those banks who are not members of any of the plaintiff trade organizations, it is technically still possible that the CFPB could still take supervisory or enforcement action.
The Court’s opinion that vacated the exam procedures update can be found here.