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Disparate Impact Rule Works, Critics Notwithstanding


(1) Comment



Comments (1)
An issue overlooked by proponents and opponents of the application of the disparate impact theory to fair housing/fair lending issues (and many other issues as well) is highlighted by the final rule's requirement that even when a covered entity is able to provide a sound business justification for a practice causing a disparate impact on a protected group, the entity will still be held liable if there exists a less discriminatory alternative to the challenged practice. Though very few people understand the matter, typically practices that would be deemed less discriminatory alternatives to those causing a disparate impact, while reducing relative differences in rates of experiencing favorable outcomes, will tend to increase the relative differences in adverse outcomes on which regulators continue to focus on the latter to measure compliance, .

A fairly succinct explanation of this pattern may be found in my recent article in the American Statistical Association membership magazine:

"Misunderstanding of Statistics Leads to Misguided Law Enforcement Policies," Amstat News, Dec. 2012:

A shorter explanation may be found in this BankThink item from last year:

"'Disparate Impact': Regulators Need a Lesson in Statistics" (American Banker, June 5, 2012:

Many other discussions of this matter in American Banker and elsewhere going back to 1992 may be found here:

An illustration of the issue that is particularly pertinent to the lending context is found in credit score data from a putative class action, which show how lowering a credit score requirement, while reducing relative differences in satisfying the requirement, will tend to increase relative differences in failing to satisfy it:
Posted by JPScanlan | Friday, February 22 2013 at 1:18PM ET
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