Banks challenge government tactics in discriminatory lending cases

{mosads}Under disparate impact, a party can claim a discriminatory practice without proving the intent or existence of discrimination. Rather, discrimination can be charged under that doctrine if statistical analysis reveals that certain groups faced more negative outcomes than others.

For example, Wells Fargo agreed to pay at least $175 million to settlement Department of Justice claims it discriminated against thousands of African-American and Hispanic borrowers — claims that were built based on analysis of loans made from 2004 and 2009 by the bank and its independent brokers. Wells Fargo did not admit to wrongdoing in the settlement and said it was settling simply to avoid costly litigation.

Similarly, Bank of America agreed to pay $335 million in December to settle discriminatory lending charges filed against Countrywide Financial, which the bank purchased in 2008. There, the government again charged under disparate impact that hundreds of thousands of minority borrowers received loans that had costlier terms than those provided to white borrowers. The settlement was the largest in the history of discriminatory lending cases.

The banking lobby contends that this approach should be abandoned, warning its continued use could stifle credit and create undue risk and burden for the banking industry. Instead, it says, the government should focus its efforts on areas where the actual intent to discriminate could be proven.

“ABA members are strong advocates for fair lending and fully support enforcement against practices that intentionally discriminate,” said Frank Keating, ABA president and CEO. “However, disparate impact asserts fair lending violations occurred based only on statistical differences, where neither intent nor discrimination can be proven.”

To bolster its case, the ABA also sent along a whitepaper arguing that recent judicial action shows that the government does not have the power to apply disparate impact to enforce fair housing and borrowing laws. While noting that some courts have concurred that the government has the right to use disparate impact to enforce the Fair Housing Act and the Equal Credit Opportunity Act, the paper contends that the specific statutory language permitting its use is missing from those laws. 

In 2005, the Supreme Court ruled that disparate impact could be used in employment cases based on the language of the particular statute, not “vague notions of statutory purpose,” according to the paper. However, the high court has yet to rule on the specific question of whether disparate impact can be applied in enforcing those two fair-lending laws.