Texas District Court Rules CFPB’s UDAAP Discrimination Expansion Exceeded Authority

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On Sept. 8, 2023, the United States District Court Eastern District of Texas ruled the Consumer Financial Protection Bureau (CFPB) and its director, Rohit Chopra, exceeded its discretion when it announced it considers discrimination to be an Unfair, Deceptive or Abusive Act or Practice (UDAAP).In March 2022, the court found the CFPB went too far when it began to examine for discrimination itself, and whether companies are adequately testing for discrimination in their advertising, pricing and other activities. According to the CFPB, examiners required supervised companies to start showing 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’s March 2022 update to the UDAAP portion of its Supervision and Examination Manual 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 plaintiffs who brought the suit against the CFPB are trade associations that object to the new examination mandate. They alleged that, to come into compliance with the new directives, their members must update their internal policies and programs at a significant cost. In addition, they alleged the examination mandates are invalid because the CFPB’s funding violates the Appropriations Clause because they exceed the agency’s statutory authority, their substance is arbitrary and capricious, and they were issued without required notice-and-comment procedure.The court agreed with the plaintiffs on the basis the CFPB’s funding structure violates the Appropriations Clause of the Constitution, because it exceeds the agency’s statutory authority, and violates the Administrative Procedure Act substantively and procedurally. As a result, members of the plaintiff’s organization are exempt from the update to the UDAAP portion of its Supervision and Examination Manual.For more information on how to avoid UDAAP compliance violations, contact Doeren Mayhew's regulatory compliance specialists today.

John Zasada
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John Zasada is a Principal in Doeren Mayhew's Financial Institutions Group, where he assists financial institutions in navigating regulatory compliance.

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