House passes amendment to limit “disparate impact” far beyond housing policy

Amendment to act would bar DOJ from using controversial legal standard

Later this summer, the housing industry will see how the Supreme Court of the United States rules on the use of the theory of “disparate impact” in mortgage lending, but one Congressman is pushing to limit the government’s use of the shaky legal theory regardless of the ruling and well beyond housing policy.

In Texas Dept. of Housing vs. Inclusive Communities Project, the Texas Department of Housing argues that the text and history of the law confirm that fair housing law does not allow disparate impact claims, but instead authorizes only claims based on intentionally discriminatory conduct. The Supreme Court heard the case this past spring and should announce its ruling soon.

Meanwhile, though, Rep. Scott Garrett, R-N.J., authored and pushed a measure to limit disparate impact prosecutions.

The House passed his amendment to H.R. 2578, the Fiscal Year 2016 Commerce, Justice, and Science Appropriations Act. The amendment would bar the Department of Justice from using funds for litigation in which they seek to apply disparate impact theory.

“While everyone agrees that discrimination has no place in the lending practices of any respectable institution, the application of disparate impact theory has had devastating impacts on law-abiding businesses who have diligently maintained fair and consistent lending standards,” said Garrett. “The federal government should be encouraging sound business practices, not punishing those that utilize them. I thank my colleagues for taking a stand for small businesses and reinstating equal protection under the laws as guaranteed in our Constitution by the Fourteenth Amendment.”

In recent years, the Department of Justice has pursued and obtained large legal settlements from lenders, landlords, and insurers in discrimination lawsuits using the dubious legal theory of “disparate impact.”

Disparate impact liability allows the government to allege discrimination on the basis of race or other factors based solely on statistical analyses that find disproportionate results among different groups of people, regardless of evidence of actual discriminatory actions or intent.

Instead of making decisions based on neutral standards of creditworthiness, lenders must consider these demographic factors or risk running afoul of the Justice Department.

Even if Garrett’s measure makes it through the House and Senate processes, it likely faces solid opposition from the White House.

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