Feds sued over loosened credit anti-discrimination regulations

WASHINGTON (CN) — A group of fair housing advocates sued the Consumer Financial Protection Bureau on Wednesday, challenging the agency’s recent rule that would dismantle core provisions of the Equal Credit Opportunity Act.

The National Fair Housing Alliance, joined by RISE Economy, BLDS LLC and SolasAI, filed the 73-page lawsuit in the U.S. District Court for the District of Columbia and argue the agency is wrongly turning from longstanding interpretation and enforcement of key provisions and will increase credit discrimination.

Skye Perryman, President and CEO of Democracy Forward, who is representing the coalition, slammed the CFPB’s proposed rule as it “abandoning its mission to protect consumers” in a statement.

“This rule undermines one of the nation’s core civil rights protections in lending and will lead to more discrimination in access to credit,” Perryman said. “At a time when communities across the country continue to face barriers to homeownership, small business lending and economic opportunity, the CFPB should be strengthening protections against discrimination, not dismantling them.”

The coalition is asking a federal judge to declare the final rule arbitrary and capricious and vacate it as unlawful.

According to the coalition, the final rule proposes three types of changes.

First, the rule asserts the statute does not cover disparate-impact liability — liability for practices that look neutral on their face but disproportionately harm individuals based on their protected class status.

Second, the rule severely narrows existing prohibitions against discrimination that would discourage applicants from applying for credit. Specifically, it lifts a court or jury’s responsibility to determine whether certain facially innocuous statements indicate discriminatory intent, effectively allowing creditors to exclude consumers from applying and immunizing practices like “redlining” minority neighborhoods.

Third, the rule eliminates for-profit institution’s statutory right to offer Special Purpose Credit Programs meant to expand access to credit for historically disadvantaged groups.

“The final rule is arbitrary and capricious by any measure,” the coalition argues. “To start, the CFPB failed to identify any concrete problem with the current regulatory regime. The CFPB relied on conclusory assertions and speculation, not evidence, to justify its dramatic departure from decades of settled ECOA implementation. The CFPB’s approach is at odds with the available evidence: As commenters to the proposed rule made clear, public data and research — much of it from the CFPB itself — show that the final rule is ill-conceived and likely to harm covered entities and consumers alike.”

Congress passed the statute in 1974, pushed for by former Massachusetts Republican Representative Margaret Heckler to ensure women could obtain access to credit cards.

According to the coalition, the CFPB’s cost-benefit analysis itself is arbitrary and capricious, as the agency wrongfully relied on unsupported generalizations and assumptions while also ignoring the clear costs the rule would have on covered entities, consumers and small businesses.

“The CFPB’s simplistic references to general principles of economic theory, free-floating hypotheses about potential outcomes and disregard of hard facts are not actual ‘analysis’ and, thus, do not satisfy the requirements of the Dodd-Frank Act,” the coalition argues.

President Trump has severely gutted the CFPB since returning to the White House, moving to terminate all but 200 employees after an initial attempt to shutter the agency entirely was halted by the DC Circuit.

The full appeals court is actively considering an appeal by the National Treasury Employees Union who challenged a decision by a prior panel, dominated by Trump appointees, who found the union and its nearly 1,500 employees should have brought their wrongful termination claims before the Merit Standards Protection Board.

At oral arguments on Feb. 24, the court seemed unlikely to allow the Trump administration to fully shut the agency down, with U.S. Circuit Judge Patricia Millett noting the government’s active effort to prevent the protections board from hearing challenges to Reduction in Force orders, which the administration has used repeatedly.

The CFPB did not respond to a request for comment.

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