On September 8, 2023, the United States District Court for the Eastern District of Texas issued a summary judgment vacating the CFPB’s March 2022 update to the UDAAP Chapter of the CFPB’s Supervision and Examination Manual. This is after the plaintiffs - the ABA, the Texas Bankers Association, the U.S. Chamber of Commerce and several others - challenged the CFPB’s March 2022 interpretation in its Consumer Compliance Examination Manual of its authority to include discrimination as an unfair act or practice under its Consumer Financial Protection Act (CFPA) UDAAP authority. This ruling appears to only apply to members of the plaintiffs.
The plaintiffs alleged that the new examination directive must be vacated because 1) the agency’s funding structure violates the Appropriations Clause of the Constitution, 2) because it exceeds the agency’s statutory authority, and 3) because it violates the Administrative Procedure Act substantively and procedurally. The plaintiffs sought relief from the CFPB’s March 2022 update to the UDAAP portion of its Supervision and Examination Manual which 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.
The court holds that the CFPB’s March 2022 manual update 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. The ruling, however, does not affect prohibitions against discrimination under the ECOA, Fair Housing Act, etc.
Specifcially, the ruling states this:
“For the reasons given above, the court holds that the CFPB’s adoption of that position in the March 2022 manual update 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. Plaintiffs’ motion for summary judgment in their favor is thus granted, 116 and defendants’ motion to dismiss the case or for summary judgment in their favor is denied.”
In addition, the CFPB has included the following statement on their website in regards to their UDAAP Exam Manual:
“On September 8, 2023, the United States District Court for the Eastern District of Texas vacated a March 2022 update to the UDAAP Chapter of the CFPB’s Supervision and Examination Manual. That updated language is therefore no longer operative. The CFPB is reviewing the ruling.”
The court ruling can be found here.
The CFPB statement acknowledging the ruling can be found here.
Questions on this ruling should be directed to an attorney. We are not attorneys. Seek legal counsel.
