The Consumer Financial Protection Bureau said it will use all available legal avenues to deal with predatory lending, including “disparate impact” claims when bringing cases under the Equal Credit Opportunity Act.
Disparate impact is a legal claim at the center of discriminatory lending lawsuits.
The legal concept remains marred in national controversy as both lenders and discrimination plaintiffs search for the fine line that separates a truly discriminatory lending action from a legitimate business practice that results in a disparate impact claim.
Financial firms hoped to get clarity through the Magner v. Gallagher case, supposed to be heard by the U.S. Supreme Court earlier this year. Instead, the case was voluntarily dismissed, leaving financial firms without the level of clarity on the disparate impact issue.
Banks that filed amicus briefs in that case argued there’s a distinct difference between disparate treatment during the lending process and disparate impact claims alleging a specific process impacted one group disproportionately.
“We want consumers to avoid the marketplace’s silent pickpocket — discrimination,” said CFPB Director Richard Cordray. “We cannot afford to tolerate practices, intentional or not, that unlawfully price out or cut off segments of the population from the credit markets. That’s why the CFPB is educating consumers about their fair lending rights and pursuing lenders whose practices are discriminatory.”
In a bulletin, the CFPB said, “Disparate impact occurs when a lender’s practices or policies are facially neutral but have discriminatory effects. Sometimes these practices meet a legitimate business need that cannot reasonably be achieved as well by means that are less disparate in their impact. But sometimes they do not.”
The concept applies to all credit products, including mortgages, credit cards, student loans and auto loans.
