Summary Judgment Granted to ABA and Co-Plaintiffs in CFPB UDAAP Exam Manual Challenge

OPINION AND ORDER

Plaintiffs sue the Consumer Financial Protection Bureau and its director, Rohit Chopra, seeking relief from the agency’s direc-tion that its examiners must scrutinize companies for discrimina-tion against unspecified protected classes and for how well com-panies introspect about statistical disparities in data concerning their business practices. Plaintiffs allege that the new examination directive must be vacated because the agency’s funding structure violates the Appropriations Clause of the Constitution, because it exceeds the agency’s statutory authority, and because it violates the Administrative Procedure Act substantively and procedurally.

Plaintiffs move for summary judgment in their favor on all claims. Defendants move to dismiss the case or, alternatively, for summary judgment in their favor on the non-constitutional claims. For the reasons given below, plaintiffs’ motion for summary judgment is granted, and defendants’ motions are denied.

Background.

1. On the heels of the 2008 financial crisis, Congress passed the Dodd–Frank Act. It created the Consumer Financial Protection Bureau—an independent agency charged with ensuring that consumer-debt products are safe and transparent. Congress tasked the Bureau with administering 19 existing federal statutes, covering everything from credit cards to car payments to student loans. Congress also banned regulated companies from engaging in “unfair, deceptive, or abusive acts or practices.” That conduct is commonly referred to as “UDAAP.”

The Bureau has authority to name specific acts or practices in the consumer-finance sector as unfair, deceptive, or abusive. The Bureau also has authority to issue “requirements for the purpose of preventing such acts or practices.” And the Bureau has author-ty to compel reports and examine companies on how their procedures guard against prohibited conduct. Congress did not define what makes conduct “deceptive” but did define factors governing what makes conduct “unfair” or “abusive.” The Bureau’s examination practices are spelled out in its Supervision and Examination Manual. As the agency states: “The manual describes how we supervise and examine these companies and gives our examiners direction on how to assess compliance with federal consumer financial laws.” The manual first lays out the agency’s general process for examining a company and its internal compliance systems.That examination can be far-reaching. Agency examiners can request internal company data, interview a company’s managers and employees, and observe operations at company facilities. 

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