Unfairness and Discrimination

Introduction

The American Bankers Association,  the Consumer Bankers Association,  the Independent Community Bankers Association,  the U.S. Chamber of Commerce  (the Associations) and our members oppose discrimination in any form and seek to treat all customers fairly. Banks are committed to serving the families and businesses in their communities and proudly supply the financial products and services that provide important economic opportunities for individuals, families, and small business owners. It follows that banks support fair, objective, and transparent enforcement of civil rights and fair lending laws. However, we cannot support the CFPB's recent actions, taken without legislative authority, to extend fair lending laws beyond the bounds carefully set by Congress.

For the better part of a century, Congress has taken affirmative steps to protect American consumers by preserving their ability to choose the products and services that best fit their individual needs. In 1938, for example, Congress gave the Federal Trade Commission (FTC) the ability to prohibit “unfair” acts or practices in or affecting commerce, a term that Congress would later give a precise statutory definition. And for more than 50 years, Congress enacted a series of civil rights laws to protect consumers from invidious discrimination on the basis of specific characteristics and in specific contexts, including Title VII of the Civil Rights Act of 1964 (employment), the Fair Housing Act of 1968 (housing), the Equal Credit Opportunity Act of 1974 (credit), and the Americans with Disabilities Act of 1990 (disability). Most recently, in 2010, Congress enacted the Dodd-Frank Act, which created the Consumer Financial Protection Bureau (CFPB) and gave it authority nearly identical to that of the FTC to prohibit “unfair” acts or practices by covered persons or service providers offering or providing consumer financial products and services. Congress separately authorized the CFPB to implement two specific antidiscrimination laws, the Equal Credit Opportunity Act (ECOA) and the Home Mortgage Disclosure Act (HMDA).

Throughout these many decades, Congress never used these two statutory concepts, “unfairness” on the one hand, and “discrimination” on the other, interchangeably. Rather, they are distinct, and each has a well-established meaning and scope of application. However, on March 16, 2022, the CFPB conflated the concepts by announcing that it would begin examining financial institutions for alleged discriminatory conduct that it deemed to be “unfair” under its “unfair, deceptive, and abusive acts or practices” (UDAAP) authority. The CFPB also revised its examination manual to reflect its new view that “unfairness” can be applied to allegedly discriminatory practices. 

The Associations call on the CFPB to rescind the revised examination manual. Congress did not authorize or intend for the CFPB to “fill gaps” between the clearly articulated boundaries of antidiscrimination statutes with its UDAAP authority. However, if the CFPB believes additional authority is necessary to address alleged discriminatory conduct, we stand ready to work with Congress and the CFPB to explore that possibility and to ensure the just administration of the law.

The CFPB’s action has created significant uncertainty in the financial marketplace to the detriment of consumers and banks alike, and it raises profound substantive and procedural legal concerns. This paper examines the CFPB’s action and concludes that is contrary to law and is subject to legal challenge. We summarize immediately below the primary legal flaws in the CFPB's action.

• The CFPB’s conflation of unfairness and discrimination ignores the text, structure, and legislative history of the Dodd-Frank Act. For example, the Dodd-Frank Act discusses "unfairness" and "discrimination" as two separate concepts, and defines "unfairness" without mentioning discrimination. The Act's legislative history refers to the Bureau's antidiscrimination authority in the context of ECOA and HMDA, while referring to the Bureau's UDAAP authority separately.
• The CFPB's view of "unfairness" is inconsistent with decades of understanding and usage of that term in the Federal Trade Commission Act and with the enactment of ECOA. Congress gave the CFPB the same "unfairness" authority that it gave to the Federal Trade Commission in 1938, which has never included discrimination. It makes no sense that Congress would have enacted ECOA in 1974 to address discrimination in credit transactions, if it had already prohibited discrimination through the FTC’s unfairness authority. For the same reason, Congress could not have intended in 1938 for unfairness to "fill gaps" in civil rights laws that did not exist.
• The CFPB’s view is contrary to Supreme Court precedent regarding disparate impact liability. The CFPB's actions and statements indicate it conflates unfairness with disparate impact, or unintentional discrimination. The Supreme Court has recognized disparate impact as a theory of liability only when Congress uses certain "results-oriented" language in antidiscrimination laws, e.g., the Fair Housing Act. The Dodd Frank Act neither contains the requisite language, nor is it an antidiscrimination law.
• The CFPB’s action is subject to review by courts because it constitutes final agency action – a legislative rule – that is invalid, both substantively and procedurally.  The CFPB’s action carries the force and effect of law and imposes new substantive duties on supervised institutions. However, the Bureau did not follow Administrative Procedure Act requirements for notice-and-comment rulemaking. Additionally, the CFPB's interpretation is not in accordance with law and exceeds the CFPB's statutory authority. The CFPB’s action should be held unlawful and set aside.
• The CFPB's action is subject to Congressional disapproval under the Congressional Review Act.  A Member of Congress can request a GAO opinion on whether the CFPB's actions are a rule, which can ultimately trigger Congressional review using the procedures established in the Congressional Review Act.

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