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In April the Consumer Financial Protection Bureau issued a statement that it was adopting the "disparate impact" concept in its enforcement of the anti-discrimination provisions of the Equal Credit Opportunity Act. It is doing so in a manner consistent with an Interagency Policy Statement issued in 1994 by the Department of Justice and other federal agencies involved with the enforcement of fair lending laws.
June 5 -
The Consumer Financial Protection Bureau said it plans to follow the Justice Department's lead in pursuing fair lending violations when a policy has a disparate impact on a group of borrowers, unintentional or not.
April 18 -
The Justice Department's latest fair lending report shows the agency has no signs of slowing its enforcement activity, which peaked in 2011 with the help of banking regulators.
March 30
The American Bankers Association recently called upon bank regulators to stop using the "disparate impact" doctrine in their fair lending examination process. We believe removing this critical tool from regulators' tool boxes would significantly hamper their ability to foster a more just financial marketplace.
The disparate impact doctrine argues a policy or practice can be considered discriminatory against protected classes if the policy or practice has a greater, undue effect on a protected class than it does on other groups, even if intent to discriminate cannot be proven. In the realm of housing, 11 federal appellate courts have ruled disparate impact can be used to determine violations of the Fair Housing Act. The Equal Credit Opportunity Act includes a disparate impact theory of liability, which the Consumer Financial Protection Bureau has vowed to uphold.
Disparate impact doctrine is a vital tool for regulators because, in a society where blatant expressions of discrimination are largely considered to be unacceptable, discrimination often takes on subtler and more insidious forms. It is important to have a regulatory structure that is vigilant against all forms of discrimination, not simply the most egregious manifestations.
What the ABA is suggesting is that federal fair lending enforcement should be limited to cases where a lender openly admits it intended to discriminate against a potential borrower because, for example, of his or her race or because he or she has a disability. Since it is unlikely any lender is going to make that kind of statement on the record, requiring such blatant evidence would severely impair fair lending enforcement.
The disparate impact doctrine allows regulators to hold financial institutions accountable for creating an environment that results in diminished opportunities for people in protected classes to access capital and build wealth. Disparate impact analysis has a long and distinguished history within the legal profession and has resulted in important gains for people of color, people with disabilities and other protected classes who have suffered from financial practices that create an unfair playing field.
Our research at Woodstock Institute has consistently shown how certain financial policies and practices disproportionately limit opportunities for protected classes to access capital and build wealth. We documented the practice of loan servicers initiating foreclosure then deciding not to complete the process and take ownership of the properties. This practice of walking away from foreclosure often results in severe deterioration of the properties that lowers property values and attracts violent crime. Our report showed highly African-American communities had 11 times more homes where the servicer had likely walked away mid-foreclosure than white communities had, disproportionately destroying wealth in African- American communities.
Similarly, a series of reports produced in collaboration with six other community organizations across the country documented how mortgage lending policies and practices often result in African-American and Latino mortgage borrowers paying more to buy or refinance a home than do white mortgage borrowers. The research showed borrowers of color were much more likely to receive subprime loans than were white borrowers. It also showed prime refinance lending dropped precipitously in communities of color at the same time it increased in white communities and that FHA and VA loans are virtually alone in serving communities and borrowers of color. Lack of access to safe and sustainable mortgage products reduces prospects of building neighborhood wealth.
In the wake of agreements settling claims of discrimination and steering by Wells Fargo, Bank of America and SunTrust, it is clear disparate impact continues to be a relevant and necessary policy tool for ensuring people of color, people with disabilities and others have equitable access to financial opportunities. Woodstock Institute encourages regulators to continue to take into account whether policies and practices employed by financial institutions disparately limit these opportunities.
Dory Rand is president of the Woodstock Institute, a non-profit research and policy organization.
