Financial basis

U.S. Chamber of Commerce and Other Trade Groups File Lawsuit Against CFPB to Challenge UDAAP Exam Handbook Update

The United States Chamber of Commerce, joined by six other trade groups, filed a lawsuit yesterday in federal district court in Texas against the CFPB challenging the CFPB’s recent update to the Unfair Acts or Practices section, misleading or abusive (UDAAP) of its examination manual. include discrimination. The other plaintiffs are the American Bankers Association, the Consumer Bankers Association, the Independent Bankers Association of Texas, the Longview Chamber of Commerce, the Texas Association of Business and the Texas Bankers Association.

In July 2022, the House, in conjunction with the American Bankers Association, the Consumer Bankers Association, and the Independent Community Bankers of America, sent a letter to Director Chopra asking the CFPB to rescind the update. The letter was accompanied by a white paper setting out the legal basis for their position.

The plaintiffs claim that the manual update should be reversed as it violates the Administrative Procedure Act (APA) for the following reasons:

  • The update exceeds the statutory authority of the CFPB in the Dodd-Frank Act. The CFPB cannot regulate discrimination under its UDAAP authority because Congress has not given the CFPB authority to enforce anti-discrimination principles except in specific circumstances. CFPB statutory authorities consistently treat “injustice” and “discrimination” as separate concepts. (To demonstrate compliance burdens resulting from the update, plaintiffs allege that the CFPB provided no guidance to regulated entities on what might constitute unjust discrimination or actionable disparate impacts for purposes of the As examples of confusing issues, plaintiffs allege that the CFPB failed to identify which classes or characteristics are protected or which activities are non-discriminatory (such as those identified in the ECOA) , and did not explain how regulated entities should conduct the types of assessments that the CFPB appears to be considering given existing prohibitions on collecting customer demographic information.)
  • The update is “arbitrary and capricious” because the CFPB’s interpretation of “injustice” contradicts the historical use and understanding of the term. The plaintiffs allege that the FTC’s unfairness authority does not extend to discrimination and that Congress borrowed the FTC statute’s definition of unfairness to define the CFPB’s UDAAP authority. They also allege that the CFPB’s intended use of disparate impact liability when prosecuting UDAAP claims flouts the intent of Congress and the authority of the U.S. Supreme Court.
  • The update violates the APA’s notice and comment requirement, as it is a statutory rule that imposes new substantive obligations on regulated entities.

In addition to claiming that the Manual Update should be canceled due to alleged violations of the APA, Plaintiffs allege that the Update should be canceled because the CFPB’s funding structure violates the Appropriations Clause of the Constitution. American. (Consistent with Dodd-Frank, the CFPB receives its funding through requests made by the CFPB Director to the Federal Reserve, subject to a cap equal to 12% of the Federal Reserve budget, rather than through of the congressional appropriations process.) their claim of unconstitutionality, the plaintiffs cite the concurring opinion of Judge Edith Jones in the Fifth Circuit case bench May 2022 decision in All American Check Cashing in which Judge Jones found that the CFPB funding mechanism is unconstitutional.

Although the bench The Fifth Circuit did not reach the funding argument, a Fifth Circuit panel is expected to consider this issue in the CFSA lawsuit challenging the payment provisions in the Payday Loan/Auto Title/High Rate Loan Final Rule. 2017 of the CFPB. The business groups appealed the final judgment of the district court granting the CFPB’s motion for summary judgment and suspending the compliance date for the payment arrangements. On May 9, 2022, a Fifth Circuit panel heard oral argument in the CFSA lawsuit.

The main argument of the trade groups on appeal continues to be that the 2017 rule was void ab-initio because the CFPA’s unconstitutional opt-out restriction means the Bureau lacked the authority to enact the 2017 rule. However, the trade groups issued the concurring opinion in All U.S. check cashings as additional authority to the Fifth Circuit committee hearing their appeal and argued that the committee should adopt the reasoning of the concurring opinion and strike down the 2017 rule.

The unconstitutionality of the CFPB’s funding structure was also raised by Populus Financial Group, Inc. in the CFPB’s lawsuit filed in July 2022 against Populus in federal district court in Texas. Populus filed a motion to dismiss in which he argues that the CFPB’s enforcement action is invalid because the CFPB’s funding structure violates the principle of separation of powers enshrined in the Appropriations Clause of the US Constitution.