Is Discrimination Unfair” Under the UDAP Laws? New Lawsuit Challenges CFPB’s Anti-Discrimination Guidelines

Most people would generally agree that discriminating on the basis of race, color, religion, disability, or similar factors is a bad thing to do – indeed, that it’s unfair” within the common meaning of the word. It’s also illegal in various circumstances – e.g., the Equal Credit Opportunity Act prohibits certain forms of discrimination in lending, the Fair Housing Act bans discrimination in housing, and Title VII of the Civil Rights Act prohibits various types of employment discrimination.

But is discrimination unfair” within the meaning of the federal UDAP laws – i.e., the laws prohibiting unfair or deceptive” (and sometimes abusive”) practices? The Consumer Financial Protection Bureau says it is. In March, the CFPB updated its Supervision and Examinations Manual to make clear that discrimination is unfair” under Dodd Frank, and that the agency plans to scrutinize discrimination across the board in consumer finance,” including in situations where fair lending laws may not apply.”

Meanwhile, the FTC is advancing similar views. Over the past year, three of its Commissioners have said in speeches and policy statements that discrimination is unfair” under the FTC Act. (See here and here.) And in August, the FTC launched an ambitious rulemaking proceeding that would potentially ban algorithmic discrimination” as an unfair practice.

And not to be forgotten, State Attorneys General are taking a similar position. Recently, for example, California AG Bonta sent letters under its Unfair Competition Law to hospital CEOs requesting information on how healthcare providers are addressing racial and ethnic disparity in commercial decision-making tools.

A new lawsuit from the Chamber of Commerce and other business groups takes aim at the assertion that discrimination is unfair” (legally, that is). While the lawsuit specifically challenges the process and legal basis for the CFPB’s change to its Manual, it will likely have implications for the FTC and potentially the States too, which follow the same or similar tests for unfairness.” Here’s more information about the case:

The Parties

Plaintiffs are the Chamber of Commerce, American Bankers Association, Consumer Bankers Association, and four business groups based in Texas (where the complaint was filed). Defendants are the CFPB and Director Rohit Chopra in his official capacity. Plaintiffs say that they fully support fair enforcement of [the] nondiscrimination laws” passed by Congress, but cannot stand by while a federal agency exceeds its statutory authority, creates regulatory uncertainty, and imposes costly burdens on the business community.”

The Allegations

The lawsuit presents three legal theories regarding the Manual change, and then adds a challenge to the CFPB’s entire funding structure at the end.

First, the complaint alleges that the CFPB’s change to its Manual exceeds the agency’s statutory authority under Dodd Frank, which authorizes the agency to examine, investigate, and take action against unfair, deceptive, or abusive” acts or practices. According to the complaint, Congress declined to give the CFPB regulatory authority over discrimination except in specific circumstances (under the fair lending laws), and Dodd Frank consistently treats unfairness and discrimination as distinct concepts. For good measure, the complaint throws in a reference to the Supreme Court’s recent ruling in West Virginia v. EPA, which states that Courts should be skeptical regarding agency efforts to regulate major questions” (like discrimination) in the absence of clear Congressional intent.

Second, the complaint alleges that the CFPB’s manual change is arbitrary and capricious because it: (1) purports to be based on FTC precedent but doesn’t adhere to FTC statutory constraints (i.e., limits on using unfairness to pursue public policy goals”); (2) regulates discriminatory outcomes” (i.e., disparate impact”) without a clear directive from Congress; and (3) abruptly changes longstanding CFPB policy and processes without considering the impact and burdens on companies – including the burdens created by the examination process itself, by follow-on enforcement actions (with penalties and other remedies), and by the CFPB’s failure to even explain the full scope of the discrimination it will examine. (As to the latter point, the Manual refers repeatedly to discrimination” and provides examples, but doesn’t flesh out the full scope of the discrimination covered.)

Third, the complaint alleges that the Manual change violates the Administrative Procedures Act because it amounts to a regulatory change without a notice-and-comment process.

Finally (echoing a longstanding talking point in some circles), the complaint states that the CFPB’s entire financial structure violates the Appropriations Clause because the CFPB draws funding from the Federal Reserve without a Congressional appropriation or other checks and balances.

As to relief, the complaint requests (1) a declaration that the Manual change is invalid; (2) injunctive relief stopping all CFPB action related to it; and (3) that the CFPB cease accepting funding in violation of the Appropriations Clause.


Some of the complaint’s arguments seem more compelling than others. For example, as harmful as discrimination is to individuals and society, it seems reasonable for affected companies to question whether it falls within UDAP, when Congress went to the trouble of passing specific anti-discrimination laws with carefully crafted definitions, exceptions, and grants of enforcement authority. It also seems reasonable to ask the CFPB to define the types of discrimination that it plans to examine.

On the other hand, plaintiffs’ theory that any changes to the Manual must follow APA rulemaking is so broadly framed that, if adopted, it would compel the CFPB (and other agencies) to conduct rulemakings before issuing or revising even the most informal types of guidance materials. Further, plaintiffs’ challenge to the CFPB’s funding structure is untethered to the other allegations in the case and lacks the facts and background needed for a legal challenge of this breadth.

Still, this lawsuit shows that the business community is increasingly willing to push back on its regulators, especially as Republican lawmakers are doing the same and as we approach the midterm elections. It’s likely that we will see more challenges of this type in the near future.

In addition, if the lawsuit succeeds even in part, it could limit not only the CFPB’s efforts to police discrimination but also the FTC’s and potentially the States’, which are based on the same or similar legal underpinnings. We will watch this case closely as it proceeds in court.