Chamber of Commerce of the United States v. Consumer Fin. Prot. Bureau

691 F.Supp.3d 730

CHAMBER OF COMMERCE OF the UNITED STATES OF AMERICA et al., Plaintiffs, v. CONSUMER FINANCIAL PROTECTION BUREAU et al., Defendants.

No. 6:22-cv-00381

United States District Court, E.D. Texas

Signed September 8, 2023

Bryan K. Weir, Cameron Thomas Norris, David Leighton Rosenthal, Consovoy McCarthy PLLC, Arlington, VA, Jennifer B. Dickey, Jordan Von Bokern, U.S. Chamber Litigation Center, Washington, DC, Bruce Alan Smith, Ward, Smith & Hill, PLLC, Longview, TX, for Plaintiff Chamber of Commerce of the United States of America.

Bryan K. Weir, Cameron Thomas Norris, David Leighton Rosenthal, Consovoy McCarthy PLLC, Arlington, VA, Bruce Alan Smith, Ward, Smith & Hill, PLLC, Longview, TX, for Plaintiffs Longview Chamber of Commerce, Independent Bankers Association of Texas, Texas Association of Business, Texas Bankers Association.

Bryan K. Weir, Cameron Thomas Norris, David Leighton Rosenthal, Consovoy McCarthy PLLC, Arlington, VA, Thomas Pinder, American Bankers Association, Washington, DC, Bruce Alan Smith, Ward, Smith & Hill, PLLC, Longview, TX, for Plaintiff American Bankers Association.

Bryan K. Weir, Cameron Thomas Norris, David Leighton Rosenthal, Consovoy McCarthy PLLC, Arlington, VA, David Pommerehn, Consumer Bankers Association Legal, Washington, DC, Bruce Alan Smith, Ward, Smith & Hill, PLLC, Longview, TX, for Plaintiff Consumer Bankers Association.

Justin Sandberg, Pro Hac Vice, Ryan Cooper, Pro Hac Vice, Consumer Financial Protection Bureau, Legal Division, Office of Litigation, Washington, DC, for Defendants.

Stephen John Petrany, Dunwoody, GA, for Amicus State of Georgia.

Rachel Fried, Democracy Forward Foundation, Washington, DC, for Amici California Reinvestment Coalition, National Community Reinvestment Coalition, National Association for Latino Community Asset Builders, Center for Responsible Lending, Texas Appleseed, National Consumer Law Center.

OPINION AND ORDER

J. Campbell Barker, United States District Judge

Plaintiffs sue the Consumer Financial Protection Bureau and its director, Rohit Chopra, seeking relief from the agency's direction that its examiners must scrutinize companies for discrimination against unspecified protected classes and for how well companies 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.¹ Defendants move to dismiss the case or, alternatively, for summary judgment in their favor on the non-constitutional claims.² 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.³ It created the Consumer Financial Protection Bureau—an independent agency charged with ensuring that consumer-debt products are safe and transparent.⁴ Congress tasked the Bureau with administering 19 existing federal statutes, covering everything from credit cards to car payments to student loans.⁵ Congress also banned regulated companies from engaging in "unfair, deceptive, or abusive acts or practices."⁶ That conduct is commonly referred to as "UDAAP."

The Bureau has authority to name specific acts or practices in the consumerfinance sector as unfair, deceptive, or abusive.⁷ The Bureau also has authority to issue "requirements for the purpose of preventing such acts or practices."⁸ And the Bureau has authority to compel reports and examine companies on how their procedures guard against prohibited conduct.⁹ Congress did not define what makes conduct "deceptive" but did define factors governing what makes conduct "unfair" or "abusive."¹⁰

2. 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."¹¹

The manual first lays out the agency's general process for examining a company and its internal compliance systems.¹² 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.¹³

