A 'Major Question': Can Courts Limit the CFPB’s UDAAP Powers?

CFPB official seal. Credit/Shutterstock

A recent decision by a federal district court in Texas (Chamber of Com. of U.S. v. Consumer Fin. Prot. Bureau) has gotten a lot of attention lately, and for good reason. It answers three basic questions that are asked when a regulation is challenged and does so in a way that substantially reduces the CFPB’s UDAAP powers. In fact, even if the Supreme Court ultimately upholds the constitutionality of the Bureau’s funding mechanism, if the district court’s ruling is upheld, financial institutions, particularly larger ones, will have achieved an important legal victory.

The case has its roots in an announcement by the CFPB that it was classifying discrimination as unfair under its UDAAP powers. In a press release announcing this determination, it explained that its existing authority to ban discrimination under the Equal Credit Opportunity Act did not go far enough to enable it to prevent unintentional discrimination through the offering of products and services that have a disparate impact on minority groups. Going forward, the Bureau announced that “CFPB examiners will require supervised companies to show their processes for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups. The CFPB will look at how companies test and monitor their decision-making processes for unfair discrimination, as well as discrimination under ECOA.” Remember, the CFPB has direct examination oversight over banks and credit unions with $10 billion or more in assets.