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Op-Ed | The American Prospect | October 7, 2022

How Banks Are Defending Their Right To Discriminate

How Banks Are Defending Their Right To Discriminate

This article first appeared in The American Prospect. Click here to read on the original site.

On May 25, 2020, police officer Derek Chauvin murdered Minnesota resident George Floyd on video. Nationwide demonstrations sparked what may have been the largest protest movement in American history and a global movement against racist policing. Less than a week after Floyd’s death, Wall Street CEOs told CNBC that they would fight systemic racism at their own firms.

JPMorgan Chase CEO Jamie Dimon said Floyd’s murder “strengthens our resolve to do more as individuals, as a firm, and in our communities.” Wells Fargo’s Charlie Scharf said, “Our company will do all we can to support our diverse communities.” Chief executives at Goldman Sachs and Bank of America echoed the comments.

Each of these men pledged to fight racism within their own banks. And all of their firms are members of trade groups like the U.S. Chamber of Commerce, the American Bankers Association, and the Consumer Bankers Association, which last week jointly sued in federal court to defend their members’ rights to discriminate—often along racial lines.

Chamber of Commerce v. Consumer Financial Protection Bureau (CFPB) is the latest battle in Wall Street’s long legal war to destroy the CFPB, the government’s watchdog against cheap tricks and consumer abuses in lending. The slew of trade groups bringing the case say the CFPB was wildly out of line when, in March, the agency decided to take it as a given that discrimination is an “unfair, deceptive, or abusive act or practice” (UDAAP). Now, the bank representatives are using the lawsuit as an opportunity to claim the CFPB itself is unconstitutional and should be defunded.

To any normal person, the idea that discrimination might not be “unfair, deceptive, or abusive” is ridiculous. But corporate lawyers have built a case based on the CFPB’s decision to update its examination manual—the guide for CFPB employees on firm oversight—to include discriminatory practices like denying marginalized people the ability to open accounts. The CFPB said it could take action here because consumers are protected against UDAAP under the 2010 Dodd-Frank Act. The CFPB claims that discrimination falls under one or all of those adjectives.

But the CFPB did not go through a formal rulemaking process to alert the world it was planning to start examining for discrimination. In a blog post accompanying the update, the CFPB just said it would “continue to scrutinize” these practices, implying that it has been examining for discriminatory conduct for some time already.

A formal rulemaking would have been more time-consuming. The CFPB instead took it as self-evident that denying someone credit due to bigotry is “unfair, deceptive, or abusive,” and appended the words “including discrimination” to their normal UDAAP instructions in the examination manual.

That move, banking trade groups now allege, was “arbitrary and capricious.” Tragically, they contend, it leaves banks with “no choice but to update their UDAAP compliance policies and programs, at significant cost.”

To be clear: The harm alleged is that banks will have to spend money and time ensuring they aren’t being discriminatory. They should have been doing that anyway, and it is what they would end up having to do if the CFPB had gone through a rulemaking.

The trade groups insist that they don’t want member banks to have bigoted practices either, but say they “cannot stand by while a federal agency exceeds its statutory authority, creates regulatory uncertainty, and imposes costly burdens.” Nobody wants racist outcomes, you see, but this case is about something far more important than whether people are denied loans. That something is dull administrative procedure.

Using pedantic legal minutiae to justify discrimination should sound familiar to anyone who has studied American racism in the neoliberal era. Historian Nancy MacLean documents in Democracy in Chains how James Buchanan, a public choice theory economist, invented a way of continuing de facto school segregation by separating students along class lines instead of explicit race lines. Economist Milton Friedman worked with open segregationists to try to achieve this, no matter what The Wall Street Journal falsely claims. Former Arizona Sen. Barry Goldwater claimed he didn’t personally support segregation, he just thought the all-white electorates of the Jim Crow states should decide for themselves whether to end their laws. Conservative intellectuals at National Review argued that integration and segregation laws were equally bad, since, they believed, racial justice was secondary to limited government.

It doesn’t take much work to find Jim Crow–era legal thinking in the Chamber of Commerce’s reasoning. The trade groups contend that it isn’t obvious that discrimination is an “unfair, deceptive, or abusive act or practice,” because the legal precedent that established UDAAP law never said so.

