Yesterday, 14 Republican attorneys general (AGs) filed an amicus brief in support of a lawsuit brought by the U.S. Chamber of Commerce and other co-plaintiffs against the Consumer Financial Protection Bureau (CFPB or the Bureau), alleging that the Bureau exceeded its statutory authority by amending its examination manual to include discrimination, and in particular disparate impact, as “unfair” practices under the Consumer Financial Protection Act.
The amici, led by the Georgia AG and joined by 13 other Republican AGs, supported the plaintiffs’ motion for summary judgment and asserted that the Bureau’s amendment to its examination manual exceeds the Bureau’s authority and is part of a recent pattern of federal agency overreach. and exceeds the Bureau’s authority.
In this instance, the Dodd-Frank Act authorizes the CFPB to police “unfair, deceptive, or abusive” acts and practices within the consumer finance industry. As we have discussed previously, the Republican AGs argue that the CFPB’s amendment interpreting unfair practices to encompass discrimination, constitutes a significant expansion of the regulator’s fair lending philosophy.
The state AGs assert, as we have previously written, that the CFPB’s attempt to expand its authority through an examination manual goes beyond the scope of the Bureau’s statutory authorization because “unfairness” and “discrimination” represent two distinct concepts. Congress could have incorporated anti-discrimination as a stand-alone authority for the CFPB when it passed Dodd-Frank — but notably chose not to do so, instead providing the Bureau with specific authority under existing statutes, such as the Equal Credit Opportunity Act (ECOA).
Moreover, Title X of Dodd-Frank refrains from expanding the CFPB’s fair lending power and refers to “fair lending,” only when discussing “access to credit.” Dodd-Frank does not extend fair lending requirements to noncredit products covered by the Bureau’s UDAAP Exam Manual update. If Congress had bestowed the plenary power to prohibit discrimination in all aspects of the consumer financial services economy, it would have said so, but instead limits the Bureau’s anti-discrimination powers to pre-existing laws.
Further, Dodd-Frank borrowed its “unfairness” language from the Federal Trade Commission (FTC) Act, and this longstanding sister regulator has never taken the position that unfairness encompasses discrimination, until October of this year when it adopted the same position as the CFPB in a consent order entered into with an auto dealership group. As we noted in our prior blog on this issue, the authors believe the position being taken by the CFPB, and now the FTC, may be vulnerable to challenge under the Supreme Court’s decision in West Virginia v. EPA.
The state AGs also allege that the CFPB acted outside its power by failing to follow proper administrative procedures. Because the policy at issue creates new obligations — as opposed to interpreting a previous rule — it should have been subject to notice-and-comment rulemaking. The state AGs argue that the CFPB’s amendment was intentionally devised to avoid judicial review by the states, despite intruding on the states’ police powers and carrying financial compliance consequences to companies.
The state AGs also take the position that the CFPB policy violates, not only the separation of powers, but also the principles of federalism, by encroaching on areas traditionally within the states’ police power. Throughout their brief, the state AGs emphasize that states already have anti-discrimination laws to protect consumers.
The brief is the second time — in as many months —Republican AGs have taken the position that the CFPB is acting outside of its statutory authority. We will continue to keep you updated on whether these actions are successful in curtailing the Bureau’s policy goals.