The American Bankers Association recently called upon bank regulators to stop using the "disparate impact" doctrine in their fair lending examination process. We believe removing this critical tool from regulators' tool boxes would significantly hamper their ability to foster a more just financial marketplace.
The disparate impact doctrine argues a policy or practice can be considered discriminatory against protected classes if the policy or practice has a greater, undue effect on a protected class than it does on other groups, even if intent to discriminate cannot be proven. In the realm of housing, 11 federal appellate courts have ruled disparate impact can be used to determine violations of the Fair Housing Act. The Equal Credit Opportunity Act includes a disparate impact theory of liability, which the Consumer Financial Protection Bureau has vowed to uphold.
Disparate impact doctrine is a vital tool for regulators because, in a society where blatant expressions of discrimination are largely considered to be unacceptable, discrimination often takes on subtler and more insidious forms. It is important to have a regulatory structure that is vigilant against all forms of discrimination, not simply the most egregious manifestations.
What the ABA is suggesting is that federal fair lending enforcement should be limited to cases where a lender openly admits it intended to discriminate against a potential borrower because, for example, of his or her race or because he or she has a disability. Since it is unlikely any lender is going to make that kind of statement on the record, requiring such blatant evidence would severely impair fair lending enforcement.
The disparate impact doctrine allows regulators to hold financial institutions accountable for creating an environment that results in diminished opportunities for people in protected classes to access capital and build wealth. Disparate impact analysis has a long and distinguished history within the legal profession and has resulted in important gains for people of color, people with disabilities and other protected classes who have suffered from financial practices that create an unfair playing field.
This article was originally posted in American Banker.