Banking and Finance Law Daily Proposal would rescind enforcement of HUD’s 2013 'disparate impact' rule
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Monday, August 5, 2019

Proposal would rescind enforcement of HUD’s 2013 'disparate impact' rule

By Colleen M. Svelnis, J.D.

Consumer groups and a Democratic Senator have criticized a draft proposal to rescind the Housing and Urban Development’s disparate impact rule.

Senator Sherrod Brown (D-Ohio) criticized a draft proposal which was sent to Congress on July 29, that appears to rescind enforcement of the Department of Housing and Urban Development’s 2013 Disparate Impact rule, which he states will make it harder for victims of housing discrimination to bring lawsuits. According to Brown, "In an Administration where three of the top officials overseeing banking and housing finance—Treasury Secretary Mnuchin, Comptroller of the Currency Otting, and the President himself—have all overseen businesses whose practices led to Fair Housing Act violations and settlements, it’s no wonder that they are trying to dismantle protections that help identify and root out discrimination," said Brown. "The Administration should stop trying to put a thumb on the scale for discriminators and instead do its part to ensure fair housing for all."

Brown also criticized a recent settlement agreement between HUD and CIT Bank regarding Fair Housing Act violations at CIT and its predecessor bank, OneWest, due to connections between administration officials and the banks during the time at issue. Brown stated that, according to government filings by Secretary Mnuchin and Comptroller Otting, both were in leadership at OneWest when the misconduct started in 2014 and both remained in leadership at CIT Bank through 2016 and 2015, respectively.

Existing rule. The 2013 "disparate impact" rule formalized prohibition against practices with discriminatory effects under the Fair Housing Act and provided uniform guidance for applying standards across the country. HUD’s disparate impact rule says that a lending practice can violate the FHA, even if there is no intent to discriminate, if it "actually or predictably results in a disparate impact on a group of persons" or otherwise contributes to prohibited housing discrimination (24 CFR 100.500). The rule provides a framework for demonstrating that a policy or practice, even if not intentionally discriminatory on its face, has an unjustified discriminatory effect on people protected under the FHA. The rule also set forth a three-step process to allocate and shift the burden of proof:

  1. The person bringing the claim must prove that a lender’s practice has caused or predictably will cause a discriminatory effect.
  2. If that is shown, the lender may prove the practice "is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests."
  3. If the lender is successful in doing so, the person bringing the claim may prove that the interest advanced by the practice could be served by a different practice that would have a less discriminatory effect.

NPR report. National Public Radio reported on the draft proposal, explaining how, in a disparate impact lawsuit, you don't have to show that a company meant to discriminate. The company might have had the best of intentions but still has adopted a policy that has an unequal outcome with a discriminatory effect. Nikitra Bailey, an attorney with the Center for Responsible Lending, stated that the disparate impact rule is important because it allows fair housing lawsuits to obtain remedies for large numbers of people "without having to demonstrate each individual action of discrimination." However, Roger Clegg, president of the Center for Equal Opportunity, a conservative think tank that focuses on civil rights issues, stated that "There are always going to be racially disproportionate results for any policy."

Bailey issued a statement on the proposal, stating that "HUD is looking for a problem that does not need a fix." She stated that disparate impact theory "has not hurt lenders’ bottom line and has only helped create fairer lending." She called disparate impact a "critical tool" and stated that the new proposal would "shift the burden of proof in cases of discrimination from the powerful to the vulnerable, undoing decades of legal precedent and diminishing opportunities for hardworking families to build and hold wealth."

New test. According to the Consumer Federation of America (CFA), the new plan would "significantly undermine long-standing legal protections against housing discrimination" and weaken protections against discrimination in housing. The plan would require a new five-part test to show housing discrimination through disparate impact. "The Trump proposal erects evidentiary barriers for consumers suffering from unintentional housing discrimination. Instead of addressing America’s housing challenges, the President is trying to make it easier for landlords and lenders to discriminate on the basis of race, gender or other protected classes," statedChris Peterson, CFA’s Director of Financial Services.

Companies: Center for Equal Opportunity; Center for Responsible Lending; CIT Bank; Consumer Federal of America; National Public Radio; OneWest

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