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Financial Services Law Insights and Observations


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  • District Court blocks student loan forgiveness program


    On November 10, the U.S. District Court for the Northern District of Texas ruled that the Biden administration’s $400 billion student loan forgiveness program under the HEROES Act of 2003 is “an unconstitutional exercise of Congress’s legislative power.” As previously covered by InfoBytes, the three-part debt relief plan was announced in August to provide, among other things, up to $20,000 in debt cancellation to Pell Grant recipients with loans held by the Department of Education (DOE) and up to $10,000 in debt cancellation to non-Pell Grant recipients for borrowers making less than $125,000 a year or less than $250,000 for married couples. Plaintiffs, whose loans are ineligible for debt forgiveness under the program, sued the DOE and the DOE secretary claiming the agency violated the Administrative Procedure Act’s (APA) notice-and-comment rulemaking procedures and arbitrarily decided the program’s eligibility criteria. Plaintiffs further contended that the DOE secretary does not have the authority under the HEROES Act to implement the program. Defendants countered that the plaintiffs lacked standing.

    The court entered summary judgment in favor of the plaintiffs (rather than granting preliminary injunctive relief as requested) after determining it was appropriate to proceed to the merits of the case. Concerning defendants’ assertion regarding lack of standing to challenge the DOE’s program because it is conferring a benefit and therefore “nobody is harmed by the existence of that benefit,” (as the court characterized defendants’ argument), the court ruled that the U.S. Supreme Court has actually “recognized that a plaintiff has standing to challenge a government benefit in many cases.” The court next reviewed whether plaintiffs suffered a concrete injury based on the denial of their procedural rights under the APA by not being afforded the opportunity to provide meaningful input to protect their concrete interests. While the HEROES Act expressly exempts the APA’s notice-and-comment obligations, the court stressed that the HEROES Act “does not provide the executive branch clear congressional authorization to create a $400 billion student loan forgiveness program,” and, moreover, does not mention loan forgiveness. “If Congress provided clear congressional authorization for $400 billion in student loan forgiveness via the HEROES Act, it would have mentioned loan forgiveness,” the court wrote. Shortly after the ruling was issued, the DOJ filed a notice of appeal on behalf of the DOE with the U.S. Court of Appeals for the Fifth Circuit. Secretary of Education Miguel Cardona released a statement following the ruling expressing disappointment in the decision.

    Courts Student Lending Department of Education Administrative Procedure Act HEROES Act Consumer Finance

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  • Trade groups object to CFPB’s revised UDAAP exam manual


    On September 28, seven banking industry groups sued the CFPB and Director Rohit Chopra claiming the agency exceeded its statutory authority when it released significant revisions to the UDAAP exam manual in March, which included making clear its view that any type of discrimination in connection with a consumer financial product or service could be an “unfair” practice. (Covered by a Buckley Special Alert.) At the time of issuance, the Bureau emphasized that its broad authority under UDAAP allows it to address discriminatory conduct in the offering of any financial product or service.

    Plaintiff trade groups argued in their complaint filed in the U.S. District Court for the Eastern District of Texas that the Bureau violated its authority outlined in the Dodd-Frank Act by claiming it can examine entities for alleged discriminatory conduct under its UDAAP authority. They contended that “the CFPB cannot regulate discrimination under its UDAAP authority at all because Congress declined to give the CFPB authority to enforce anti-discrimination principles except in specific circumstances,” and that, moreover, the Bureau’s “statutory authorities consistently treat ‘unfairness’ and ‘discrimination’ as distinct concepts.” While the trade groups said they “fully support the fair enforcement of nondiscrimination laws,” they emphasized that they “cannot stand by while a federal agency exceeds its statutory authority, creates regulatory uncertainty, and imposes costly burdens on the business community.”

    The trade groups' suit also claimed that the Bureau violated the Administrative Procedure Act by failing to go through the proper notice-and-comment process when amending the Supervision and Examination Manual. Calling the manual updates “arbitrary” and “capricious,” the trade groups claimed the changes failed to consider the Bureau’s prior position on UDAAP authority and “did not grapple with Congress’s decision to narrowly define the FTC’s unfairness authority to screen out the same kind of power that the CFPB is now claiming for itself.” The complaint also called into question the Bureau’s funding structure, arguing that because the structure violates the Appropriations Clause it should be declared unconstitutional and the exam manual updates set aside.

    A statement released by the U.S. Chamber of Commerce, one of the trade group plaintiffs bringing the law suit, says the Bureau “is operating beyond its statutory authority and in the process creating legal uncertainty that will result in fewer financial products available to consumers.” U.S. Chamber Executive Vice President and Chief Policy Officer Neil Bradley added that the “CFPB is pursuing an ideological agenda that goes well beyond what is authorized by law and the Chamber will not hesitate to hold them accountable.”