The manual next directs examiners on particular provisions of law. As relevant here, the manual directs officials on how to examine a company's compliance with, and procedures surrounding, the UDAAP prohibition.¹⁴ Examiners are allowed to obtain and review a company's training manuals, written policies, procedure manuals, internal-audit materials, agreements with affiliates, records regarding software development and algorithms, and customer-demographics information.¹⁵ When agency examiners believe they have found a violation—or inadequate internal monitoring to catch violations—the Bureau can pursue enforcement through administrative process, lawsuits, and referrals to other regulators.¹⁶

3. Last year, the Bureau announced that it considers discrimination to be a UDAAP and will begin examining for discrimination itself and for whether companies are adequately "testing for" discrimination in their advertising, pricing, and other activities.¹⁷ A press release summarized the change: examiners must now "require supervised companies to show their processes for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups."¹⁸

The manual now directs examination of whether a company regularly analyzes all of its decision-making processes and data for discrimination. Examiners must now determine whether:

i. The entity has a process to prevent discrimination in relation to all aspects of consumer financial products or services the entity offers or provides, which includes the evaluation of all policies, procedures and processes for discrimination prior to implementation or making changes, and continued monitoring for discrimination after implementation.

j. The entity's compliance program includes an established process for periodic analysis and monitoring of all decision-making processes used in connection with consumer financial products or services, and a process to take corrective action to address any potential UDAAP concerns related to their use, including discrimination.

2. . . .

k. The entity has established policies and procedures to mitigate potential UDAAP concerns arising from the use of its decision-making processes, including discrimination.¹⁹

Examiners will review not only a company's internal controls but also its controls on third-party contractors and service providers.²⁰ Those third-party vendors, too, must not engage in practices "that lead to . . . disproportionately adverse impacts on a discriminatory basis."²¹ To this end, examiners are directed to obtain companies' algorithms and customer demographics.²² So agency examiners now have a UDAAP mandate to review for both purposeful discrimination and whether a company is sufficiently introspective about the impacts of business practices on certain groups relative to other groups.

4. Plaintiffs are trade associations that object to the new examination mandate. They allege that, to come into compliance with the new directives, their members must update their internal policies and programs at significant cost.²³ The new directives are alleged to be invalid because the agency's funding violates the Appropriations Clause, because they exceed the agency's statutory authority, because their substance is arbitrary and capricious, and because they issued without required notice-and-comment procedure.²⁴

The parties conferred and agreed that "no discovery is needed prior to this Court's resolution of the parties' respective dispositive motions"²⁵ and that "judicial review is based solely on the administrative record."²⁶ For that reason, the parties sought to be excused from the requirement that motions for summary judgment list undisputed facts. Based on their concession, the court excused that requirement.²⁷ Any factual statements in this opinion are thus taken from uncontradicted representations in the briefing and the attached exhibits.

Defendants move to dismiss the case, arguing that the court lacks jurisdiction because of the sovereign's immunity from suit, that plaintiffs lack standing, and that venue has been improperly laid here. In the alternative, defendants move for summary judgment on the non-constitutional claims while stipulating that plaintiffs would prevail on the merits of their Appropriations Clause claim under Fifth Circuit precedent.²⁸ Plaintiffs, in turn, move for summary judgment in their favor on all claims.²⁹

Analysis

1. Sovereign immunity from suit

Defendants move to dismiss the case as barred by the federal government's sovereign immunity from suit. "Absent a waiver, sovereign immunity shields the Federal Government and its agencies from suit."³⁰ Defendants argue that the waiver of sovereign immunity in 5 U.S.C. § 702 does not apply to any of plaintiffs' claims, whether they arise from the APA or not, because there is no "final agency action" within the meaning of 5 U.S.C. § 704.³¹

That position assumes that § 704's "final agency action" requirement limits the immunity waiver in the first place. But some tension exists in Fifth Circuit case law about precisely what language in § 702 waives sovereign immunity and whether that waiver includes limits imported from elsewhere. The circuit's 1980 decision in Sheehan v. Army & Air Force Exchange Service joined the Third Circuit's view that § 702's second sentence waives sovereign immunity broadly, without atextual...