UDAAP manual litigation
Chamber of Commerce of the United States of America v. Consumer Financial Protection Bureau
Date: Oct. 7, 2024
Issue: Whether the Consumer Financial Protection Bureau’s revised exam manual expanding its Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) authority to include discrimination violates the Dodd-Frank Act and Administrative Procedure Act (APA).
Case Summary: The American Bankers Association and its co-plaintiffs filed their opening brief in the Fifth Circuit opposing CFPB’s appeal of a district court decision that ruled the bureau exceeded its statutory authority when it updated the UDAAP portion of its exam manual.
In March 2022, CFPB announced it considers discrimination to be a UDAAP and will begin examining for discrimination and whether companies are adequately “testing for” discrimination in their advertising, pricing and other activities. The manual update directs examiners to use the agency’s 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.
Previously, Judge Campbell Barker of the Eastern District of Texas granted ABA and its co-plaintiffs’ motion for summary judgment and denied CFPB’s motion to dismiss. The court ruled CFPB’s expanded position to enforce discrimination as unfairness in the manual update exceeds CFPB’s constitutional authority based on an Appropriations Clause violation and exceeds CFPB’s statutory authority under the Dodd-Frank Act. As a result, the court vacated the manual update and granted declaratory and injunctive relief to ABA members and its co-plaintiffs’ members, although ABA requested a national injunction.
On appeal, CFPB argued ABA lacks associational standing and venue is improper in the Eastern District of Texas. Further, CFPB claimed the U.S. Supreme Court’s decision in Summers requires a plaintiff-association to name an injured member rather than using pseudonyms to establish associational standing. CFPB also argued it has statutory authority to treat discriminatory acts and practices as unfair and its funding statute is constitutional. Finally, CFPB argued vacatur is an appropriate remedy, but injunction and declaratory relief are overbroad.
In its opening brief, ABA made three main arguments. First, ABA argued the district court correctly found standing and venue. CFPB argued the Supreme Court’s prior decision in Summers v. Earth Island Institute bans associations from using pseudonyms in providing declarations. However, ABA emphasized its declaration identifying anonymous banks did not violate Summers, because that case involved no pseudonyms. ABA detailed that Summers is about identifying specific members, not divulging their true identities. Thus, ABA stressed CFPB significantly overreads Summers and the Fifth Circuit should make it clear it sides with the lopsided majority of courts that reject the argument that the use of pseudonyms violates Summers.
In addition, ABA contended that CFPB’s new objections to its evidence are forfeited and meritless. CFPB challenges aspects of ABA’s standing declarations for the first time on appeal. The district court found that ABA’s standing is “uncontested” because CFPB did not dispute the veracity of ABA’s declarations. Yet according to CFPB, ABA’s declarations should be considered inadmissible hearsay because the declaration relayed a secondhand description of injuries suffered by ABA’s members. ABA contended, however, that CFPB’s hearsay argument is meritless because associations who act as representatives of their members can speak to their members’ injuries.
ABA also reiterated venue was proper in the Eastern District of Texas. CFPB argues venue was improper because the Longview Chamber of Commerce — the plaintiff who “resides” in the Eastern District — supposedly lacks standing. However, ABA explained that in R.J. Reynolds Vapor Company v. FDA, the Fifth Circuit held that venue was proper because one petitioner resided in the district, even though it found Article III standing based on a different petitioner. Put differently, because CFPB cannot defeat every plaintiff’s standing in this case, it cannot divest the Eastern District of venue.
Second, ABA argued CFPB violated the APA. ABA highlighted that CFPB exceeded its statutory authority by reading its power over “unfair” practices to encompass a new power over disparate impacts. The district court ruled CFPB lacks statutory authority to reinterpret its UDAAP power to consider discrimination itself to be a UDAAP. CFPB contends its UDAAP authority reaches not only discrimination itself but also disparate-impact theories. However, the text of the Dodd-Frank Act demonstrates that Congress does not consider discrimination part of UDAAP. In the Dodd-Frank Act, Congress expressly articulated “unfair” acts and “discrimination” as distinct concepts.
On top of this, ABA emphasized the expansion of disparate-impact liability throughout the financial services industry presents a major question. Under the major questions doctrine, courts will presume Congress does not delegate to executive agencies issues of major political or economic significance. Without a clear statement for Congress to authorize the expansion of disparate-impact liability, ABA emphasized that CFPB attempts to turn Dodd-Frank’s UDAAP provision into “sweeping antidiscrimination authority.” For this reason, the Fifth Circuit should hesitate before concluding that Congress meant to confer CFPB’s claimed authority, according to ABA.
ABA also claimed CFPB violated the APA’s procedural rules. The district court found that CFPB’s manual update constituted final agency action. By issuing final agency action without going through the mandated notice and comment period, CFPB violated the APA. ABA also emphasized update was arbitrary and capricious because the CFPB’s attempt to update its UDAAP manual was unreasoned and unreasonable.
Finally, ABA argued the district court’s remedy was appropriate. According to CFPB, the district court should have vacated the manual update but not also entered declaratory or injunctive relief. ABA averred that CFPB overstated the scope of the district court’s judgment. The court entered a party-specific declaration that declares unlawful any attempt by CFPB to pursue its UDAAP interpretation against any of ABA’s members. The court did not rule that CFPB lacks the “authority to ever treat a discriminatory act or practice as unfair” that otherwise meets the statutory definition of a UDAAP. ABA contended the district court’s decision to grant declaratory relief was not an “abuse of discretion.” Similarly, ABA contended that injunctive relief was proper. CFPB never contested on appeal whether ABA satisfied the factors for injunctive relief (irreparable harm, the balance of the equities, and the public interest). ABA maintained CFPB’s limited arguments about the injunctions’ necessity and scope do not justify reversal.
Bottom Line: CFPB’s reply brief is due Nov. 11, 2024.
Documents: Brief
