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.
Read more from the Revolving Door Project
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 lending practices like redlining or denying loans to creditworthy marginalized people. 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.”
It doesn’t take much work to find Jim Crow–era legal thinking in the Chamber of Commerce’s reasoning.
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.