The CFPB inherited the UDAAP legal framework from the Federal Trade Commission (though the FTC statute doesn’t include the word “abusive”). According to the Chamber, when Congress wrote this law in 1938, it “codified a constrained definition of unfairness—that does not include discrimination—to limit the Commission’s ability to use unfairness to pursue unlimited public-policy goals.”

In 1938, much of the United States was an apartheid state. It was illegal for white and Black Americans to marry in many places. That year, the NAACP won a Supreme Court case to integrate the University of Missouri Law School, only for their plaintiff to suddenly disappear under still-unexplained circumstances shortly after the trial. Rosa Parks wouldn’t refuse to sit at the back of the bus, and the Warren Supreme Court wouldn’t begin to decide that “separate but equal” wasn’t equal, for another decade and a half.

So yes, in 1938 Congress did not consider discrimination to be “unfair.” Is that the standard to which we should return?

Make no mistake: This argument is dangerous. The trade groups sued in the Fifth Circuit, which is loaded with Trump-appointed judges who reinstated Texas’s six-week abortion ban and froze the Biden administration’s COVID-19 workplace safety regulations. If the case makes its way to the Supreme Court, bank groups could prevail: The Roberts Court has sided with the Chamber of Commerce in 70 percent of its cases.

A ruling against the CFPB could imperil more than just that agency. The trade groups are also trotting out an old argument that the CFPB is unconstitutional because the Dodd-Frank Congress decided that the CFPB receives its funding at preset levels from the Federal Reserve, not from the current Congress at whatever level Congress chooses. (This has nothing to do with anti-discrimination enforcement, so one wonders why it’s relevant besides that the plaintiffs want to destroy the CFPB.)

The CFPB’s fellow financial regulators at the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of Currency all receive funding the same way. Moreover, much of Medicare and Social Security is also funded outside of the annual congressional budgetary process. If the courts strike down the CFPB’s funding mechanism, that could put all of the other financial regulators at risk, and further threaten just about any automated government transfer spending—“entitlements,” in budgeting jargon.

The trade groups point to an opinion by Fifth Circuit Judge Edith Jones that differentiates the CFPB’s funding scheme from its peers. They claim they’re only after a narrow attack on the CFPB. But if the conservative legal movement succeeds at dismembering one agency, it’s unlikely to stop there.

Before she was a senator, Elizabeth Warren designed the CFPB’s funding structure to protect it from conservative members of Congress she knew would try to starve its funding, as they had earlier starved the Consumer Product Safety Commission. Subjecting the CFPB to the congressional budgeting process would force it into a deeply broken system with countless veto points for corrupt and conflicted actors. Note too that Congress hasn’t tried to pass a law modifying the CFPB’s funding mechanism. By leaving it up to the courts, Republican lawmakers could undercut the CFPB without having to launch an unpopular legislative attack on the agency.

This stealth attack is also part of the neoliberal playbook. The historian Quinn Slobodian has shown how some neoliberals designed government systems to require nearly impossible amounts of buy-in and coordination across multiple bureaucracies if the public ever wanted to constrain business. The goal was to maintain the trappings of democracy but make it practically infeasible to bend capitalism to democratic control.

Just two years after Wall Street executives named themselves allies in the fight against systemic racism, banking trade groups say a consumer regulator should be gutted for telling banks they should not discriminate.

Four days after he told CNBC in 2020 that he would fight racial inequities at JPMorgan Chase, Dimon walked into his local Chase branch and took a knee beside employees. He didn’t go to any protests or change JPMorgan’s political stances. He didn’t even explain what the photo meant—JPMorgan Chase refused to answer when the New York Post asked if he was signaling support for the protesters or not.

Wall Street’s anti-racism ends as soon as any talk about its own behavior begins. The suit against the CFPB is irrefutable proof.

PHOTO CREDIT: “Bank of America security trying to prevent me from taking a photo during the Iraq war protest” by Steve Rhodes is licensed under CC BY-NC-SA 2.0.

More articles by Max Moran

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