As we previously reported, on August 7, 2025, President Trump issued an Executive Order (the "EO") titled "Guaranteeing Fair Banking for All Americans" which, among other things, seeks to prohibit depository institutions and other companies from discriminating against potential and existing customers of any and all banking and other consumer financial services products and services (not just loans or extensions of credit) based on their political or religious beliefs or their conducting businesses as long as they are lawful.
While the Equal Credit Opportunity Act ("ECOA") prohibits discrimination based on religion (and other grounds which are not germane to the EO) in connection with applications for loans and other extensions of credit (but not other products and services), it does not apply to discrimination based on political beliefs or the nature of the business in which the customer or proposed customer is involved. The EO boldly states that the statutory bases for prohibiting that type of discrimination and for prohibiting discrimination based on religion with respect to non-credit products (e.g., deposits) are the "unfairness" prongs of the UDAAP provision in the Dodd-Frank Act and Section 5 of the Federal Trade Commission Act (the UDAP provision).
Whoa! That's not so clear at all!
In March 2022, the CFPB amended the UDAAP section of its Exam Manual to encompass discriminatory conduct by banks and other companies supervised by the CFPB in connection with the offering and provision of all products and services, even where fair lending laws may not apply. Specifically, the CFPB directed its examiners to apply the "unfairness" standard under the Consumer Financial Protection Act (CFPA) to conduct considered to be discriminatory, whether or not covered by the ECOA (such as in connection with denying access to a checking account or payment services). Under the CFPA, an act or practice is "unfair" if (1) it causes or is likely to cause substantial injury to consumers, (2) the injury is not reasonably avoidable by consumers, and (3) the injury is not outweighed by countervailing benefits to consumers or competition.
In its press release accompanying the changes to the Exam Manual, the CFPB stated:
The CFPB will examine for discrimination in all consumer finance markets, including credit, servicing, collections, consumer reporting, payments, remittances, and deposits. CFPB examiners will require supervised companies to show their processes for assessing risks and discriminatory outcomes, including documentation of customer demographics and the impact of products and fees on different demographic groups. CFPB examiners will look at how companies test and monitor their decision-making processes for unfair discrimination, as well as discrimination under ECOA.
After failing in their attempt to get the CFPB to withdraw the amendments to the Exam Manual, the Chamber of Commerce and other trade associations sued the CFPB in Federal District Court in Alabama seeking injunctive relief and an order vacating and setting aside the amendments to the Exam Manual.
On September 8, 2023, the Court granted summary judgment in favor of the trade associations.
The Court observed that "'the words of a statute must be read in their context and with a view to their place in the overall statutory scheme.' That inquiry is 'shaped, at least in some measure, by the nature of the question presented'—here, whether Congress meant to confer the power the agency asserts. Even if an agency's 'regulatory assertions had a colorable textual basis,' a court must consider 'common sense as to the manner' in which Congress would likely delegate the power claimed in light of the law's history, the breadth of the regulatory assertion, and the economic and political significance of the assertion." [Footnotes omitted]
Based on these principles of statutory construction, the Court relied upon the "major questions doctrine" to reach its decision that the unfairness prong of UDAAP does not cover discrimination.
The major questions doctrine is a principle of statutory construction which states that courts will presume that Congress does not delegate to executive agencies issues of major political or economic significance. The "major questions doctrine" is derived from the Supreme Court opinion in FDA v. Brown & Williamson Tobacco Corp. (2000): "[W]e must be guided to a degree by common sense as to the manner in which Congress is likely to delegate a policy decision of such economic and political magnitude to an administrative agency." It was relied upon in a recent Supreme Court opinion in State of West VA v. Environmental Protection Agency where the Court "recognize[d] that sweeping grants of regulatory authority are rarely accomplished through 'vague terms' or 'subtle device[s].' Courts must 'presume that Congress intends to make major policy decisions itself, not leave those decisions to agencies.' If that major questions canon applies, 'something more than a merely plausible textual basis for the agency action is necessary. The agency instead must point to clear congressional authorization for the power it claims." The doctrine was also relied upon in Biden v. Nebraska where the Court likewise recognized that "the economic and political significance [of the agency's forgiveness of federal student loans] is staggering by any measure" and that "the basic and consequential tradeoffs" that are necessarily part of the action "are ones that Congress likely would have intended for itself."
The Court had no difficulty identifying the "major question" here. "The choice whether the CFPB has authority to police the financial-services industry for discrimination against any group that the agency deems protected, or for lack of introspection about statistical disparities concerning any such group, is a question of major economic and political significance." The economic impact was demonstrated by the substantial sums of money ("millions of dollars per year") spent by companies on compliance. The political implications included the impact on state and federal powers, since the CFPB would be overriding state decisions on discrimination issues, as well as the "profound" implications regarding the scope of federal power with regard to protected classes, prohibited outcomes, and defenses to claims of misconduct.
Against that backdrop, the Court found nothing in the Dodd-Frank Act to support the CFPB's position. The Court agreed with the plaintiffs that discrimination and unfairness are treated as distinct concepts in the Act, noting, for example, the creation of a CFPB office devoted to "fair, equitable and nondiscriminatory access to credit" which references the Equal Credit Opportunity Act but makes no mention of unfairness and the statutory definition of unfairness which fails to mention discrimination. Looking to the text, structure of the Dodd-Frank Act, and the historical gloss on unfairness, the Court held that "the Dodd-Frank Act's language authorizing the CFPB to regulate unfair acts or practices is not the sort of 'exceedingly clear language' that the major questions doctrine demands ...."
The CFPB appealed the judgment against it to the Fifth Circuit. However, shortly after the leadership of the CFPB changed under the Trump administration, the CFPB dropped the appeal. While this judgment doesn't apply to the FTC or the federal banking agencies, the logic of the opinion applies to Section 5 of the FTC Act which is the other statute that Trump relies upon in his EO.
Trump's EO is on even shakier ground today because, after the District Court issued its opinion in September 2023, the Supreme Court overruled the Chevron case and, as a result, courts should give no deference to Trump's interpretation (or any agency's interpretation acting at the direction of Trump) of the CFPB's UDAAP authority and Section 5 of the FTC Act as authorizing the EO.
The only way that the Trump Administration can lift the cloud of uncertainty hanging over the legality of the EO is for Congress to enact legislation essentially codifying the EO. Bills are already pending which would accomplish exactly that result. However, it is uncertain whether the Senate will be able to muster 60 votes in favor of passage of either bill.
Based on the Trump administration's track record of not adhering to laws that are much more clear than the EO, I would not expect Trump to repeal the EO based on the possible lack of statutory authority. That being the case, we are encouraging our clients to conduct a thorough review of their policies and procedures and adverse actions taken by them in response to applications and requests for their services and products. That review should also include adverse actions taken with respect to existing customers.
Putting aside the legal uncertainty as to whether there is statutory authority for the EO, there are other important questions raised by the EO as to whether it is sound policy. There is also uncertainty as to precisely what adverse actions it covers. For example, what constitutes a "lawful business?" Often, there are grey areas in determining whether a business is "lawful." In order to ascertain whether a business is lawful, it will often be necessary to conduct extensive due diligence in areas where the bank or company lacks expertise (think crypto). In such a situation, must the bank or company hire expensive outside experts to conduct such reviews. Who will pay for these expenses? Must a review be done of federal law and the laws of all states where the potential client conducts business? Is the business still a "lawful" business if it lacks an appropriate license in one or more states or if it is violating a federal or state consumer protection requirement? And, bear in mind that the EO applies to businesses of all sizes. Hopefully, the Secretary of the Treasury will answer some or all of these questions.
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