Consumer groups defend CFPB's anti-discrimination policy in brief

Seven consumer advocacy groups asked a federal court to dismiss a lawsuit filed by the U.S. Chamber of Commerce against the Consumer Financial Protection Bureau, arguing that discrimination in consumer financial products is pervasive.

The seven consumer groups filed an amicus brief Friday with the U.S. District Court for the Eastern District of Texas asking the court to dismiss the suit, Chamber v. CFPB. The U.S. Chamber and three bank trade groups sued the CFPB in September alleging the bureau violated the Administrative Procedure Act when it adopted a policy in March that, for the first time, claimed discrimination on the basis of age, race or sex — regardless of intent — violates the federal prohibition on "unfair, deceptive or abusive acts or practices," known as UDAAP. The business trade groups said the change amounted to a power grab that was "arbitrary" and "capricious," in violation of the APA. 

The six advocates claim that financial institutions have a long history of preventing people of color and other marginalized populations from participating fully and fairly in the mainstream financial economy. 

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"Ample evidence shows that discrimination in the financial services industry persists and may be 'unfair' in every sense of the word — including, most importantly, the explicit statutory test Congress established to guide the CFPB in determining whether a practice is 'unfair,'" the consumer groups stated. "The text of the Dodd-Frank Act and commonsense understanding of the word 'unfair' reaffirm this truth."

Under the new policy, the CFPB sought to look for discrimination in a wide range of noncredit financial products including deposit and checking accounts, payments, prepaid cards, remittances and debt collection practices. The amicus brief was filed by Democracy Forward, a nonprofit group, on behalf of the California Reinvestment Coalition, National Community Reinvestment Coalition, National Association for Latino Community Asset Builders, Center for Responsible Lending, Texas Appleseed, and National Consumer Law Center

The consumer advocates argue in the brief that the CFPB is empowered under Dodd-Frank to prevent unfair practices. The groups cite statistical, survey and anecdotal evidence of discrimination. Higher loan denial rates, higher interest rates, costs, and fees, and the use of racial profiling and racially-biased algorithms are among the evidence the consumer groups present that discrimination persists. 

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"Discrimination is unfair, and it doesn't take a law degree to recognize that," Rachel Fried, senior counsel at Democracy Forward, said in a press release. "As the consumer advocates' brief makes clear, the CFPB was right to clarify that discriminatory practices can fall within Congress' definition of an unfair practice."

But it remains unclear whether the consumer groups' arguments will prevail. The brief alleges that the CFPB has met its burden of proof by citing the three prints of the so-called "unfairness" test laid out in Dodd-Frank. Dodd-Frank states that a practice is unfair if it "causes or is likely to cause substantial injury to consumers;" if an injury cannot be "reasonably avoidable by consumers;" and if the practice is "not outweighed by countervailing benefits to consumers or to competition."

Banks and financial firms reject the view that the CFPB can examine entities for alleged discriminatory conduct under UDAAP. They argued in their lawsuit that Congress declined to give the CFPB authority to enforce anti-discrimination principles except in specific circumstances. Notably, the Equal Credit Opportunity Act states that financial firms cannot discriminate against credit applicants. Moreover, industry argues that the CFPB made the change to its discrimination policies by updating its examination manual instead of going through the normal public notice-and-comment process.