Organizations in many instances no longer must spend money on compliance with the Consumer Financial Protection Bureau’s (CFPB) interpretation of its UDAAP authority announced in the March 2022 update to its Supervision and Examination Manual after a district court vacated it on Sept. 8, see Chamber of Commerce v. CFPB, Case 6:22-cv-00381, slip op. (E.D. Tex. Sept. 8, 2023). Under Director Chopra, the CFPB updated the Unfair Deceptive and Abusive Acts and Practice (UDAAP) section of its examination manual to direct examiners to review supervised entities for signs of discriminatory conduct in all aspects of offering consumer financial products or services, even if the Equal Credit Opportunity Act (ECOA) would not ordinarily apply. The mandate expanded reviews to activities such as advertising, servicing, collections, consumer reporting, payments, remittances, deposits and algorithms. And—according to plaintiffs in Chamber of Commerce—it caused significant compliance costs for entities that had not previously tested those practices for discriminatory effects. The victors in the case are: Chamber of Commerce of the United States of America, Longview Chamber of Commerce, American Bankers Association, Consumer Bankers Association, Independent Bankers Association of Texas, Texas Association of Business and Texas Bankers Association.
In reviewing the ruling, it appears that to directly take advantage of the decision, a firm must be a member of one of the plaintiff associations. This may be less of a hurdle than one would think and may actually not be a hurdle at all since the CFPB has stated on its UDAAP splash page that it is no longer relying upon the update language:
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.
On top of this, it is notable that the U.S. Chamber of Commerce is the world’s largest business organization. Its members range from the small businesses and chambers of commerce across the country that support their communities, to the leading industry associations and global corporations. Membership applications are online, and some memberships costs as little as $250. A cautious firm could ensure it falls within the court’s injunctive relief simply by becoming a chamber member.
The ease of entry into the protected injunctive class is a distinguishing factor from the court’s injunction concerning the § 1071 small business data collection rulemaking filed earlier this year. Texas Bankers Association v. CFPB, case 7:23-cv-00144 (S.D. Tex. July 31, 2023). There, the court vacated application of a rule for plaintiffs that included the Texas Bankers Association and the American Bankers Association. Many non-litigant parties were stymied from obtaining the benefits of the relief since there are more burdensome barriers to become a member of the American Bankers Association or their local state chapter, than for the U.S. Chamber of Commerce.
The final judgment declared that pursuing any examination, supervision or enforcement action against any member of a plaintiff organization based on the CFPB’s interpretation of its UDAAP authority announced in the March 2022 manual update would be unlawful as exceeding statutory authority and as based on unconstitutional funding. The court’s injunction will not restrict the CFPB’s ability to pursue examination or supervision of acts or practices that qualify as “unfair” independently of the position announced in the agency’s March 2022 update to the manual’s UDAAP provisions.
While the district court’s order and judgment are notable, the journey to reach the judgment has additional gems. Specifically, the court held that any agency action can be reviewed on the basis of exceeding statutory authority, even if it is not “final” under the Administrative Procedure Act § 704. It also held that the CFPB revision to the examination manual met the bar for a “rule” under the APA that was suitable for judicial review.
The CFPB had argued it was immune from suit by the associations because the APA § 704 only waives the agency’s sovereign immunity for parties to challenge a “final” agency action, which is a defined term under the APA and sets a fairly high bar. The court held, however, that the requirement of “final” agency action within the meaning of § 704 is required only for a claim created by the APA. Here, however, “final” agency action was unnecessary because courts need no statute creating a cause of action when asked to enjoin a federal official’s actions as unconstitutional or beyond statutory authority. Rather, when claims alleging ultra vires agency conduct only seek an injunction or a declaratory judgment, those claims need only challenge “agency action” to fall within § 702’s immunity waiver.
The court then held that the examination manual revision qualifies as “agency action” because it meets the definition of a “rule”—a general agency statement of future effect, designed to prescribe law, policy, or agency procedure. 5 U.S.C. § 551(4). It held that an agency’s guidance documents binding it and its staff to a legal position will produce legal consequences or determine rights and obligations; thus, it meets the test for reviewable agency action.
Finally, the court applied the major questions canon to determine that the CFPB exceeded its statutory authority. The court looked to the CFPA text to determine that it treats discrimination and unfairness as distinct concepts. For instance, in setting forth its objectives for the agency, Congress directs the CFPB to exercise its authorities to ensure that, with respect to financial products and services, “consumers are protected  from unfair, deceptive or abusive acts and practices and  from discrimination.” The court observed that Congress did not say that its unfairness authority “include[ed] discrimination.” It used the word “and” to conjoin two distinct concepts—UDAAP and discrimination. Therefore, the CFPA’s language authorizing the CFPB to regulate unfair acts or practices is not the sort of “exceedingly clear language” that the major-questions doctrine demands before finding a conferral of agency authority to regulate discrimination across the financial-services industry, independently of the CFPB’s separately conferred antidiscrimination power conferred by the ECOA.
Overall, the district court’s decision provides a rubric for future lawsuits against an agency that is known for establishing new rules outside of the notice and comment rulemaking process. Even if it manages to survive the constitutional challenge to its funding scheme under the Appropriations Clause before the Supreme Court, parties should consider whether new CFPB directives are truly within its statutory authority before investing considerable amounts on compliance.
This document is intended to provide you with general information regarding Chamber of Commerce v. CFPB. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.