The CFPB has filed a motion to dismiss, or in the alternative for summary judgment in, the lawsuit filed by the U.S. Chamber of Commerce in September 2022 challenging the CFPB’s update to the Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) section of its examination manual to include discrimination. The other plaintiffs in the lawsuit, which was filed in a Texas federal district court, are American Bankers Association, Consumer Bankers Association, Independent Bankers Association of Texas, Longview Chamber of Commerce, Texas Association of Business, and Texas Bankers Association. The CFPB’s motion also includes its opposition to the plaintiffs’ motion for summary judgment.
As an initial matter, the CFPB argues that dismissal is warranted because the plaintiffs have not established either their standing to sue or that venue is proper in the Eastern District of Texas. According to the CFPB, the plaintiffs have failed to satisfy the requirement for associational standing that they identify their members who have been injured by the manual update. In addition, because the basis for the plaintiffs’ choice of venue is the Texas location of the Longview Chamber of Commerce and Longview has not identified a particular member with standing, the CFPB argues that the plaintiffs have not met their burden of establishing that Longview resides in the Eastern District and dismissal for improper venue is appropriate.
As an alternative grounds for dismissal, the CFPB argues that the court lacks jurisdiction because the exam manual update is not final agency action and final agency action is a prerequisite to review under the Administrative Procedure Act (APA). Citing U.S. Supreme Court precedent indicating that for agency action to be deemed final, it “must be one by which rights or obligations have been determined, or from which legal consequence flow,” the CFPB asserts that the manual “does not fix regulated parties’ rights or obligations, or carry legal consequences.” According to the CFPB, “while the Manual identifies for examiners the kinds of evidence to collect and what kinds of preliminary factual determinations to make, it does not bind examiners’ assessment of whether any particular conduct should be cited as an unfair practice.”
The CFPB argues that the manual update does not impose any new obligations because it “does not change the legal status of the parties, including by authorizing new topics of examination.” Noting that the Dodd-Frank unfairness prohibition pre-dates the manual, the CFPB asserts that “[t]here has never been an unstated, atextual exception to the prohibition on unfairness for discrimination, just as there is not an unstated exception to unfairness for conduct that happens on Leap Day.” According to the CFPB, the update merely “provide[s] a roadmap of additional preliminary factual assessments for examiners to make…but examiners could have made those preliminary assessments without the updates [because it is Dodd-Frank rather than the manual that provides the source of authority for the examinations.]”
In response to the plaintiffs’ argument that the update is final agency action because it binds examiners to a particular method of investigation, the CFPB attempts to distinguish a requirement for its examiners to follow certain procedures from a requirement that they take certain legal positions. According to the CFPB, the manual “provides direction on the procedures that examiners should follow and preliminary factual assessments they should make…but it does not bind the agency or its personnel to a legal position regarding whether an unfair practice has taken place in any particular situation….”
In response to the plaintiffs’ argument that they are entitled to summary judgment based on the Fifth Circuit panel decision in Community Financial Services Association of America Ltd. v. CFPB that held the CFPB’s funding mechanism violates the Appropriations Clause of the U.S. Constitution, the CFPB argues that the Dodd-Frank provision establishing the Bureau’s funding mechanism satisfies the Appropriations Cause. Nevertheless, the CFPB acknowledges that “CFSA is binding on this Court, and the application of its rationale to this case requires the Court (if it disagrees with the Bureau about Plaintiffs’ standing and this Court’s jurisdiction) to rule for Plaintiffs on their constitutional claim and vacate the [manual update.]” It argues that, as a result, the court does not need to reach the plaintiffs’ non-constitutional claims and a decision on those claims would be an impermissible advisory opinion.
The CFPB argues further that even if the court finds there is no constitutional impediment to reaching the plaintiffs’ non-constitutional claims, it should decline to decide those claims because it would require the court to review actions taken by the Executive Branch (i.e., the update) and to determine the scope of an Act of Congress (i.e., Dodd-Frank). The CFPB suggests that if the court decides that it has jurisdiction, it could also take a “wait-and-see approach” by awarding temporary relief in favor of the plaintiffs on their constitutional claim and staying the remainder of the case pending final resolution of CFSA. Once CFSA is resolved, the court could then determine if permanent relief is appropriate on the plaintiffs’ constitutional claims and whether there is a need to decide the non-constitutional claims.
In addition to the above arguments made by the CFPB for why the update is not a final agency rule requiring notice-and-comment under the APA, the CFPB makes the following arguments for why the manual update did not violate the APA:
- The update does not exceed the CFPB’s UDAAP authority in the Dodd-Frank Act because such authority is broad enough to encompass discrimination. The CFPB argues:
“What Congress did not recognize [when enacting Dodd-Frank] is a discrimination exception to unfairness. Nowhere does the Act say anything to the effect of ‘otherwise unfair conduct is not unfair if it is also discriminatory.’ Congress’s failure to create an exception to unfairness for discrimination comports not only with common sense, but with the broad definition of unfairness that Congress has adopted….The absence of a discrimination exception also comports with public policy, which Congress has concluded is a relevant factor in the identification of unfair conduct. Thus, the Bureau did not exceed the statute, but followed it, by recognizing that discriminatory conduct that satisfies the statutory standard for unfairness can be unfair.” (citations omitted).
- The update is not “arbitrary and capricious” because there is no relevant history of the FTC Act that the Bureau failed to consider. The CFPB asserts:
“Plaintiffs identify no historical evidence demonstrating that there is a discrimination exception to unfairness as used in the FTC Act; they simply provide evidence for the general proposition that Congress codified a general definition of unfairness. But even if that codified definition excludes certain conduct that previously had been considered unfair, Plaintiffs provide no support for the distinct proposition that there exists an atextual exception to unfairness for conduct that satisfies the codified definition.” (citations omitted, emphasis provided).
The CFPB also asserts that the Supreme Court’s Inclusive Communities decision was not relevant to the update, and the Bureau had no obligation to consider it, because “liability for unfairness under Dodd-Frank is [not] the same thing as disparate-impact liability under an anti-discrimination statute.”
With regard to the injunctive relief sought by the plaintiffs, the CFPB argues that although the plaintiffs would be entitled to a declaration that the CFPB’s funding is unconstitutional and vacatur of the update, they have not established that they are entitled to the injunctive relief they seek. Plaintiffs are seeking an injunction that forbids the CFPB from pursuing any examinations or enforcement actions based on its interpretation of its UDAAP authority in the manual. In addition to arguing that the APA does not contemplate injunctive relief, the CFPB argues that the plaintiffs have not satisfied the legal standard for injunctive relief, including that, if vacatur is granted, the injunctive relief would have a meaningful practical effect independent of vacatur. The CFPB also asserts that the plaintiffs have not adequately explained what their requested injunction would prohibit, such as whether it would mean that “the Bureau cannot bring an enforcement action for an unfair practice without first satisfying itself that the conduct is not also discriminatory.”