On August 8, 2024, the CFPB filed its Appellant Brief with the Fifth Circuit, appealing the September 2023 decision by the Federal District Court for the Eastern District of Texas that vacated the March 2022 changes to the CFPB’s unfair, deceptive or abusive acts or practices (UDAAP) Exam Manual. In the 2022 amendments to the Exam Manual, the CFPB purported to use the unfair prong of UDAAP under the Consumer Financial Protection Act (CFPA) to prohibit discriminatory conduct, whether or not it is covered by fair lending laws. For more details about the initial suit, read our blog.
In vacating the changes, the district court concluded that the changes were invalid because (1) the CFPB’s funding is unconstitutional, and (2) the changes exceeded the CFPB’s UDAAP authority. Shortly after the order, the CFPB repealed the amendments to the Exam Manual. In November 2023, the CFPB filed a notice with the Texas federal district court that it was appealing to the Fifth Circuit the district court’s order granting summary judgment. With the Supreme Court ruling that the CFPB’s funding structure complies with the Appropriations Clause of the Constitution, the constitutional challenge is now resolved. Therefore, the Fifth Circuit will need to first consider the procedural issues raised by the CFPB, and if the case remains in the Fifth Circuit, it will need to address the substantive arguments in the case.
In its appeal, in addition to raising standing and other procedural issues, the CFPB argued that the district court’s decision should be reversed because “the only natural reading of [United States Code section] 5531[which sets forth the CFPB’s UDAAP authority] is that unfairness can encompass discriminatory acts” and treating discriminatory conduct as unfair “would not necessarily raise a major question [which is a principle of statutory interpretation applied in cases which states that courts will presume that Congress does not delegate to federal agencies issues of major political or economic significance].” The CFPB also argues that Congress has provided “clear congressional authorization to regulate in that manner.” We disagree with both positions of the CFPB, and believe the court will, like the district court, find that discrimination and unfairness are distinct concepts. In its brief, the CFPB made many of the substantive arguments it made when opposing the district court’s injunction, and we believe the Fifth Circuit is likely to agree with the district court.
The Chamber of Commerce’s response is due September 6, 2024. We will continue to follow this and other litigation affecting rules and guidance issued by the CFPB.
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