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Jeffrey P. Naimon quoted in Inside Mortgage Finance article, “Will CFPB abandon or limit the use of disparate impact?”

Inside Mortgage Finance

Jeffrey P. Naimon

Jeffrey P. Naimon was quoted on September 3, 2018 in an Inside Mortgage Finance article, “Will CFPB abandon or limit the use of disparate impact?” which discussed how the Consumer Financial Protection Bureau is expected to view the disparate impact theory under the Trump administration. The article stated, “The American Bankers Association said the CFPB should focus on ‘addressing genuine illegal activity, identified by intent to violate fair lending standards,’ in a letter to the bureau. To that end, the trade group urged the bureau to be guided by the framework set by the U.S. Supreme Court in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. In that ruling, the court upheld the viability of disparate impact in Fair Housing Act cases while setting forth a three-stage process for analyzing such charges. A plaintiff can bring a claim but first must demonstrate a causal connection between the challenged practice and the statistical disparity. The defendant can then show a business rationale for the challenged practice to rebut the claim. Finally, the burden shifts back to the plaintiff to show that an available alternative exists that has less disparate impact while also addressing business needs.”

Naimon added, “Given the lack of ‘effects’ language in the Equal Credit Opportunity Act and the CFPB’s stated focus on enforcing statutes as they are written, we expect that they will determine that ECOA does not support a disparate-impact theory. If the bureau abandons disparate impact for ECOA or limits its use by adopting the standards set forth in Inclusive Communities, it would be good for the lending industry as it removes a great deal of uncertainty. Restricting disparate impact will reduce the burden on lenders to be constantly assessing every business practice to see if it might have a disparate impact on some group of consumers. Lenders always want clarity on what they can and cannot do, both so they can act to prevent liability, and so they are not competitively disadvantaged compared to other lenders on the basis of willingness to take more regulatory risk.”

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