As you know, President Biden has nominated Rohit Chopra to be the Director of the Consumer Financial Protection Bureau (“CFPB”).  The Senate is expected to confirm his nomination.  So it is useful to consider how he might run the CFPB.  Fortunately, unlike his predecessor, former Director Kraninger, he has a past history in consumer protection to go on.  He has been a Commissioner of the Federal Trade Commission (“FTC”) since 2018, and before that a senior official at the CFPB. 

In this post, I want to highlight one issue I found interesting in some of his past statements while at the FTC.  These statements may indicate that a Director Chopra-led CFPB would use the “disparate impact” theory of discrimination under the Equal Credit Opportunity Act (“ECOA”), which the CFPB had stopped doing under former Acting Director Mulvaney and former Director Kraninger.  In addition, the CFPB may try to use the disparate impact theory of discrimination under its authority to enforce against “unfair” acts or practices under the Dodd-Frank Act (this authority prohibits unfair, deceptive, or abusive acts or practices, and is commonly referred to as “UDAAP” authority).  The CFPB could use this theory to try and reach beyond the statutory limits of ECOA in a couple ways.  It could use UDAAP to do an end run around the potential lack of authority under ECOA for the disparate impact, or to reach products and services that are not subject to ECOA.

As you might know, the Dodd-Frank Act that created the CFPB only gave the agency fair lending authority under ECOA, not the other fair lending statute, the Fair Housing Act (“FHA”).  While ECOA has prohibitions against lending discrimination similar in many ways to FHA, many legal scholars believe that, unlike FHA, ECOA does not support the “disparate impact” theory of discrimination.  As you probably know (if you’re reading this blog), the disparate impact theory does not require an intent to discriminate – it can be based on a neutral practice’s disproportionately adverse effect on a prohibited basis.  The conclusion that disparate impact is unavailable under ECOA is based in part on ECOA’s lack of “results-oriented language,” which language was the basis of the Supreme Court’s 2015 holding that the FHA supported the disparate impact theory in Texas Dep’t of Hous. and Comty. Affairs v. Inclusive Communities Project, Inc.

However, the CFPB under former Director Cordray used the disparate impact theory of discrimination under ECOA, especially in settlements in the auto finance space.  Early on in the agency’s history, in a series of bulletins in 2012 and 2013, the CFPB proclaimed its belief that disparate impact theory is available under ECOA.  See Bulletins 2012-14 and 2013-02 (this was the auto lending bulletin that was disapproved by Congress under the Congressional Review Act in 2018, which we wrote about here).  After Director Cordray left the CFPB, former Acting Director Mulvaney and former Director Kraninger both had issued statements indicating that they were inclined to rethink the Bureau’s authority under ECOA, and they did not bring any disparate impact cases.

The Bureau under a Director Chopra is more likely to bring a disparate impact lawsuit under ECOA, which could very well be challenged as outside of the Bureau’s legal authority under ECOA.  With that in mind, I found interesting certain statements Rohit Chopra made as FTC Commissioner about the usefulness of disparate impact theory.  These statements indicate that he may believe that the disparate impact theory could be used under the FTC Act’s prohibition against “unfair” acts or practices (section 5 of the FTC Act, which is similar to the CFPB’s UDAAP authority, prohibits unfair or deceptive acts or practices).  

For instance, in May 2020, the FTC settled a case against an auto dealer in the Bronx, New York that involved allegations of intentional pricing discrimination.  Commissioner Chopra issued a statement in the case expressing his support for the disparate impact theory, stating, “[i]t is rare to uncover direct evidence of racist intent. That’s why disparate impact analysis is a critical tool to uncover hidden forms of discrimination, not only in this context but throughout the economy.”  Commissioner Chopra then stated that many discriminatory practices are also unfair under the FTC Act (which could mean he views them as “unfair” under the CFPB’s UDAAP authority, as they use the same definition).  He also noted the usefulness of the disparate impact theory.  Specifically, Commissioner Chopra stated that:

many practices are not only discriminatory, but are also unfair. Here, for example, the alleged conduct is illegal under the Equal Credit Opportunity Act, but it also violates the FTC Act’s prohibition on unfair practices.  Using disparate impact analysis and other tools, the Commission can use its unfairness authority to attack harmful discrimination in other sectors of the economy.

Just last fall, in October 2020, FTC Commissioner Chopra also spoke at the National Fair Housing Alliance’s National Conference, where he spoke about discrimination in data analysis, algorithms, and artificial intelligence.  In his speech he was focused on what the FTC and other regulators can do under the current laws to stop discrimination in the “data economy.”   He stated about the unfairness authority:

[a]s we all know, it is rare to uncover direct evidence of racist intent, which is why disparate impact analysis is a critical tool to uncover hidden forms of discrimination under sector-specific laws like the Fair Housing Act and the Equal Credit Opportunity Act. But many areas of the economy are not covered by these laws. In a recent auto lending discrimination case brought by the FTC, I argued that many discriminatory practices are also unfair under the FTC Act, which covers almost the entire economy. Unfair practices are those that are (i) likely to cause substantial injury (ii) that is not reasonably avoidable, and (iii) that is not outweighed by countervailing benefits to consumers or competition. Discriminatory practices often are three for three, causing grievous harm that cannot be avoided. This means that the FTC Act can serve as an important gap-filler to combat discrimination across the economy, particularly as machine learning and artificial intelligence make more and more decisions about our lives.

Although Commissioner Chopra’s statements on this topic while at the FTC may have been expressing a view that the FTC should enforce against discrimination outside of credit markets, one can see how a Director Chopra-led CFPB could make use of this theory that a disparate impact is legally unfair.  If the CFPB is challenged on its authority to use disparate impact theory under ECOA, the CFPB may very well attempt to assert that the disparate impact theory of discrimination is also available under its UDAAP authority.  

In addition, in light of the current Acting Director’s statements focusing on racial equity, which we’ve recently written about, one could expect the CFPB to come out of the gate focusing on racial equity issues.  But ECOA has a limited scope that applies to credit transactions, not the entire consumer finance market.   The CFPB could use this UDAAP theory to reach what it sees as discrimination in non-credit consumer financial products and services, by alleging that a disparate impact in some aspect of the availability or pricing of those products is a UDAAP violation. 

It is not certain that such a theory would be successful, and it would raise very interesting legal issues.  But fighting the CFPB is an expensive proposition, and it also has other significant drawbacks for regulated entities, both reputational and with respect to their interactions with their other Federal and State regulators.  It will be interesting to see if the CFPB looks for early settlements based on this theory.

If you would like to discuss any of the issues in this blog post, please contact Richard Horn at rich@garrishorn.com.