Fair Lending Law Developments

Race -it continues to determine the availability and the price of credit, and particularly home financing, as each annual release of the Home Mortgage Disclosure Act data reminds us. No matter how much empiricists control for credit scores, home values, and other relevant variables, racial minorities, especially African-Americans, are more likely to be denied credit or charged higher rates than similarly-qualified Whites. 

The Department of Housing and Urban Development has just issued its final rule confirming that the Fair Housing Act prohibits home lending practices with a discriminatory impact on protected groups, and not just overt intentional discrimination.  Disparate impact analysis, based on the Supreme Court's longstanding interpretation of Title VII of the Civil Rights Act, has been approved as a method of proving discrimination in all the Courts of Appeals to consider the issue. For example, the Justice Department's 2011 case against Countrywide alleged that the lender gave pricing discretion and created incentives for loan officers that resulted in discriminatory pricing.  The case resulted in a $335 million settlement.

Nevertheless, lenders' lawyers have been vigorously contesting the disparate impact issue in cases under the Fair Housing Act and also under the Equal Credit Opportunity Act, which bans discrimination in all forms of credit.  The Supreme Court accepted cert. in a Minnesota case in 2011, but the City of St. Paul was persuaded to withdraw the case to avoid a ruling.  Civil rights advocates are hopeful that the HUD regulation will receive some deference from a Supreme Court that might otherwise be inclined to go with the banks on this issue.  Another cert. petition is pending before the Court in a case against Mt. Holly New Jersey.  The Court asked the Solicitor General to file a brief in the case in October, but has not ruled on the cert. petition yet. For more details, see the ProPublica story here.