The Consumer Financial Protection Bureau is cautioning lenders against discriminatory practices, intentional or not, by reaffirming that the legal doctrine of “disparate impact” applies to them.
The Bureau, which is responsible for enforcing the Equal Credit Opportunity Act, announced on its web site that it was giving “fair notice on fair lending.” According to the accompanying April 18, 2012, CFPB Bulletin, lending practices may be considered discriminatory even if they appear to be neutral.
“What that means is, it says that your intentions aren’t relevant,” said Rob Blackwell, Washington Bureau chief, in an American Banker video news story. “What matters is what kind of lending you’re doing – and if you’re consistently charging minority borrowers more than you’re charging white borrowers, you’re going to get hit for a fair lending violation.”
“Discrimination is not always obvious,” writes Patrice Ficklin, assistant director for the Office of Fair Lending and Equal Opportunity, on the CFPB blog.
The CFPB issued a list of consumer tips, or red flags, on discriminatory practices, such as:
- You are treated differently in person than on the phone.
- You are discouraged from applying for credit.
- You hear the lender make negative comments about race, national origin, sex, and other protected groups.
- You are denied credit, but not given a reason why or told how to find out why.
“It’s a very critical move that the CFPB did. [It’s] not necessarily shocking because of Richard Cordray’s background in law enforcement, but this is new for a regulator to embrace,” American Banker’s Blackwell said.
Recently the U.S. Supreme Court had scheduled a review of a fair lending case in St. Paul, Minn., that revolved around disparate impact. The case originated with a group of landlords, who claimed that the city’s efforts to crack down on its properties resulted in discrimination against minorities.
However, the city of St. Paul withdrew its petition for the court’s review of Magner vs. Gallagher, which sent the case back to a lower court, drawing scrutiny from members of Congress.
The comments on the CFPB blog regarding this issue echo a familiar refrain.
“How many consumers are discriminated against in this day and age? This is more smoke and mirrors to make themselves look important. In 27 years I never turned anyone down except for bad credit or poor qualifications. What do they think that we do in the lending community? Look for ways to not earn income?” writes a commenter identified as Brion McDermott.
Other commenters concurred with vocal criticism for the Dodd-Frank Act, with one adding, “To top it all off, we have called and emailed in vain to try to get clarifications on a number of issues to the only email addresses and the only phone numbers we could find, only to be ignored.”
Rob Blackwell, Washington Bureau Chief
What that means is, it says that your intentions aren’t relevant. What matters is, what kind of lending you’re doing – and if you’re consistently charging minority borrowers more than you’re charging white borrowers, you’re going to get hit for a fair lending violation. It’s a very critical move that the CFPB did. [It’s] not necessarily shocking because of Richard Cordray’s background in law enforcement, but this is new for a regulator to embrace.
What’s interesting about disparate impact, because it is ignoring intent, there’s obviously a fear from bankers and they really dislike the theory. Some even argue that it’s not legal, because they look at their lending practices and say, we’ve done everything we can to make sure that we’re not discriminating against minority borrowers. But really what’s happened in the cases that we’ve seen the Department of Justice pursue is, they’ve given loan officers too much flexibility. So, there are guidelines out there on the part of the bank about a mortgage loan or an auto loan, but when someone comes into the office, there’s some flexibility that that loan officer has, and the problem becomes when that loan officer is using his flexibility so much that they’re consistently benefiting a white borrower at the expense of, say, a minority borrower.