In January, the entire nation focused on the Consumer Financial Protection Bureau’s final definition of the “ability-to-repay” mortgage rule, which was designed to ensure reckless lending practices could never cause another housing crisis.

But one Congressman, Rep. Scott Garrett, (R-N.J.), believes despite the nation’s focus on the ability-to-repay rule, the current administration is unwittingly, or perhaps mistakenly, creating the same lack of clarity in lending that caused the mortgage crisis in the first place.

As evidence Garrett points to HUD’s recent launch of a three-part test to determine if a lender’s practices are discriminatory under the Fair Lending Act. You can read more about the test here, but in a nutshell, HUD said a lending practice that has an “unjustified discriminatory effect” can alone constitute discriminatory lending.

This interpretation is chilling to lenders who have long suggested that “a disparate impact” on a certain group is not enough to prove lending discrimination since that perceived impact can be caused by legitimate lending concerns such as FICO scores, LTVs, personal debt and income. Instead, lenders often argued a discriminatory intent must be the basis of such a claim. 

HUD turned its definition of discrimination on its head by issuing a final definition, and Rep. Garrett claims he is pointing out a strange contradiction that could soon surface in lending.

He writes, "Risk-based lending and insurance underwriting that happen to result unintentionally in statistically different outcomes does not amount to discrimination."

He’s also concerned that the three-part test and disparate impact basis for the claim may present challenges to gains made in ensuring borrowers have an ability to repay.

"Predictably, this rule will result in a perverse regulatory scheme. Lenders, insurers and landlords would effectively be required to make poor economic decisions and intentionally discriminate among different classes of borrowers just to protect themselves from becoming entangled in the regulation's pretzel-like logic," Garrett argues.

"For example, lenders could relax their loan approval standards to ensure there's no disparate impact violation. This would revive the economic insanity of providing loans to those that have no ability to pay."