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A House subcommittee is investigating what the Justice Department said to St. Paul, Minn. officials before the city withdrew its defense against a housing discrimination case from the Supreme Court.
Rental property owners sued St. Paul for enforcing housing codes and cracking down on substandard living conditions, known as the Magner v. Gallagher case. The owners claimed a disparate impact effect that restricted housing availability for minorities, based on a statistical analysis of the enforcement.
The case made its way to the Supreme Court, where it would be determined if disparate impact analysis could be used in litigation under the Fair Housing Act. In February, the city withdrew its case out of fear it would win.
The Justice Department and other regulators use disparate impact analysis to pursue Fair Housing Act crackdowns themselves, rather than pursuing a lender's intent to discriminate.
Had St. Paul won its case, the Supreme Court would have defanged the government's major Fair Housing Act claim when pursuing the banks.
According to the Wall Street Journal, the Justice Department admitted Assistant Attorney General Thomas Perez, who leads the DOJ lending discrimination unit, spoke with both St. Paul officials and plaintiffs in the case before it was withdrawn.
Rep. Patrick McHenry, R-N.C., chairman of the House oversight subcommittee, said he wanted to know the extent of the involvement.
"The Subcommittee is investigating the DOJ about whether it pressured St. Paul to withdraw the case, because they were concerned the court would strike down using disparate impact," McHenry said, citing continued concerns of a meddling by the DOJ.
Justice Department representatives did not immediately reply to requests for comment.
Industry trade groups began pressuring regulators recently, especially the Consumer Financial Protection Bureau, to pursue intent rather than disparate impact in its Fair Housing Act cases. Consumer groups pushed back, claiming banks could continue discriminating lending practices as long as they never admit intent.
Wells Fargo ($39.88 0.62%) recently paid $175 million to settle a Fair Housing Act claim from the DOJ, which showed independent wholesale brokers charged minorities more for the same mortgages whites were getting.
Wells shut down its wholesale lending channel days after the settlement was announced.
McHenry asked CFPB Director Richard Cordray Tuesday if he felt pursuing Fair Housing Act claims with disparate impact placed too much burden on or created too much uncertainty for lenders.
Cordray said using disparate impact has been "the law of the land" for more than 20 years.
"It hasn't really changed. I think it's established law. I think the uncertainty would be about whether established law would be changed," Cordray said.
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