Federal judge rules against CFPB's anti-discrimination effort

A federal judge ruled that the Consumer Financial Protection Bureau (CFPB) exceeded its authority by attempting to address discriminatory practices in the banking industry.

Several leading trade groups including the American Bankers Association and the U.S. Chamber of Commerce filed a lawsuit against the CFPB in September, arguing that Congress didn’t grant the agency authority to pursue anti-discrimination policies.

U.S. District Judge J. Campbell Barker of the Eastern District of Texas ruled in favor of the trade groups on Friday. He found that the Dodd-Frank Act, which created the CFPB, treats discrimination and unfairness as distinct concepts – effectively barring the CFPB from regulating financial industry companies on matters related to discrimination.

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The CFPB first announced in March 2022 that it would look to examine consumer financial institutions’ practices for illegal discrimination as part of its mandate to combat unfair practices. 

In doing so, the CFPB directed its examiners to look at financial firms’ policies that exclude individuals from products or services, or that offer products or services in a discriminatory manner.

The agency hasn’t brought an enforcement action under the new framework but said in June it was "looking into potential discriminatory conduct."

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In the wake of the ruling, the CFPB is reviewing the decision and weighing a potential appeal.

"A longstanding and straightforward federal law prohibits unfair acts and practices, stating that financial firms cannot subject consumers to substantial and unavoidable harm," a CFPB spokesperson told FOX Business in a statement. "In our view, it is common sense that discrimination can meet that standard, regardless of whether it affects people due to their race, their national origin, or the exercise of their religious liberties. The CFPB will continue to root out invidious discrimination to protect American families, using any available tool at our disposal while abiding by the court’s order."

The trade groups that challenged the CFPB’s efforts argued the agency was acting arbitrarily by scrutinizing "disparate impacts" on certain groups of consumers. They also argued that an October 2022 ruling by the U.S. Fifth Circuit Court of Appeals invalidated the CFPB’s authority – a ruling that the CFPB has appealed to the Supreme Court.

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"We strongly support the fair enforcement of nondiscrimination laws, but the Bureau’s extraordinary expansion of its regulatory reach crossed the line," American Bankers Association CEO Rob Nichols said in a statement. "As our members know all too well, banks must follow the rules, but federal regulators must as well." 

"Unfortunately, this CFPB has too often chosen to ignore the law and the will of Congress, forcing us to seek relief in court. We hope this ruling sends a clear message to the Bureau and all federal regulators that they must operate within the boundaries set by Congress," he added.

Reuters contributed to this report.