CFPB to Review Use of Disparate Impact in Fair Lending Cases

By Evan Weinberger

The Consumer Financial Protection Bureau may revamp the way it reviews compliance with the Equal Credit Opportunity Act in a move that could cut back enforcement under the fair lending law.

The potential change to ECOA enforcement was included at the bottom of a statement the bureau and its acting director, Mick Mulvaney, released May 21 to trumpet President Donald Trump’s signing of a measure repealing the bureau’s indirect auto lending guidance.

“Given a recent [U.S.] Supreme Court decision distinguishing between antidiscrimination statutes that refer to the consequences of actions and those that refer only to the intent of the actor, and in light of the fact that the bureau is required by statute to enforce federal consumer financial laws consistently, the bureau will be reexamining the requirements of the ECOA,” the CFPB said in the statement.

The disparate impact theory states that lending practices can be discriminatory even if there was no intent by the lender to engage in racial discrimination if they are found to have a disparate impact on communities of color or other minorities.

The Supreme Court last ruled on a disparate impact case when it upheld the use of the statistics-based enforcement tool in the June 2015 Texas Department of Finance v. The Inclusive Communities Project decision, and the CFPB said in an email that its review would be based on that decision.

Powerful Enforcement Tool

Reviewing the CFPB’s use of disparate impact to determine ECOA compliance could potentially take away one of its most powerful enforcement tools, Christopher Peterson, a professor at the University of Utah Law School and a former top CFPB official told Bloomberg Law.

“There are cases where you prove direct intent to engage in racial discrimination. They’re not the cases that usually have big, systemwide impacts,” Peterson said in a phone interview.

The vast majority of CFPB fair lending cases involve bringing claims based on the disparate impact theory, he added.

CFPB opponents have argued that the bureau was wrong to apply disparate impact to potential ECOA violations, and welcomed Mulvaney’s review.

“I’m glad Acting Director Mulvaney recognizes this and I look forward to continuing to work with him to repair the damage to the rule of law and the trampling of due process done by his predecessor,” House Financial Services Chairman Jeb Hensarling (R-Texas) said in a statement.

The Department of Housing and Urban Development is conducting a similar review related to the use of disparate impact in Fair Housing Act enforcement.

Mulvaney reiterated his past statements that the CFPB under his watch would continue to fight discrimination.

“We will vigorously enforce fair lending laws in our jurisdiction, and will stand on guard against disparate treatment of borrowers,” Mulvaney’s statement said.

Guidance at Risk

A review of the way that the CFPB reviews ECOA compliance was not the only news in Mulvaney’s signing statement.

The bureau’s 2013 guidance on indirect auto lending came in the form of a bulletin and outlined when third-party lenders that offer auto loans through car dealerships could face enforcement actions for violations of the ECOA.

Dealers have discretion to increase, or mark up, interest rates offered by the lender and keep the difference as compensation.

The CFPB bulletin explained that the bureau would hold indirect auto lenders accountable for unlawful pricing policies that violated the fair lending law.

The repeal of the CFPB guidance using the Congressional Review Act was unusual because, in the past, guidance issued by agencies was not susceptible to such a move. That changed last year when the Government Accountability Office determined that Congress could overturn guidance using the CRA.

The CFPB said in its statement that more guidance could face a similar fate, and that it would submit more guidance documents to Congress in the future.

“The bureau welcomes such review, and will confer with Congressional staff and federal agency partners to identify appropriate documents for submission,” the CFPB said.

Mortgages, Debt Collection

The bureau did not mention which official guidance documents could be submitted to Congress, but there is no shortage of options.

“The auto lending bulletin was, by a wide margin, the most controversial of the CFPB’s guidance documents, but there are others that have impacted longstanding industry practices,” Benjamin Olson, a Buckley Sandler LLP partner and former top CFPB regulatory official, told Bloomberg Law in an email.

Olson pointed to a 2015 bulletin to the mortgage industry regarding marketing services agreements between lenders, real estate agents, and other settlement service providers that could violate the Real Estate Settlement Procedures Act’s prohibition on kickbacks.

One other bit of guidance that could be at risk is a 2013 guidance on unfair, deceptive or abusive acts or practices in the debt collection market that could violate the Fair Debt Collection Practices Act, Olson said.

Peterson said Mulvaney likely already has some guidance documents in mind, but he added that even if the acting CFPB director is unable to get full repeals through both the House and the Senate, there would be benefits for Republican lawmakers.

“The thing that they want is to have votes that don’t really do that much to create opposition, but that he can sell to his campaign donors,” Peterson said.

To contact the reporter on this story: Evan Weinberger at

To contact the editor responsible for this story: Michael Ferullo at

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.