ABA Sues CFPB in Fight over 2 Words and Who Has the Best Acronym
The American Bankers Association (ABA) and it's friends, the U.S. Chamber of Commerce, Longview Chamber of Commerce, Texas Bankers Association, Independent Bankers Association of Texas, Texas Association of Business and the Consumer Bankers Association have sued the Consumer Financial Protection Bureau (CFPB) and the head of the agency, Rohit Chopra, for the following 2 word change to the CFPB Examination Manual, and I quote from the lawsuit:
“acts or practices that materially increase the risk of consumers being treated in an unfair, deceptive, or abusive manner, including discriminatory acts or practices.”
The italics were added helpfully by the plaintiffs. Oh, and also that the CFPB is illegally funded, should not exist, and is a Mr. Stinky Pants. I may be reading a bit between the lines on the last one.
Maybe you already thought discrimination was unfair or abusive (or deceptive?). Well, yes, the ABA and friends--maybe an afternoon animated series of lovable puppies who save the world by protecting bankers?--want to make very very clear they: "...fully support the fair enforcement of nondiscrimination law..."--in that one partial sentence on page 2 of the lawsuit.
But the CFPB is in no position to be regulating discrimination. Plenty of other agencies do that, although it's not the lawsuit's job to say who precisely that is. Also, the CFPB didn't previously say "don't discriminate" so they can't be tossing it in like that.
Moreover, the industry didn't get to comment on the rule change because maybe if you had asked nicely, they would have said, OK. But you didn't so, now: no backsies.
If you've been reading my previous posts you are well aware that it can't be the fines that are the problem. The CFPB has issued a little under $14 or so billion in fines since being created in 2011, sometimes on their own, sometimes with their friends. Let's be generous and call it a full $14 billion.
In the lawsuit the ABA proudly notes that they are "the voice of the nation’s $23.7 trillion banking industry."
Click, pull, click, whirr on the adding machine. 0.06% of this industry's revenue has been fined. That's rounded up. Or 6 cents on every $100 of income. So that can't be it.
And it isn't! The suit details that it is the expense of having to deal with complying with the law that's the problem, and this is more law. There's a great breakdown of what a regulator does in their filing with the court. Here's some in italics.
To conduct that review and assess the entity’s compliance, examiners have carte blanche to obtain and review copies of the entity’s internal documents, including: “Training materials,” “Procedure manuals and written policies”; “Internal control monitoring and auditing materials”; and “Minutes of the meetings of the Board of Directors and of management committees, including those related to compliance.”
Examiners’ evaluations also include “reviewing all relevant written policies and procedures” and “internal and external audit reports.”
The examiners also “determine whether the entity’s internal controls are adequate to prevent unfair, deceptive or abusive acts or practices.”
Draft examination reports are also shared with the entity’s prudential regulator, which can take any number of actions against the entity based on the CFPB’s conclusions, including adjustment to ratings, penalties, and enforcement actions. As a result, the CFPB’s examination findings are not-so-confidential communications that can have significant public consequences. [ed. yeah, not so much.]
I found this all quite amusing, as if it is all saying, "Hey, look at all the homework they gave us!" Your mileage may vary.
But then the punchline: The CFPB’s “update” is causing significant compliance costs. Specifically:
These amendments to the manual harm Plaintiffs’ members by imposing heavy compliance costs that are ultimately passed down to consumers in the form of higher prices and reduced access to products. [ed. reduced access to products that are discriminatory?]
To come into compliance with these new directives, Plaintiffs’ members have no choice but to update their UDAAP compliance policies and programs, at significant cost, and they will perpetually incur costs to remain in compliance.
So here's a suggestion: if it isn't the fines that get banks to comply. Just threaten them with having to revise and republish their policies. That will get them to sit up and take notice. I kid! Nobody reads policies. I kid again!
More seriously, the ABA does have a point that it's not clear at all from the regs what constitutes discrimination. On the other hand, the CFPB has two different definitions of what a "business day" is and nobody has taken them to court over that. (Sorry, what? They have been sued over that? Right. Okay.)
The point is this: The plaintiffs are willing to spend big money on lawyers and consultants to fight regulations and regulators to avoid the costs of having a fully staffed Compliance department.
One view is maybe the solution is to figure out how to let banks reduce their compliance costs if they don't commit crimes.
Another view would be how insane this is and maybe just stop unfair, abusive, and deceptive practices, including not discriminating, because that's obvious right thing to do.
I am not sure when I'm kidding and not anymore.
What do you think? Is the ABA in the right or the CFPB? Is it more nuanced than that?