Disparate impact could make proving discrimination a numbers game

by MPA05 Jan 2015
The U.S. Supreme Court is set to hear oral arguments this month on whether disparate impact claims may be brought under the Fair Housing Act.  If the justices decide to uphold the rule, lending discrimination could be proved by looking at population data.

“In other words, the CFPB [Consumer Financial Protection Bureau] does not have to prove intent to discriminate,” wrote Rob Chrisman. “If your numbers don't line up with the population, you are guilty, no questions asked.”

In November 2014, a federal judge tossed out the Department of Housing and Urban Development’s (HUD) regulation, which was designed at making filing allegations of housing discrimination easier.

Judge Richard Leon of the D.C. Circuit Court called the Obama administration-issued rule an “another example of an administrative agency trying desperately to write into law that which Congress never intended to sanction.”

HUD finalized the controversial rule in February 2013 that stated discrimination could be proved using disparate impact, meaning looking at statistical analysis to see whether one demographic fares differently from another. The regulation is aimed at combating alleged discrimination by lenders, insurers, landlords and municipalities.

In the Texas Department of Housing and Community Affairs (TDHCA) vs. The Inclusive Communities Project case, plaintiffs claim the TDHCA denied tax credit applications in majority-white and majority-Hispanic neighborhoods. The mortgage industry argues that they should only be liable if they intend to discriminate.

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  • by Gordon Schlicke. | 1/5/2015 1:25:10 PM

    This could cripple mortgage lending. Imagine the need to statistically follow your lending pattern by SMSA and then be subject to re-interpretation by government pinheads. If your conclusion differs from the government's guess who wins? More expensive lawsuits. This Attorney General (and administration) has two more years to wreak havoc. We can hope the court will not allow this numbers game to be played against us. An adverse decision could lead to tracking mortgage volume in specific tracts and then cutting off mortgages by geographic area. A suit against you for redlining wouldn't take long. You lose either way. I hope someone in the industry will file a amicus brief and alert the non-lberal judges of what really happens out here.

  • by Daniel Lauber, AICP | 1/5/2015 2:20:28 PM

    Having dealt with these issues both as a city planner and as an attorney for years, I must respectfully point out that both the article and Mr. Shlicke are more than a bit misleading and leave out key information. First, the new rule on affirmatively furthering fair housing (AFFH) did not create disparate impact analysis. The courts have correctly been applying disparate impact analysis to fair housing cases for about 40 years and all but one of the 11 federal circuits have embraced the concept. The AFFH rule clarifies the steps to be taken in a disparate impact analysis -- key steps of which the article leaves out. Once a plaintiff proves to a court's satisfaction that the challenged practice, action, rule, or law does produce a greater adverse impact on a class protected under the Fair Housing Act, the defendant can still prevail if it can prove that the challenged practice, etc. is the least drastic means necessary to achieve a legitimate business need or legitimate government purpose. This is pretty much the way this sort of legal analysis works under other anti-discrimination statutes -- and it has worked fairly for decades. The lending industry has nothing to fear from disparate impact analysis - unless the industry wishes to discriminate against a protected class.

    I've conducted a number of Analyses of Impediments to Fair Housing which include a detailed examination of Home Mortgage Disclosure Act data (HMDA) for the city or county and the surrounding region. Much to my disappointment, the data has always shown that African Americans with the same mortgage qualifications as Caucasians are denied a mortgage mortgage (conventional and FHA, VA, etc.) much more often than Caucasian applicants. It's almost as bad a situation for Latino mortgage applicants as for Black applicants. The data show again and again that lenders collectively engage in widespread discrimination against African Americans and Hispanics -- discrimination for which there is no excuse.

    History has shown that Mr. Schlicke's fears are unfounded. Disparate impact analysis has never led to the result he has conjured up in his imagination. Meanwhile, far too many qualified African American and Hispanic mortgage applicants are being denied mortgages for which they are qualified, solely due to their race or ethnicity. There's no excuse for these practices to continue -- and if the U.S. Supreme Court chooses to ignore 40 years of precedent and the views of 10 of 11 federal circuits, then the doors to even more widespread discrimination will be opened even wider. But given the radical right's ongoing effort to eviscerate anti-discrimination laws, I fear the Court will ignore precedent and produce yet another politically ideological ruling.

    I do have to ask, what is possibly good about allowing lenders to deny mortgages based on the applicant's race, ethnicity, gender, familial status, disability, national origin, or religion? Seriously, what is possibly right about that?

  • by Steve Dane | 1/5/2015 3:05:20 PM

    Lenders are subject to disparate impact analysis regardless of what the Supreme Court will rule in the ICP case, which is limited to an interpretation of the Fair Housing Act. The Equal Credit Opportunity Act, which is not even before the Court, prohibits lending behavior with a discriminatory effect. 12 CFR 202.6. This regulation has been in effect and enforced by federal regulators for 30 years, without negative consequence to the lending industry.

    Also, contrary to the quote in this report, a statistical imbalance is not enough to prevail on a claim of disparate impact. It must also be proven that the policy being challenged cannot be justified as the least discriminatory means of achieving a legitimate interest. If the policy is shown to be business justified under this standard, it is legal regardless of impact.


Should CFPB have more supervision over credit agencies?