Landmark Ruling: Federal Court Restricts Consumer Watchdog’s Ability to Scrutinize Banking Sector for Discrimination

A federal judge in Texas ruled that the Consumer Financial Protection Bureau (CFPB) is overstepping its bounds in its attempts to check whether banks and other financial firms are discriminating against Black Americans and other minorities.

The case was brought last year by big trade organizations, including the U.S. Chamber of Commerce and the American Bankers Association. On Friday, Judge J. Campbell Baker issued a ruling stating that the consumer regulator was “exceeding statutory authority” in its attempt to use a law that prohibits financial institutions from engaging in “unfair, deceptive, or abusive acts or practices” to check for instances of discrimination during routine examinations of the firms.

The judge, who was appointed by former President Donald J. Trump, argued that state laws already offer protections from discrimination and that the CFPB’s activities would interfere with those existing laws. Furthermore, the law that the CFPB sought to apply in its discrimination checks after the 2008 financial crisis did not specifically mention discrimination, making it outside the scope of the agency.

It’s important to note that not every state has its own anti-discrimination laws. For example, Georgia does not broadly prohibit private employers from discriminating against employees or private businesses from discriminating against customers.

“The agency instead must point to clear congressional authorization for the power it claims,” the judge wrote, citing a Supreme Court ruling last year that limited the Environmental Protection Agency’s ability to regulate emissions under the Clean Air Act.

Sam Gilford, a CFPB spokesman, expressed in an email that the agency is considering appealing. “A longstanding and straightforward federal law prohibits unfair acts and practices, stating that financial firms cannot subject consumers to substantial and unavoidable harm,” Mr. Gilford said. He added, “In our view, it is common sense that discrimination can meet that standard.” He also mentioned that the agency would comply with the ruling but would still utilize “any available tool” to combat discrimination in the financial system.

Banks have consistently sought to limit regulatory penalties. Although they claim to treat all customers equally, they argue that systemic inequality in American society, for which they are not responsible, may put some customers at a disadvantage.

Following George Floyd’s murder and the subsequent protests against police brutality and the unjust treatment of Black Americans in 2020, top executives from major banks, including Wells Fargo and Bank of America, urged the Trump administration not to eliminate anti-discrimination protections established under the Obama administration. At that time, granting such a regulatory break would have been out of touch with public sentiment. However, more than three years later, the banks are now receiving relief similar to what they had previously declined.

The trade groups behind the lawsuit initially emphasized that their decision to sue the CFPB was mainly a question of process. They argued that the regulator should have provided more notice and an opportunity for public comments before finalizing changes that added “discrimination” to the manual provided to financial firms for their periodic checks. Judge Baker’s ruling focused on the broader issue of whether the CFPB had the authority to test banks for discriminatory practices.

In a broader argument, the trade groups also contested the CFPB’s authority to test for discriminatory practices. Judge Baker’s decision centered on this broader issue.

Rob Nichols, the president of the American Bankers Association, stated in an email that his organization was “pleased” with the ruling, noting that it found the CFPB did not have “open-ended and novel power to examine banks for alleged discriminatory conduct.”


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