    Courts CFPB Examination Supervision UDAAP Dodd-Frank Discrimination Administrative Procedure Act

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  • District Court criticizes CFPB’s cost-benefit analysis in HMDA change


    On September 23, the U.S. District Court for the District of Columbia granted partial summary judgment to a group of consumer fair housing associations (collectively, “plaintiffs”) that challenged changes made in 2020 that permanently raised coverage thresholds for collecting and reporting data about closed-end mortgage loans and open-end lines of credit under HMDA. As previously covered by InfoBytes, the 2020 Rule, which amended Regulation C, permanently increased the reporting threshold from the origination of at least 25 closed-end mortgage loans in each of the two preceding calendar years to 100, and permanently increased the threshold for collecting and reporting data about open-end lines of credit from the origination of 100 lines of credit in each of the two preceding calendar years to 200. The plaintiffs sued the CFPB in 2020, arguing, among other things, that the final rule “exempts about 40 percent of depository institutions that were previously required to report” and undermines HMDA’s purpose by allowing potential violations of fair lending laws to go undetected. (Covered by InfoBytes here.) The plaintiffs also claimed that the agency’s cost-benefit analysis underlying the 2020 Rule was “flawed because the Bureau exaggerated the ‘benefits’ of increasing the loan-volume reporting thresholds by failing to adequately account for comments suggesting that the savings would be much smaller than estimated, and by relying on overinflated estimates of cost savings to newly-exempted lending institutions with smaller loan volumes.” The plaintiffs asked that the 2020 Rule be vacated and set aside on the grounds that the Bureau acted outside of its statutory authority in issuing the 2020 Rule and violated the Administrative Procedure Act. The Bureau countered that issuing the 2020 Rule was within its scope of authority because HMDA’s text “does not unambiguously foreclose” the agency’s interpretation of the statute.

    The court first determined that promulgation of the 2020 Rule did not exceed the Bureau’s statutory authority because “HMDA grants broad discretion ‘in the judgment of the’ agency to create ‘exceptions’ to the statutory reporting requirements…” “[E]ven a regulation relieving roughly forty percent of institutions from data collection and reporting requirements is an exception to the ‘rule’ of disclosure, which continues to apply to the majority of institutions,” the court wrote, adding that the 2020 Rule preserves the reporting requirements, “as compared to the 2015 Rule, for most institutions, the vast majority of loans, and the vast majority of communities.”

    However, the court agreed with the plaintiffs that the cost-benefit analysis for the 2020 Rule’s increased reporting threshold for closed-end mortgage loans was arbitrary and capricious. The court expressed criticism of the cost-benefit analysis used by the Bureau to justify setting the minimum number of closed-end loans in each of the two preceding calendar years at 100, and found that the Bureau failed to adequately explain or support its rationales for revising and adopting the closed-end reporting thresholds under the 2020 Rule. The Bureau “conceded the new rule would cause identifiable harms to the public, but effectively threw up its proverbial hands, citing an inability to incorporate these harms into its analysis as quantifiable ‘costs,’ and moved on to the next topic of discussion,” the court said.

    The Bureau “exaggerated the savings to ‘covered persons’ under the new rule, and did not engage appropriately with the nonquantifiable ‘harms’ of the 2020 Rule, and the disparate impact of those harms on the traditionally underserved populations HMDA is intended to protect, even as it conceded the revised threshold would certainly result in some harm to consumers,” the court said, questioning the Bureau’s analysis of disparate impacts on rural and low-to-moderate-income communities. The court determined that the plaintiffs identified several flaws in the Bureau’s cost-benefit analysis supporting the increased closed-end mortgage loan threshold, thus rendering this aspect of the 2020 Rule “arbitrary, capricious and requiring vacatur.” The court asked the Bureau for a “more reasoned explanation as to whether and how the cost-benefit analysis accounted for the ongoing need to collect data on home mortgages pursuant to other statutory requirements and underwriting purposes, and why, when a lender must collect and report multiple data points for each mortgage and loan application, the marginal cost of collecting the additional, HMDA-specific data points is so significant that the increased reporting threshold of the 2020 Rule renders unique cost savings.”

    Courts HMDA Mortgages CFPB Fair Lending Administrative Procedure Act Regulation C

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  • Ranking House members seek information from the CFPB

    Federal Issues

    On September 20, House Financial Services Committee Ranking Member Patrick McHenry (R-NC) and House Oversight and Reform Committee Ranking Member James Comer (R-KY) sent a letter to CFPB Director Rohit Chopra asking him to provide information to Congress regarding the authorities delegated to the Bureau that justify its current and upcoming regulatory actions. According to the letter, McHenry and Comer point to the U.S. Supreme Court’s decision in West Virginia vs. EPA, which “invoked the ‘major questions doctrine’ to reject an attempt by the EPA to exceed its statutory authority.” The letter further explained that “[u]nder this doctrine, an agency must point to ‘clear congressional authorization for the authority it claims.’” The EPA could not identify such an authorization, according to McHenry and Comer, and the court further rejected the EPA’s attempt to exceed its statutory authority. The letter stated that “clear delegation of authority contemplated by the Court is not limited to just rulemaking but extends to other agency actions.” McHenry and Comer proceeded to list director-driven “initiatives” that they claim, “circumvent not only Congressional intent, but the Administrative Procedure Act.” They further requested that the Bureau provide a list of all actions that CFPB intends to take during the remainder of 2022, and “[a] list of all expected actions, including but not limited to major rulemaking, staff guidance, advisory opinions, interpretive rules, and the specific Congressional authority for each rulemaking,” by September 30. McHenry and Comer concluded the letter by noting that both committees intend to exercise “robust investigative and legislative powers,” and seek to assert Congress’ Article I responsibilities to ensure that neither the director nor the Biden administration “continue to exceed Congressional authorizations.”

    Federal Issues CFPB U.S. House Administrative Procedure Act House Financial Services Committee

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