By: Cooper D’Anton
On March 16, 2022, the Consumer Financial Protection Bureau (“CFPB”) added discrimination to the list of factors evaluated under its unfair, deceptive, or abusive acts and practices (“UDAAPs”) examination procedures.[1] The Dodd-Frank Act (“The Act”), which makes it unlawful for consumer financial services providers to engage in unfair, deceptive or abusive acts or practices, gives the agency authority to examine firms and outline exam procedures.[2] The Act provides the CFPB “with rule-making authority and enforcement authority to prevent [those] practices in connection with any [consumer financial services] transaction . . .” The Act also gives the CFPB “supervisory authority for detecting and assessing risks” to consumers in financial services markets.[3] However, the CFPB’s anti-discriminatory authorities under the Act are narrow, and its UDAAP procedures’ new anti-discrimination language falls outside the scope of that authority.[4]
Before March 16, The CFPB’s UDAAP examination authority already imposed significant compliance burdens and consequences on financial services firms if the agency found inadequacies causing harm to consumers through products and services.[5] The updated guidance “adds a new and burdensome layer to regulated entities’ UDAAP compliance programs” and subjects them to a new field for examiner scrutiny.[6] This out-of-scope use of authority in the March 16 updated guidance has already significantly harmed regulated entities “through increased . . . compliance costs and negative effects on business operations,” prompting banking trade associations to sue the agency in federal district court.[7] On the merits, the Administrative Procedure Act (“APA”), which governs the federal rulemaking process, compels the Court to hold unlawful the CFPB’s change to its guidance.[8]
By adding anti-discrimination language to the CFPB’s UDAAP authority through interpretive guidance, the agency exceeded its statutory authority and failed to adhere to the public notice and comment process required for legislative rules. The APA requires the Court to hold unlawful and set aside agency action found to exceed statutory authority or without observance of procedure required by law.[9]
Here, the CFPB’s authorizing statute gives the agency authority to ensure “consumers are protected from unfair, deceptive or abusive acts and practices and [emphasis added] from discrimination.”[10] This “and from discrimination” language is distinguishable from alternatives Congress could have written into statute, such as “unfair, deceptive, abusive or discriminatory acts and practices” or “practices such as discrimination.”[11] Congress separated “unfair, deceptive or abusive acts and practices” from “discrimination” in the statute.[12] Likewise, if Congress meant “unfair” or other words in the statute to include “discrimination” within their meaning, it would not have explicitly listed discrimination as a separate item.[13] If discrimination fell under unfairness, Congress would not have included both words.[14] Also, the Act’s conference report lists the CFPB’s two anti-discrimination powers in a separate section from its two mentions of UDAAP authority.[15] Given Congress intended the words “unfair” and “discrimination” to mean two different things and chose not to list the CFPB’s anti-discrimination authorities under its UDAAP authorities, including anti-discrimination authority in the CFPB’s UDAAP examination procedures runs contrary to the agency’s statutory authority.[16]
By adding anti-discrimination language to its updated guidance, the CFPB skirted APA procedure, which requires public notice and comment on legislative rules but not interpretive rules.[17] At first glance, the CFPB’s guidance is an interpretive rule, but labeling the agency’s position as “guidance” or “examination procedures” does not determine its status as an interpretive versus a legislative rule.[18] If the action “limits administrative discretion,” it is legislative, despite its initial labeling.[19] Here, the updated guidance forces agency personnel to, without discretion, investigate discrimination during UDAAP examinations.[20] The CFPB’s press release states the agency “will” scrutinize discriminatory conduct and “will” examine financial firms.[21] CFPB Director Rohit Chopra even said the agency “will” expand its anti-discrimination efforts.[22] In addition, as the trades noted, the entire CFPB Supervision and Examination Manual “uses the word ‘must’ more than 2,000 times.”[23] This agency-imposed limit on administrative discretion when examining for discrimination constitutes a legislative rule change subject to APA process that the CFPB did not adhere to when amending the manual’s UDAAP section.[24]
Setting aside convincing arguments that the CFPB should have greater anti-discrimination powers and merits of the administrative state, the agency exercised a power outside its statutory authority through a change to its examination manual amounting to a legislative rulemaking requiring APA notice and comment that the agency did not perform.[25] On the merits, the U.S. District Court for the Eastern District of Texas ought to vacate the newly added discrimination language in the UDAAP section of the updated manual pursuant to its APA obligations.
