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Lending

CFPB leader not backing down on lending discrimination cases

Disparate impact legal theory stands for now

September 24, 2013

Unless the U.S. Supreme Court steps in, the Consumer Financial Protection Bureau will continue to view disparate impact as the appropriate legal theory to use when filing lending discrimination cases against banks.

The bureau’s Director Richard Cordray was not shy about revealing this standard as the bureau’s benchmark when a lending discrimination case surfaces.

In prepared remarks for the American Banker Regulatory Symposium, Director Cordray reiterated his agency’s push to combat lending discrimination, as well as his unyielding support for giving these cases the “disparate impact" treatment.

Under this theory, it doesn't matter whether a lender intends to discriminate against a borrower or not.

On this point, Cordray was remarkably clear:

“We made it clear last year that – like the other banking regulators and the Justice Department – we will pursue discrimination in consumer financial markets based on disparate impact as well as disparate treatment.  From the perspective of a consumer disadvantaged by policies that have a discriminatory effect, it makes no practical difference whether a lender consciously intended to discriminate.”

If this is the standard, the mortgage industry is likely to be stuck in a 'disparate impact world' unless a case now pending at the U.S. Supreme Court leans in their favor.

In October, the U.S. Supreme Court will determine whether a lending discrimination case can survive if a particular group is disparately impacted by lending guidelines even when there was no intent to discriminate.

The case — New Jersey v. Mt. Holly Gardens Citizens Action – is being watched closely. The Mortgage Bankers Association even filed a friend of the court brief, saying housing discrimination cases brought under the Fair Housing Act should revolve around the lender’s intent (or whether they intended to discriminate), not on disparate impact alone.

The industry always contended that an "actual intent to discriminate" is needed since safe and sound underwriting practices can unintentionally end up impacting one group more than another.

Based on Cordray’s comments Tuesday, the CFPB clearly has a different viewpoint – and so does HUD.

With both agency’s accepting this as the standard, the U.S. Supreme Court's decision is going to be a significant one for the industry.

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