November 5, 2018

States Show Continued Focus on Disparate Impact Fair Lending Liability

While the Trump administration considers attempts to curtail disparate impact fair lending liability, a number of states have shown recently that they intend to continue disparate impact fair lending enforcement regardless of what happens at the federal level.

In a recent letter to the Bureau of Consumer Financial Protection's Acting Director Mick Mulvaney, a group of state attorneys general (AGs) expressed "grave concerns" about Mulvaney's statements in May 2018 suggesting he might attempt to curtail disparate impact liability under the federal Equal Credit Opportunity Act (ECOA). "This matter is of particular concern to the Attorneys General because we share authority with CFPB to enforce CFPB's regulations interpreting ECOA," the letter stated. Further, the "[AGs] have regularly relied on disparate impact theories in recent years to combat lending discrimination."

The AGs urge that disparate impact liability is a "critically important feature of antidiscrimination law" because it addresses "unconscious prejudices and disguised animus that escape easy classification as disparate treatment" (a.k.a. intentional discrimination). In contrast to overt intentional discrimination, which can be difficult to establish, disparate impact liability prohibits practices that while "neutral on their face, and even neutral in terms of intent," still "operate to 'freeze' the status quo of prior discriminat[ion]" and cause unjustified disparities.

The letter to Mulvaney came on the heels of a similar letter state AGs sent to the U.S. Department of Housing and Urban Development (HUD) urging no amendments to HUD's 2013 rule implementing a disparate impact standard under the Fair Housing Act. It is too soon to tell what impact (if any) these letters have had on the administration. For example, the Bureau's fall 2018 rulemaking agenda notably did not announce any formal rulemaking for ECOA, but did reiterate that the Bureau is still "reexamining the requirements of [ECOA] concerning disparate impact doctrine" and "considering future activity" thereon.

Importantly though, even if disparate impact liability is curtailed at the federal level, the AGs' letters highlight that many states still have their own disparate impact liability laws and have been bringing enforcement actions thereunder. Discretionary pricing policies and placement of minorities in more expensive loans are examples of conduct that the AGs have targeted. Indeed, the New York Department of Financial Services (DFS) recently announced guidance on compliance with New York's Fair Lending Law in a press release titled, "DFS Takes Action to Protect New Yorkers from Unfair Auto Lending Practices as Federal Government Rolls Back Consumer Protections." The guidance "reminds lenders of their liability for any discrimination that may result from markup and compensation policies with third parties such as car dealers" and for "pricing disparities on a prohibited basis" (emphasis added).

Thus, while developments at the Bureau could impact states' ability to bring disparate impact enforcement actions under ECOA, it will regardless remain important for companies to monitor their compliance with state disparate impact fair lending laws and be vigilant about related state enforcement activity.