The Consumer Financial Protection Bureau has been the subject of much controversy since its statutory formation following the 2008 mortgage crises. The financial industry generally views the CFPB as going too far in regulating financial institutions, exceeding its statutory authority and pushing the limits of its regulatory powers. The ability to question, investigate and regulate lending practices regarding discrimination is one of the areas about which the lending industry and the CFPB disagree. The CFPB adopted a policy that directs its examiners to investigate discriminatory practices when carrying out routine examinations of lenders. To justify its power to do so, the CFPB argues that discriminatory lending is an “unfair” practice that comes under “unfair, deceptive or abusive acts or practices” as laid out in the Dodd-Frank Wall Street Reform and Consumer Protection Act 2010, and that it has broad authority to look for such practices. Banks and other industry players have argued that this amounts to an unlawful power grab.
On Sept. 8, 2023, a federal district court agreed with the industry and found that the CFPB had gone too far in expanding its mandate to include discrimination beyond that allowed by current fair lending laws. Industry trade groups in the case argued that the CFPB should not be able to examine for “disparate impacts,” which are practices that discriminate against groups of consumers even though the practices appear neutral.
Judge J. Campbell Baker in the Eastern District Court of Texas, a Trump appointee, found that the Dodd-Frank Act “treats discrimination and unfairness as distinct concepts.” The court then concluded that the act does not contain the required “exceedingly clear language” that would authorize the CFPB to broadly regulate discrimination across the financial-services industry. The American Bankers Association said after the ruling that “we strongly support the fair enforcement of nondiscrimination laws, but the bureau’s extraordinary expansion of its regulatory reach crossed the line. We hope this ruling sends a clear message to the bureau and all federal regulators that they must operate within the boundaries set by Congress.”
The case is a win for the financial industry, but it will surely be appealed by the CFPB. Plus, other applicable laws regulate discriminatory practices, so lenders must be vigilant to avoid even inadvertent discrimination that may be revealed in examinations by other agencies.
* This article first appeared in The Journal Record on September 14, 2023, and is reproduced with permission from the publisher.