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CFPB Releases Five Year Strategic Plan
On September 25, the CFPB released a draft strategic plan for 2013-2018. The draft plan outlines the CFPB’s four strategic goals and desired outcomes, as well as its broad strategies for achieving those objectives. The CFPB states that it will strive to (i) “prevent financial harm to consumers while promoting good practices that benefit them,” (ii) “empower consumers to live better financial lives,” (iii) inform the public and policymaking with “data-driven analysis,” and (iv) advance the CFPB’s performance “by maximizing resource productivity and enhancing impact.” For each goal, the plan identifies metrics the CFPB will use to measure its performance. For example, to assess its progress in preventing financial harm to consumers and promoting good practices, the CFPB will consider, among other indicators, the number of fair lending supervision activities opened during the fiscal year and the percentage of fair lending cases filed that were “successfully resolved” through litigation, settlement, or default judgment. The CFPB has asked for comments by October 25, 2012.
Legislators Accuse Assistant AG of Inappropriate Interference in Disparate Impact Case
On September 24, Representatives Lamar Smith (R-TX), Patrick McHenry (R-NC), and Darrell Issa (R-CA), along with Senator Charles Grassley (R-IA), sent a letter to U.S. Attorney General Eric Holder alleging that Assistant Attorney General Tom Perez struck an inappropriate deal with the City of St. Paul to entice the City to withdrawal its appeal in Magner v. Gallagher, a case that could have yielded a decision on whether disparate impact claims are cognizable under the Fair Housing Act, and if they are, the applicable legal standards for such claims. Based on a DOJ staff briefing and documents obtained from the DOJ, the lawmakers claim that the DOJ agreed not to intervene in a False Claims Act case pending against the City of St. Paul in exchange for the City abandoning its appeal, and that such an arrangement went beyond a standard settlement between the parties. The letters seeks additional documents and interviews of top DOJ officials by September 28, 2012.
Massachusetts Federal Court Reverses Prior Certification of Class in Fair Lending Case
On September 18, the U.S. District Court for the District of Massachusetts decertified a class of borrowers who allege that their mortgage lender violated the Equal Credit Opportunity Act and the Fair Housing Act by allowing its brokers to impose charges not related to a borrower’s creditworthiness. Barrett v. Option One Mortg. Corp., No. 08-10157, 2012 WL 4076465 (D. Mass. Sep. 18, 2012). The borrowers claim that the lender’s policy had a disparate impact on African-American borrowers who allegedly received higher rates than similar white borrowers. In March 2011, the court certified this class of borrowers, holding that the plaintiffs demonstrated commonality sufficient for class certification based on a statistical analysis comparing APRs paid by white and African-American borrowers that appeared to show slightly higher APRs for minority borrowers. Subsequent to the court’s March 2011 decision, the Supreme Court held in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011) that a policy that allows local units discretion to act can only present a common question if the local units share a mode of exercising that discretion. Following the Supreme Court’s decision, the lender in this case moved to decertify the class. The court agreed with the lender that the borrowers’ statistical analysis based on aggregate data does not consider each individual broker. The court held that the borrowers in this case lack commonality because they cannot show that all of the lender’s brokers exercised discretion in the same way and granted the lenders motion to decertify the class.
DOJ Settles Fair Housing Disparate Impact Suit
On August 27, the U.S. District Court for the Southern District of New York approved a settlement between the DOJ and GFI Mortgage Bankers, Inc., a nonbank mortgage lender, resolving allegations that certain of the lender’s pricing policies disproportionately impacted African-American and Hispanic borrowers in violation of the Fair Housing Act (FHA) and Equal Credit Opportunity Act (ECOA). The DOJ brought the case in part under the disparate impact theory of discrimination, by which it attempts to establish discrimination based solely on a statistical analysis of the outcomes of a neutral policy without having to show that the lender intentionally discriminated against certain borrowers. In the consent order, the lender acknowledged that a statistical analysis performed by the government indicated that the note interest rates and fees it charged on mortgage loans to qualified African-American and Hispanic borrowers were higher than those charged to non-Hispanic white borrowers. Prior to the settlement, the lender had filed a motion to dismiss the DOJ lawsuit, arguing that the DOJ’s disparate impact claims are not cognizable under the FHA or ECOA, and challenging the government’s statistical analysis. Under the agreement, the lender agreed to pay $3.5 million over five years in compensation to several hundred borrowers identified by the DOJ, as well as a $55,000 civil penalty. The lender also agreed to enhance certain of its lending policies and monitor and document loan prices and pricing decisions. Whether disparate impact claims are cognizable under the FHA remains unsettled, though the U.S. Supreme Court may have an opportunity to address the issue in the near future. BuckleySandler recently prepared a white paper examining the issue and explaining why the FHA does not permit disparate impact claims. A copy of DOJ’s announcement of the settlement may be found at http://www.justice.gov/opa/pr/2012/August/12-crt-1052.html.
