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CFPB confirms plans to use “disparate impact” to prove lending discrimination

Posted in Fair Lending

The “disparate impact” test to prove discrimination under the Equal Credit Opportunity Act and Regulation B is still alive and well. That’s the message sent by the CFPB today in 
 Bulletin 2012-14 (Fair Lending).  In the bulletin, which the CFPB says it issued “in response to recent inquiries,” the CFPB “reaffirms that the legal doctrine of disparate impact remains applicable as the Bureau exercises it supervision and enforcement authority to enforce compliance with the ECOA and Regulation B.” In her post on the CFPB’s blog announcing the bulletin’s issuance, Patrice Ficklin, Assistant Director of the CFPB’s Office of Fair Lending and Equal Opportunity, states that the CFPB will use the “disparate impact” test when it looks “not only at mortgage lending, but also at other types of credit, including student loans, loans for cars, and credit cards.”

As authority for the “disparate impact” test, the CFPB relies on the statement in a Regulation B footnote that, based on the ECOA’s legislative history, Congress intended the “effects test” analysis applied by the U.S. Supreme Court in Griggs v. Duke Power Co. to Title VII employment discrimination claims to also apply to lending discrimination claims. We take issue with the CFPB’s position and the soundness of the authority on which the CFPB relies for several reasons.

First, there is no “effects” or comparable language in the text of the ECOA, unlike Title VII. Second, the ECOA legislative history referred to in the footnote consists of statements made in committee reports issued in connection with ECOA amendments that did not amend the ECOA language that prohibits credit discrimination “on the basis of ” race, color, religion, etc. As a result, that legislative history should not be relied on as an indicator of what Congress intended when enacting such ECOA language. Third, while Title VII does contain an anti-discrimination provision that uses language similar to that of the ECOA, the Supreme Court did not rely on that similar language for its holding in Griggs. Rather, the provision at issue in Griggs referred to employment practices that “adversely affect” employees on the basis of race. 

Unfortunately, hopes that the U.S. Supreme Court would soon be providing clarity with respect to the use of disparate impact under the Fair Housing Act and (by analogy) the ECOA through a decision in Magner v. Gallagher were dashed when, on February 10, the parties agreed to a dismissal of the case less than three weeks before the scheduled oral argument. However, the battle over disparate impact claims in the courts can be expected to continue. (For more on the Magner dismissal, see our legal alert.)

Tomorrow,  April 19, from 12:00 PM – 1:00 PM ET, Ballard Spahr will be conducting a webinar: The Way Forward–Fair Lending and Disparate Impact Analysis after the Dismissal of Magner v. Gallagher. During the webinar, Ballard attorneys will discuss fair lending litigation and regulatory enforcement in the wake of the Magner dismissal. You can register here for the webinar.