Let’s not let the facts get in the way of a good legal action. That seems to be the mantra of the current Administration when it comes to having HUD take action against lenders for what they believe is “disparate impact” in their lending practices (Abuses).
According to the National Fair Housing Alliance, “Disparate Impact” is a legal doctrine under the Fair Housing Act which states that a policy may be considered discriminatory if it has a disproportionate “adverse impact” against any group based on race, national origin, color, religion, sex, familial status, or disability when there is no legitimate, non-discriminatory business need for the policy.
In a disparate impact case, a person can challenge practices that have a “disproportionately adverse effect” on those protected by the Fair Housing Act and are “otherwise unjustified by a legitimate rationale.” Now, that’s a mouthful and seems pretty broad to me.
The Supreme Court took up this issue and, on June 25, 2015, narrowly upheld the disparate impact theory’s use in housing and lending. It also set certain standards which should come into play when making a final determination on a violation. These are listed within the article highlighted above.
These provisions place some responsibility on the plaintiff when bringing a disparate impact claim. Unfortunately, current actions being brought against lenders by HUD do not follow any of these provisions as outlined by the Court.
The recent Supreme Court decision was lauded as a victory for consumers, protecting them from potential discriminate actions taken by lenders, municipalities, condo associations, and landlords. It was also considered a step forward for these same entities as it clarified the instances and requirements under which such claims may be brought. It provided some clarity to the issues.
All we need now is for everyone, including HUD, to following the lead of the Supreme Court, and utilize their decision for the purpose intended; not as a catch-all to snare lenders, and others, when trying to make a case for intentional discrimination.
If the factors outlined by the Court are taken into consideration when determining the potential for a disparate impact claim, both lenders and consumers will benefit. Lenders will have more clarity toward compliance, while consumers are not further denied financing options which might otherwise be withheld by lenders for fear of the unknown.
The Supreme Court’s ruling should have a positive effect on housing and lending opportunities for more qualified consumers. Hopefully, it will not have the effect of the further tightening of credit and qualification standards like we experienced as a result of the QM/ATR rules passed with Dodd-Frank.
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I suggest if you have a program which may, in any way, shape or form, have the potential for different effects on certain segments of consumers, you have it carefully reviewed and approved by counsel to avoid the potential for a disparate impact claim.
Stay compliant my friends.