Why the CFPB is right that it can act against discrimination using its unfairness power

by Jeff Sovern

Recently the CFPB announced that in conducting supervisory operations, it takes the position that discrimination is unfair and so violates the Consumer Financial Protection Act. You might think this is pretty straightforward: most of us would think odious discrimination is unfair. Discrimination easily qualifies as unfair under the statutory requirements of unfairness, which require that "(A) the act or practice causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers; and (B) such substantial injury is not outweighed by countervailing benefits to consumers or to competition." It's so obvious that offensive discrimination meets that standard that I won't take up space explaining why but if you want to know more, read this report by the Student Loan Borrower Protection Center. The statute also permits the Bureau to consider public policy in determining if conduct is unfair, as long as public policy considerations are not the primary basis for the determination of unfairness. So many statutes bar discrimination that it's clear that public policy counsels against allowing abhorrent discrimination.

But Senator Toomey disagreed during the Senate Banking Committee hearing on the CFPB on Tuesday and so do some others. Their principal argument appears to be that if discrimination is unfair, statutes explicitly prohibiting discrimination, like the Equal Credit Opportunity Act, would have been unnecessary. But, the argument goes, Congress did enact such statutes and so Congress must not have seen unfairness as reaching discrimination. This argument has at least three significant flaws.

First, ECOA does many things in addition to proscribing discrimination in credit transactions. For example, ECOA provides injured consumers a private claim, punitive damages, and attorneys’ fees. The CFPB’s determination that its unfairness power extends to discrimination does not authorize consumers to bring private claims because the CFPA does not provide for private claims. Put another way, ECOA would have been needed even if everyone agreed from the get-go that the Bureau could use its unfairness power against discriminators because Congress wanted injured consumers to have a private claim. Only Congress, not the Bureau, could have provided for that. And that is also true of other provisions of ECOA, like the requirement that creditors notify consumers of the reasons for adverse action.

Second, the argument ignores the statutory text. The argument is based on speculation as to the legislative intent. And the Supreme Court has made clear that it has no interest in speculations about congressional intent when the words of a consumer protection statute answer the question.

Third, if we are going to speculate about legislative intent, does it really make sense that Congress would not have wanted the Bureau to have the power to outlaw odious discrimination in the consumer financial industry?  Congress was concerned with the fairness of the marketplace and gave the Bureau authority to block misconduct that most of us would see as less objectionable than discrimination.  It beggars the imagination to suggest that Congress would have wanted the Bureau to allow discrimination to continue unchecked but, for example, to take action against debt collectors that put words or symbols on envelopes.

In short, Director Chopra is exactly right to take steps to prevent offensive discrimination from taking place in the consumer financial industry. If the industry argues otherwise, it risks convincing consumers that the industry wants to discriminate. And that wouldn’t serve anyone.

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