[1]See generally Consumer Fin. Prot. Bureau, Unfair, Deceptive, or Abusive Acts or Practices (UDAAPs) examination procedures (2022); Pls.’ Mot. For Summ. J. and Inc. Memorandum of Points and Auths. at 5, Chamber of Commerce v. Consumer Fin. Prot. Bureau, E.D. Tex. (2022) (No. 6:22 cv 00381-JCB); Press Release, Consumer Fin. Prot. Bureau, CFPB Targets Unfair Discrimination in Consumer Finance (Mar. 16, 2022).
[2] Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203 § 1036 (2010).
[3] Dodd-Frank Wall Street Reform and Consumer Protection Act § 1036; see also Consumer Fin. Prot. Bureau, supra note 1, at 1.
[4] H.R. Rep. No. 111-517, at 874–75 (2010) (Conf. Rep.) (listing the agency’s only two anti-discrimination authorities separate from its UDAAP authority).
[5] Pls.’ Mot. For Summ. J., supra note 1, at 5; Consumer Fin. Prot. Bureau, supra note 1, at 1.
[6] Pls.’ Mot. For Summ. J., supra note 1, at 5–6.
[7] Id. at 7.
[8] 5 U.S.C. § 706(2).
[9] Id. § 706(2)(C)(D).
[10] 12 U.S.C. § 5511(b).
[11] See Pls.’ Mot. For Summ. J., supra note 1, at 14.
[12] 12 U.S.C. § 5511(b) (separating UDAAP from discrimination using “and” language).
[13] See Gustafson v. Alloyd Co., 513 U.S. 561, 574 (1995) (avoiding statutory interpretations by courts in a way “which renders some words altogether redundant”); see also Univ. of Tex. Sw. Med. Ctr. v. Nassar, 570 U.S. 338, 353 (2013) (“Given this clear language, it would be improper to conclude that what Congress omitted from the statute is nevertheless within its scope”).
[14] See United States v. Jicarilla Apache Nation, 564 U.S. 162, 185 (2011) (“[W]e are hesitant to adopt an interpretation of a congressional enactment which renders superfluous another portion of that same law.”).
[15] H.R. Rep. No. 111-517, at 874–75 (2010) (Conf. Rep.).
[16] Contra Defs.’ Reply in Supp. of Defs.’ Mot. to Dismiss or, in the Alternative, for Partial Summ. J., at 9, Chamber of Commerce v. Consumer Fin. Prot. Bureau, E.D. Tex. (2022) (No. 6:22 cv 00381-JCB) (countering the Plaintiffs’ argument that “the Bureau must ignore discrimination when determining whether acts or practices are unfair under the statute” by citing 12 U.S.C. § 5531(c) to assert that “this approach is contrary to the statutory text, which contains no exception for discrimination . . . and which explicitly permits the Bureau to ‘consider established public policies’ when determining whether an act or practice is unfair.”).
[17] 5 U.S.C. § 553.
[18] Pls.’ Mot. For Summ. J., supra note 1, at 22.
[19] McLouth Steel Prod. Corp. v. Thomas, 838 F.2d 1317, 1320 (D.C. Cir. 1988) (deeming a rule legislative for “substantially curtail[ing] EPA’s discretion”).
[20] Press Release, Consumer Fin. Prot. Bureau, supra note 1.
[21] Id.
[22] Id.
[23] Pls.’ Mot. For Summ. J., supra note 1, at 23. See generally Consumer Fin. Prot. Bureau, CFPB Supervision and Examination Process (2022).
[24] 838 F.2d at 1320 (deeming a rule legislative for “substantially curtail[ing] EPA’s discretion”).
[25] 12 U.S.C. § 5511(b); H.R. Rep. No. 111-517; see United States v. Jicarilla Apache Nation, 564 U.S. 162, 185 (2011) (“[W]e are hesitant to adopt an interpretation of a congressional enactment which renders superfluous another portion of that same law.”).
