ABA, trade groups sue CFPB for exceeding its statutory authority

The American Bankers Association and six other trade groups today sued the Consumer Financial Protection Bureau and Director Rohit Chopra for exceeding the agency’s legal authority in a March update to the UDAAP exam manual, in which the bureau expanded the statutory definition of “unfairness” to encompass discrimination. In their lawsuit, the plaintiffs make clear they support the fair enforcement of the nation’s nondiscrimination laws but said they “cannot stand by while a federal agency exceeds its statutory authority, creates regulatory uncertainty and imposes costly burdens on the business community.”

ABA along with some of the other plaintiffs had previously urged CFPB to rescind the update, saying that the bureau’s unfair, deceptive and abusive acts or practices, or UDAAP, authority cannot be used to extend the fair lending laws beyond the bounds set by Congress. The lawsuit, filed in U.S. District Court for Eastern Texas, said the bureau violated the Administrative Procedure Act in three ways.

First, the agency exceeded its statutory authority as outlined in the Dodd-Frank Act. Second, the updated manual is “arbitrary” and “capricious” because the bureau did not grapple with Congress’s decision to narrowly define the Federal Trade Commission’s unfairness authority, from which CFPB modeled its authority to enforce anti-discrimination principles. Third, the update violates the APA’s procedural requirements because it constituted a legislative rule that failed to go through notice and comment. The suit also challenged the CFPB by calling into question the bureau’s funding structure.

“The CFPB’s decision to dramatically expand its regulatory reach without any input from the public was not authorized by statute and has significant implications for consumers, banks and the broader financial markets,” said ABA President and CEO Rob Nichols. “This is a step we did not want to take, but it was a necessary step given the extraordinary actions of the CFPB.”