Banking and Finance Law Daily Wrap Up, UNFAIR DECEPTIVE ABUSIVE ACTS OR PRACTICES—5th Cir.: Banking industry groups tell 5th Circuit to uphold ruling against CFPB’s manual update, (Oct 9, 2024)

By E. Darius Sturmer, J.D.

The associations maintain that a Texas federal district court properly granted them summary judgment in suit challenging the applicability of the agency’s Supervision and Examination Manual in regulating unfair discriminatory acts or practices.

A Texas federal court decision that enjoins the Consumer Financial Protection Bureau (CFPB) from using its 2022 Supervision and Examination Manual update to pursue and prevent unfair discriminatory acts or practices under the Dodd-Frank Act should be affirmed on appeal, according to a brief filed with the U.S. Court of Appeals for the Fifth Circuit by a group of banking and commercial associations that had brought the lawsuit challenging the CFPB’s action. The organizations—U.S. Chamber of Commerce, Longview Chamber of Commerce, American Bankers Association, Consumer Bankers Association, Independent Bankers Association of Texas, Texas Association of Business, and Texas Bankers Association—contend in their suit that while they oppose discrimination, the CFPB went beyond Congress’ specifically crafted prohibitions on discrimination with its update. Their appellate brief argues that the district court correctly found that the plaintiffs had standing, that venue was proper, and that they were entitled to summary judgment (Appellees’ Brief, Chamber of Commerce of United States of America v. CFPB No. 23-40650 (5th Cir. Oct. 7, 2024)).

History of the suit. The organizations’ original complaint sought relief from the CFPB’s March 2022 update to the “unfair, deceptive, or abusive acts and practices (UDAAP)” portion of the Bureau’s “Supervision and Examination Manual,” which directed examiners to use their UDAAP authority to “access companies’ data, algorithms, operations, premises, and personnel for evidence of ‘discrimination,’ including “disproportionately adverse impacts on a discriminatory basis, or evidence of insufficient internal monitoring for those outcomes.” The trial court ultimately held that the CFPB’s adoption of that approach in the agency’s March 2022 update of the manual “is beyond the agency’s constitutional authority based on an Appropriations Clause violation and beyond the agency’s statutory authority to regulate ‘unfair’ acts or practices under the Dodd–Frank Act” and accordingly granted the plaintiff organizations summary judgment.

The CFPB appealed that ruling, urging reversal on grounds that: (1) the plaintiff organizations lacked standing, (2) the CFPB acted within its authority and its funding statute has been found constitutional by the U.S. Supreme Court, and (3) the relief granted in the summary judgment was overly broad. The Bureau posited that only one of the named plaintiffs resides in the Eastern District of Texas, where the suit was filed, and that plaintiff was not an injured party. On the issue of authority, it argued that the Consumer Financial Protection Act gave it authority to treat discrimination as inherently unfair, and that the district court had erred by attempting to invoke the “major questions” doctrine to forestall action by the CFPB.

Appellees’ brief. The organization’s appellee brief responds that the CFPB’s standing challenge was based on evidentiary objections it never raised below, and that the agency’s “attack” on the organizations’ use of pseudonyms is an argument that has now been rejected by multiple circuits. “These forfeited and failing arguments do not defeat standing. Even less so venue[,]” the appellees wrote.

On the merits, the organizations’ brief centers on its assertion that “[t]he CFPB’s novel expansion of its UDAAP authority—covering even disparate-impact liability—exceeds the power that Congress granted it.” Nothing the Bureau added on appeal “unsettles the district court’s sound reasoning,” they write. The manual update exceeds the agency’s statutory authority by reading its power over “unfair” practices to encompass a new power over disparate impacts. According to the brief, the text of the Dodd-Frank Act establishes that Congress never considered discrimination itself to be a UDAAP. Dodd-Frank was not the first federal law to ban discrimination while identifying no protected classes or categories, the organizations note. Moreover, the update also violated the Administrative Procedures Act’s procedural rules requiring public participation and reasoned decision-making, they say.

Finally, the brief maintains that the district court acted well within its discretion in awarding limited equitable relief to the plaintiffs’ members. That remedy was appropriate. It rejects as “ironic” and “convenient” the CFPB’s position that the district court should have vacated the manual update but not also entered declaratory or injunctive relief.

Amicus. A group of consumer and minority organizations previously filed an amicus curiae brief with the court in support of the CFPB’s position (see Banking and Finance Law Daily, Aug. 23, 2024).

Attorneys: Cameron Thomas Norris (Consovoy McCarthy, P.L.L.C.) for Chamber of Commerce of the United States of America, American Bankers Association, Consumer Bankers Association and Longview Chamber of Commerce. Justin Michael Sandberg for the CFPB.

Companies: Chamber of Commerce of the United States of America; American Bankers Association; Consumer Bankers Association; Longview Chamber of Commerce

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