Members of the House Oversight and Investigations Committee spent part of Tuesday grilling experts on the 'disparate impact legal theory' utilized in various lending discrimination cases.
Essentially, the panel picked up where the U.S. Supreme Court left off earlier this month.
Having House members take up the issue suggests the lending community is now dependent on the legislative branch's interpretation of disparate impact.
“It doesn’t appear that the Supreme Court will have the opportunity to analyze this issue because the plaintiffs keep getting bought off," said Larry Platt, a partner at K&L Gates.
Platt has been following the disparate impact challenge for years. Attorneys in his firm even filed a ‘friend of the court brief’ with the Supreme Court in a key case on this issue.
That key case — Township of Mount Holly v. Mt. Holly Gardens Citizens — was set to bring the issue before the Supreme Court, but the plaintiffs settled in November. Another major case — Magner v. Gallagher — also was on the court’s docket but settled at the last minute.
Platt doesn’t rule out the possibility that Congress took up the issue after the Supreme Court cases fell through.
Without a Supreme Court hearing, legislation is the primary way to establish 'intentional discrimination' as the legal standard, he noted. But, the attorney added, "I don’t think it’s likely legislation would pass both branches of Congress at this point."
The theory of disparate impact allows regulators and plaintiffs to sue under the Fair Housing Act and other ‘discrimination-focused’ laws using the legal theory that a particular lending scheme – although unintentional – had a disparate impact on a minority group.
Attorneys representing the lending community have long pushed for disparate impact not to apply in discrimination cases. Instead, they want a neutral standard that only recognizes "intentional acts of discrimination."
Legal experts speaking in front of the Congressional committee warned that ‘disparate impact’ alone creates other constitutional issues and could potentially tax resources that are better spent on cases of clear ‘intentional discrimination.”
"It’s not as if our civil rights enforcement agents have so much in funds that they can look for exotic and extraneous cases," said Kenneth Marcus, president and general counsel for the Louis D. Brandeis Center for Human Rights Law.
While testifying Tuesday, he said the inclusion of disparate impact could send agents on a costly hunt for cases, making agencies less effective in dealing with cases of clear, intentional discrimination.
“It means that at the end of the day, you are not able to do an effective job of enforcing any discrimination cases," he told the panel.
Peter Kirsanow, a member of the U.S. Commission on Civil Rights, told the panel that Congress never included the disparate impact legal theory in the Fair Housing Act.
He also warned that a legal theory, which forces lenders to take certain lending actions to avoid disparate impact conflicts, could cause violations of the Constitution’s Equal Protection clause if different lending standards end up leading to racial quotas.
"I certainly oppose disparate treatment in housing because of membership in a protected class," Kirsanow said. “However, the proposed rule’s focus on disparate impact and the almost complete absence of a discussion of disparate treatment suggests that people are being discriminated against on the basis of their pocketbooks."
He added, "To argue that housing discrimination is pervasive because members of a protected class are less likely to be able to afford housing that is the size they want or in a more genteel area is bizarre."
