By Jody Godoy
A federal judge has ruled that the U.S. Consumer Financial Protection Bureau (CFPB) does not have broad authority to tackle discriminatory banking practices, handing a win to financial industry groups that sued the regulator.
The American Bankers Association, the U.S. Chamber of Commerce and several other industry groups had argued that Congress had not authorized the agency to root out discrimination in a lawsuit filed in federal court in Texas last September.
U.S. District Judge J. Campbell Barker ruled in favor of the groups on Friday.
The challenge followed the CFPB's announcement in March 2022 that it would examine consumer financial institutions' practices for illegal discrimination as part of its broader mandate to combat unfair practices.
The industry groups say the CFPB unlawfully stretched that mandate to include discrimination, expanding its authority beyond existing fair lending laws.
The agency directed its examiners to review financial firms' policies that exclude individuals from products or services, or those that offer products or services in an unfairly discriminatory manner.
The CFPB has not yet brought an enforcement action under the new effort, but said in June that it is "looking into potential discriminatory conduct."
The industry groups argued that the CFPB acted arbitrarily by scrutinizing "disparate impacts" on consumers. That legal theory allows regulators to go after practices that may appear neutral but adversely affect one group of people more than others.
They also said an October 2022 ruling by the 5th U.S. Circuit Court of Appeals invalidated the agency's authority altogether.
The 5th Circuit found that the CFPB's funding structure violated the separation of powers principle in the U.S. Constitution because it received money through the Federal Reserve, rather than Congress.
The CFPB has appealed that decision to the U.S. Supreme Court, arguing that the Constitution does not limit how Congress provides funding for agencies.
The case is Chamber of Commerce et al. v. CFPB, No. 22-00381, U.S. District Court, Eastern District of Texas.
(Reporting by Jody Godoy in New York; Editing by Andy Sullivan)