Ruling concludes "unfairness" authority under the Dodd-Frank Act does not cover discrimination.
On September 8, 2023, a federal district court rejected the Consumer Financial Protection Bureau's ("CFPB") interpretation that discrimination based on protected classes amounts to an unfair, deceptive, or abusive act or practice ("UDAAP"). The claimed regulatory authority, the court held, exceeds the CFPB's statutory mandate under the Dodd-Frank Act and runs afoul of the limit that Congress speaks clearly in legislation when granting an agency authority to regulate issues of economic or political significance. The case is Chamber of Commerce of the United States, American Bankers Association, et al. v. Consumer Financial Protection Bureau, No. 6:22-cv-00381 (E.D. Tex. Sept. 8, 2023).
The case challenged a March 2022 update to the CFPB's Supervision and Examination Manual, which directed examiners to deem intentional discrimination and discriminatory effect (or disparate impact) as unlawful UDAAPs. This was significant because it meant that the CFPB could find a UDAAP violation based on discrimination "even when fair lending laws do not apply to the conduct."
Rejecting this interpretation, the court first explained that the statutory definition of "unfairness" makes no mention of discrimination. Second, the court recognized that Congress had granted the CFPB antidiscrimination authority over credit transactions with the Equal Credit Opportunity Act, illustrating "that Congress knew how to clearly add nondiscrimination to the CFPB's portfolio when it meant to do so." Finally, the court observed that "the CFPB's claimed authority to prohibit disparate-impact discrimination is something that Congress rarely authorizes," except in narrow circumstances and with limits to avoid constitutional concerns.
Implications at the CFPB and Beyond
This ruling has important potential implications for businesses beyond those regulated by the CFPB. Other federal agencies, including the Federal Trade Commission ("FTC"), and state attorneys general have similar authority to regulate unfair, deceptive, or abusive practices. In its decision, the court accepted that the Dodd-Frank Act's definition of a UDAAP "can be understood with reference to the FTC Act's definition." Because the court's decision enforces limits on the capacious wording of "unfairness" authority, if affirmed in any appeal, it may be persuasive authority for regulated entities to resist other novel attempts by the CFPB, FTC, or state governments to expand their regulatory reach into new domains.