Banks fight for the right to discriminate

NY Daily News…

By Jeff Sovern | New York Daily News | 


You might not expect that in the year 2022, businesses would go to court asserting a right to discriminate. Yet that is essentially what the Chamber of Commerce and various banking groups did last month when they sued the Consumer Financial Protection Bureau.

The Chamber argues that the CFPB is breaking the law by checking if financial institutions discriminate when they decide whether to allow them to open checking accounts. Under the Chamber’s approach, it appears that the Bureau could not do anything if, for example, a bank told customers that it would not open checking accounts for people of their race.

But the federal laws prohibiting lending discrimination don’t apply when a bank turns down someone who wishes only to open a checking account. So when the Bureau wants to block discrimination in that context, it is forced to use other powers Congress has given it, and that’s where the disagreement arises.

Congress gave the Bureau authority to prevent financial institutions from engaging in unfair practices that cause substantial injury to consumers, that can’t reasonably be avoided by consumers, and that aren’t outweighed by countervailing benefits to consumers or competition. I would have thought all that describes the effects of discrimination extremely well. In addition, Congress also allows the Bureau to consider established public policies in deciding if conduct is unfair, and few public policies are so well established as the ones opposing odious discrimination.

But the Chamber sees it differently. It argues that discrimination cannot be unfair because of the way the Dodd-Frank Act — the law that created the Bureau — is written. For example, the Chamber says, the definition of unfairness does not use the word “discrimination” even though the statute mentions discrimination elsewhere. But neither does the definition mention opening of unauthorized accounts, and yet no one claimed that the Bureau lacked the power to pursue Wells Fargo when it opened millions of unauthorized accounts.

Put another way, the Chamber seemingly claims the CFPB is powerless to stop financial institutions from engaging in discrimination, except for the situations, like lending, in which Congress passed a law explicitly targeting discrimination. In doing so, the Chamber simply ignores Congress’s definition of unfairness.

The Chamber and the bank trade groups also say that the Bureau can’t use its unfairness power to go after financial institutions that discriminate until it issues a formal regulation saying discrimination is unfair (not that the Chamber is likely to support such a regulation). But that would take years, years during which banks could continue to discriminate. If during those years, the Republicans recapture the White House, they could derail such a regulation, exactly as they did to the payday lending rule when they took over the CFPB after it had been led by the Obama-nominated Richard Cordray. And at the end of the day, do we really need a regulation to tell us that discrimination is unfair?

At the same time the banking groups argue that they should be free from consequences for discrimination, individual banks proclaim their commitment to diversity. Thus, JPMorgan Chase says it does not tolerate discrimination against customers while Citibank says it will work to “increase representation of people of color on Citi accounts.” The lawsuit undermines these claims.

Members of the Chamber of Commerce should call upon the group to do the right thing. And the Chamber should think harder about whether it wants to stand up to prejudice — or brazenly defend it.

Sovern is a professor at St. John’s University School of Law, where he has taught and written about consumer law for 35 years.