AFSA recently joined the Bank Policy Institute (BPI) and America’s Credit Unions (ACU) in filing an amicus brief in support of the argument that the CFPB’s recent changes to the Supervision and Examination Manual go far beyond policing intentional discrimination. In March 2022 the Bureau amended the UDAAP chapter of the manual to address the interaction between unfairness and discriminatory conduct. In September 2022 the U.S. Chamber of Commerce, among others, sued the CFPB stating that the manual “exceeds the CFPB’s statutory authority by adding discrimination to [the Bureau’s] UDAAP authority.” The suit also noted that the Bureau failed to use the Administrative Procedures Act Process, in doing so.

The new amicus brief describes how the change negatively affects America’s financial institutions. AFSA’s members, as well BPI and ACU’s members, are firmly committed to identifying and preventing discriminatory acts and practices in the financial services industry. For example, members have dedicated significant resources toward developing and implementing anti-discrimination policies and compliance systems designed to prevent, detect, and correct failures in the execution of their programs that could result in unlawful discrimination. These efforts reflect a core value shared by all the members: Discrimination is wrong, and it is corrosive to the integrity and strength of the nation’s financial system.

Rather than acknowledge those efforts and work with financial institutions, the CFPB unilaterally imposed a new rule that states that disparate impact alone in connection with the provision of any consumer financial product or service may constitute discriminatory conduct that violates the Dodd-Frank Act’s prohibition on “unfair, deceptive, or abusive act[s] or practice[s]” (“UDAAP”). The CFPB provides no guidance on how financial institutions should approach compliance with the Manual Update, nor does it even acknowledge the challenges of monitoring and combatting disparate-impact liability.

As a result, companies have and will continue to need to cover substantial costs related to complying with this underexplained change. The change significantly expands the anti-discrimination monitoring those financial institutions previously conducted in the non-lending context. While the CFPB has been asked to address questions that would help institutions understand the agency’s expectations and would support the CFPB’s goal of combatting discrimination, there has been no answer.