Ninth Circuit Reverses Dismissal of Pricing Discrimination Suit Against Auto Dealers
On July 13, the U.S. Court of Appeals for the Ninth Circuit reversed a district court’s dismissal of a Department of Justice suit alleging that two automobile dealers violated the Equal Credit Opportunity Act by charging non-Asian customers higher "overages" or "dealer mark-ups" than similarly-situated Asian customers. United States v. Union Auto Sales, Inc. No. 9-7124, 2012 WL 2870333 (9th Cir. Jul. 13, 2012). A bank within whose network the automobile dealers operated, settled related charges concurrent with the filing of the case. The automobile dealers chose to litigate, eventually succeeding on a motion to dismiss. On appeal, the court reversed the district court’s holding that the complaint lacked sufficient supporting detail to give the defendants fair notice of the claim. Instead, the divided appeals court held that the government need not demonstrate discrimination at the pleading stage, but merely allege facts sufficient to make a discrimination claims plausible, a threshold met by the government’s complaint. One judge dissented from the majority opinion and argued that the government’s conclusory allegations do not meet the plausibility threshold established in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) and a subsequent Ninth Circuit decision. The majority also held that the district court erred in dismissing the complaint for failing to articulate intent, noting that under both disparate impact and disparate treatment theories, intent is irrelevant. Further, the court held that the link between names and racial categorization for the purposes of discriminatory conduct is well-established. The case was remanded for further proceedings.
Supreme Court Asked to Hear New Case Involving Disparate Impact Claims Under the Fair Housing Act
On June 11, the New Jersey Township of Mount Holly petitioned the U.S. Supreme Court to hear a case involving the use of disparate impact claims under the Fair Housing Act. Specifically, Mount Holly asks the Court to determine whether disparate impact claims are cognizable under the Fair Housing Act, and, if so, how such claims should be analyzed. The issues presented in this case are substantially similar to those the Supreme Court agreed to hear in Magner v. Gallagher, but was unable to hear because the petitioner in Magner withdrew its petition prior to oral argument. As detailed in a recent BuckleySandler article about Magner and the history of the Fair Housing Act, the Supreme Court has never decided whether the FHA permits plaintiffs to bring claims under a disparate impact theory. The U.S. Department of Justice and HUD, relying on lower court rulings permitting disparate impact claims, have increasingly employed the theory to further their policy goals. More recently, the CFPB repeatedly has stated its intention to apply disparate impact in enforcing ECOA. The instant petition could present an opportunity for the Court to alter the landscape within which federal authorities enforce the Fair Housing Act and other antidiscrimination laws.
CFPB Puts Consumer Lenders on Notice Regarding Discriminatory Practices
The CFPB today put consumer lenders on notice that it “will use all available legal avenues, including disparate impact, to pursue lenders whose practices discriminate against consumers.” The CFPB intends to employ disparate impact when examining auto lenders, credit card issuers , student lenders, mortgage lenders, and other providers of consumer credit, allowing the CFPB to claim an institution has engaged in discriminatory lending based on the effects and not the intent of the lending practices. In remarks to the National Community Reinvestment Coalition today, CFPB Director Richard Cordray stated that “[t]he consequences of ‘disparate impact’ discrimination are very real and they affect consumers just as significantly as other forms of discrimination.” To help consumers identify and avoid credit discrimination, the CFPB also compiled and released new lending discrimination “tips and warning signs.”
Concurrent with the announcement, the CFPB published Bulletin 2012-04 to specifically reaffirm its commitment to applying disparate impact when conducting supervision and examination under the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B. In support of this application, the CFPB cites what it refers to as the “consensus approach” outlined by a 1994 interagency Policy Statement on Discrimination in Lending, which notes court findings that discriminatory lending in violation of ECOA can be established through (i) overt evidence of discrimination, (ii) evidence of disparate treatment, and (iii) evidence of disparate impact. The CFPB also argues that the ECOA legislative history, as characterized in the original Regulation B adopted by the Federal Reserve Board, supports application of the disparate impact doctrine.