The National Fair Housing Alliance (“NFHA”) and three other plaintiffs have amended their lawsuit challenging the CFPB’s recently issued amendments to Regulation B under the Equal Credit Opportunity Act (“ECOA”). The amended complaint, filed August 11, makes several important changes to the complaint originally filed on May 27.

The amendments do not fundamentally alter the plaintiffs’ challenge to the Regulation B rule. The plaintiffs continue to contend that the CFPB acted unlawfully in eliminating disparate-impact liability under ECOA, narrowing the regulation’s prohibition against discouragement, and effectively eliminating important uses of special purpose credit programs (“SPCPs”).

But the amended complaint adds a potentially significant new procedural challenge: the plaintiffs now allege, based on the administrative record produced by the CFPB, that the Bureau failed to comply with Dodd-Frank’s requirement that it consult with appropriate prudential regulators and other specified federal agencies before proposing the rule.

The amended complaint also updates the challenge to the authority of former Acting CFPB Director Russell Vought following his replacement by Mark Paoletta.

The Regulation B litigation

As discussed in our earlier coverage, the CFPB’s final Regulation B rule makes sweeping changes to the regulation implementing ECOA. Among other things, the rule eliminates disparate-impact liability, narrows the circumstances in which conduct can constitute unlawful discouragement, and restricts the availability of certain SPCPs offered by for-profit entities.

The original complaint alleged that the rule is arbitrary and capricious, contrary to ECOA, in excess of the CFPB’s statutory authority, and the product of defective rulemaking procedures. It also challenged the authority of then Acting Director Russell Vought to direct the CFPB when the rule was promulgated as he had not been confirmed by the U.S. Senate as the CFPB Director.

The amended complaint preserves those claims.

Indeed, much of the amended complaint is substantively identical to the original complaint. The plaintiffs continue to maintain that the CFPB failed adequately to analyze the costs and benefits of the rule, failed to comply with the Regulatory Flexibility Act and the Small Business Regulatory Enforcement Act (SBREFA) provided an inadequate period for public comment, and failed to respond adequately to significant comments. The allegations concerning the substantive changes to disparate impact, discouragement, and SPCPs likewise remain.

The important changes are elsewhere.

Mark Paoletta replaces Russell Vought

The first change is straightforward but necessary.

As he was the Acting CFPB Director at the time, Russell Vought was the named individual defendant in the original complaint. The amended complaint substitutes Mark Paoletta, who became Acting CFPB Director on August 1.

The amended complaint notes in a footnote that Paoletta is automatically substituted for Vought under Federal Rule of Civil Procedure 25(d).

The amended complaint also adds an allegation that Paoletta, like Vought, has not been confirmed by the Senate and lacks lawful authority to direct the CFPB.

The plaintiffs, however, do not suggest that Paoletta participated in issuing the Regulation B rule. The amended complaint continues to focus on Vought as the person who purportedly exercised authority over the CFPB when the NPRM and Final Rule were issued.

That distinction is important. The substitution of Paoletta does not change the plaintiffs’ fundamental contention that Vought lacked authority when the challenged rule was promulgated. The allegation is questionable, as it suggests that the actions by any acting head of a federal agency would not be lawful.

The most important new allegation: the CFPB allegedly failed to consult other federal agencies

The most significant substantive amendment is the addition of a new subsection entitled:

“The CFPB Failed to Consult with the Appropriate Agencies Prior to Proposing the Rule.”

The amended complaint adds four paragraphs—160 through 163—devoted to this issue.

The plaintiffs rely on 12 U.S.C. § 5512(b)(2)(B), which requires the CFPB, before proposing a rule and during the comment period, to consult with appropriate prudential regulators and other specified federal agencies concerning consistency with the prudential, market, or systemic objectives administered by those agencies.

The plaintiffs contend that the CFPB did not satisfy that requirement.

The amended complaint focuses on an apparent discrepancy between the NPRM and the statutory requirement.

According to the complaint, the NPRM did not state that the CFPB actually consulted with the relevant agencies. Instead, it stated that the CFPB had “offered to consult” with them.

NFHA allegedly called attention to that distinction in its comment letter.

The Final Rule subsequently stated that the Bureau had “consulted or offered to consult” with other agencies and had considered the feedback provided. But, according to the amended complaint, the Final Rule did not describe the consultations or identify evidence demonstrating that consultations actually occurred.

That distinction is now central to the plaintiffs’ procedural challenge.

The administrative record becomes particularly important

The most interesting aspect of the new allegations is that they are based not simply on what the plaintiffs believe the CFPB did, but on their review of the administrative record produced by the CFPB on July 24.

The amended complaint alleges that the administrative record does not show that the Bureau undertook the required consultation before issuing the NPRM.

Instead, according to the complaint, the record contains an email from an OMB employee to a CFPB employee that lists email addresses associated with several federal agencies and states:

“Interagency circulation for CFPB NPRM Regulation B.”

The plaintiffs allege that neither this email nor anything else in the administrative record demonstrates that the identified agencies actually were consulted concerning the NPRM.

That is a potentially important development.

The plaintiffs are effectively telling the court: the CFPB itself has produced the administrative record, and that record does not contain evidence that the Bureau did what Congress expressly required it to do.

Whether the record ultimately establishes that consultation occurred is, of course, a matter for the litigation. But the amended complaint gives the plaintiffs a substantially more concrete basis for pursuing the allegation than the original complaint did.