For the third time, the U.S. Supreme Court has assented to hear a case that could overturn the Obama administration’s heavy-handed use of a theory that says even if there’s no evidence of discrimination in housing, unequal outcomes prove there’s discrimination.
This could have a major impact on housing and mortgage financing, attorneys with Ballard Spahr in New York tell HousingWire.
“This marks the third time in successive terms that the Supreme Court has agreed to hear a case presenting the question of whether disparate impact claims are permitted under the Fair Housing Act,” attorney Peter Cubita said. “In its two prior terms, the Court was poised to decide the question but the cases presenting it were settled shortly before oral argument. Although this case involves the allocation of tax credits for low-income housing projects, the issue presented is of great interest to housing creditors because of the history and magnitude of governmental fair lending settlements based upon the disparate impact doctrine.”
Justices on Thursday granted certiorari to a challenge to the so-called disparate impact theory in the case of Texas Dept. of Housing vs. Inclusive Communities.
In this case, Texas is seeking to overturn a Fifth Circuit Court of Appeals ruling that ordered it to spread affordable-housing subsidies and Section 8 housing in Dallas more evenly between black and white neighborhoods.
The Obama administration argues that, despite no evidence of racial bias or intent, the state of Texas is liable for racial discrimination when its policies result in there being more affordable housing units in minority neighborhoods, regardless of whether its housing policies even consider race.
The first two challenges to the Obama administration were settled after the Obama administration, fearful it was on shaky legal ground, settled with plaintiffs using outside contributions from progressive charities.
“An industry favorable ruling on this question would have implications with respect to the analogous issue of whether disparate impact claims are permissible under the Equal Credit Opportunity Act. Thus, this development also is of interest to non-mortgage creditors,” Cubita said.
The American Bankers Association, among other trade organizations, supports Texas in the appeal.
The Mortgage Bankers Association has likewise filed a friend-of-the-court brief in support of Texas' appeal.
“MBA has been steadfast in its support of ensuring that all Americans are treated fairly and equally at all stages of the mortgage process, we do not however, believe that claims of disparate impact can be brought under the Fair Housing Act,” said Pete Mills, Senior Vice President at MBA. “MBA and others filed a brief with the Court asking them to review this important issue and we appreciate that the Court has chosen to do so.”
In the ABA brief, the organization says that the pressure of such disparate impact litigation ends up making lenders take actions that run counter to the purpose of the Fair Housing Act.
“Down-payment requirements, debt-to-income requirements, loan-to-value requirements, and other neutral, risk-based underwriting requirements can all affect various racial and ethnic groups differently,” the ABA says in its brief.
ABA has for years urged federal agencies to stop using disparate impact analysis in fair lending cases as its use is based on unsupported legal theory, yet carries real consequences for banks and consumers that detract from legitimate fair lending efforts.
ABA provided officials at the Consumer Financial Protection Bureau, the banking agencies, the Housing and Urban Development and Justice Departments with a white paper presenting the legal arguments that disparate impact has no valid statutory foundation.
"ABA members are strong advocates for fair lending and fully support enforcement against practices that intentionally discriminate," said Frank Keating, ABA president and CEO. "However, disparate impact asserts fair lending violations occurred based only on statistical differences, where neither intent nor discrimination can be proven."
"Disparate impact relies on a legal theory that more recent Supreme Court cases have found invalid. Using disparate impact creates unnecessary compliance risk, limiting credit availability and driving up the cost of borrowing,” said Keating. "We urge our regulators to refocus their fair lending supervision on reforming policies that intentionally discriminate and have no place in the banking industry."