LEGAL


Disregard of Due Process, Precedent Present Systemic Risk to U.S. Economy By Keith Thornburg, Vice President and General Counsel


Due process requires a notice, a hearing and an impartial decider. Due process promotes sound decisions that become precedent. Attorneys research and rely on precedent to advise clients, and they rely on constitutional guarantees of due process to protect clients. When the government acts with no checks on its power, denies due process and arbitrarily abandons precedent, “regulatory risk” increases.


Investopedia defines regulatory risk as “a change in laws and regulations (that) will materially impact a security, business, sector, or market.” It adds that “a change in laws or regulations made by the government or a regulatory body can increase the costs of operating a business, reduce the attractiveness of an investment, or change the competitive landscape in a given business sector. In extreme cases, such changes can destroy a company’s business model.”


Recent actions at the federal level present systemic risk to whole industries and the banking system.


CFPB Policy Statement Abusive Conduct in Consumer Financial Markets — On April 3, the Consumer Financial Protection Bureau issued its policy statement (consumerfinance. gov/compliance/supervisory-guidance/policy-statement-on- abusiveness/) defining “abusive conduct” (not by rule, thus no due process). Te agency finds abuse in part when a financial services provider seeks “advantage,” and this “advantage can include a variety of monetary and non-monetary benefits to the entity or its affiliates or partners, including but not limited to increased market share, revenue, cost savings, profits, reputational benefits, and other operational benefits to the entity.” Tus, longstanding precedent protecting property interests and due process are displaced by a policy statement.


Federal Disparate Impact Discrimination — On March 17, the U.S. Department of Housing and Urban Development announced the reinstatement of a 2013 “discriminatory effects” rule in the determination of “disparate impact” discrimination and published the new rule in the Federal Register. Te rule discounts a 2015 U.S. Supreme Court (precedent) decision (Texas Department of Housing v. Inclusive Communities) and bypasses three pending court cases that test the current rule (overriding due process). (hud.gov/sites/dfiles/FHEO/ documents/DE_Final_Rule_Fact_Sheet.pdf)


Federal Limitation of Severance Agreements — On Feb. 21, the National Labor Relations Board released a decision in McLaren v. Macomb that effectively bans nondisclosure and nondisparagement clauses in severance agreements. Te members of the NLRB overruled their law judge and prior agency precedent. On March 22, the NLRB general counsel issued a memo to all field offices reinforcing the NLRB’s change in policy and break from past precedent (nlrb.gov/ news-outreach/news-story/nlrb-general-counsel-issues-memo- with-guidance-to-regions-on-severance). Tis follows an Aug. 12, 2021, memo (nlrb.gov/news-outreach/news-story/general- counsel-jennifer-abruzzo-releases-memorandum-presenting-issue) noting recent reversal of precedent and targeting 11 prior cases for “doctrinal shiſts” (break with past precedent), as well as seven subject areas for further study.


Federal Ban of Noncompete Agreements — On Jan. 5, the Federal Trade Commission issued a proposed rule to ban noncompete agreements (ſtc.gov/news-events/news/ press-releases/2023/01/ſtc-proposes-rule-ban-noncompete- clauses-which-hurt-workers-harm-competition). Te rule would preempt all 50 state codes and state common law for noncompete agreements (precedent). Te proposed rule has very few carve outs, and even the carve outs present legal risk as the agency reserves subjective power to review any agreement.


Federal Extension of UDAAP to Discrimination Claims — On March 16, 2022, the CFPB circumvented the rulemaking process completely by redefining UDAAP (unfair and deceptive practices) in its examination manual (consumerfinance.gov/about-us/newsroom/cfpb-targets- unfair-discrimination-in-consumer-finance/) to include discrimination in housing and fair lending in disregard to express anti-discrimination laws enacted by Congress. Te American Bankers Association has joined with other plaintiffs to challenge the CFPB in an action brought in the U.S. 5th Circuit Court of Appeals in Texas.


In summary, the unprecedented disregard by federal agencies for due process and precedent increase regulatory risk and pose systemic risk to the American economy.


THE MISSOURI BANKER 9


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