A report from Trump’s Treasury Department says that using a legal theory that documents subtle discrimination could “impose unnecessary burdens on insurers.” Instead, Treasure recommends that federal housing officials “reconsider” using this theory in anti-discrimination efforts, and Republican lawmakers recently urged Housing and Urban Development Secretary Ben Carson to drop a rule using the theory, which is known as “disparate impact analysis.”
The trade group for the consumer credit industry, the American Financial Services Association, wants to prevent the bureau from using the legal theory that the bureau has employed to force auto finance companies such as American Honda Finance Corp. and Toyota Motor Credit to pay $126 million in damages and penalties.
Stacy Seicshnaydre, a law school professor at Tulane University, said the Trump administration can’t undo disparate impact because a 2015 Supreme Court decision upheld the laws behind it — although the administration can stop pursuing anti-discrimination cases using the theory.
This doctrine “helps ensure that policies are justified and supported by empirical analysis, not driven by assumptions and perceptions,” she said.
Carson, the man officially in charge of setting our nation’s housing policy, has bashed efforts to undo discrimination with disparate impact.
“These government-engineered attempts to legislate racial equality create consequences that often make matters worse,” he wrote in the Washington Times.
Disparate impact was used by the Equal Employment Opportunity Commissionin the early years of the agency’s existence. The analysis measures discrimination, such as African-Americans paying higher interest rates on car loans, without having to prove an intent to discriminate.
Susan Carle, a law school professor at American University, said moderates who wanted to avoid the confrontational lawsuits favored by the NAACP pushed the use of disparate impact to work with companies.
“It really is meant to be a very moderate theory, without accusing people of nefarious and immoral motives, to produce results that can make things better for everybody,” Carle said.
The landmark case was a 1971 Supreme Court decision in a lawsuit brought by 13 African-American employees of a power-generating facility in Draper, North Carolina, against Duke Power. Private utilities had the lowest rate of minority employees among all major industries. Duke Power’s African-American employees were laborers, earning less than the lowest-paid employees in other departments where only whites worked.
Duke started requiring a high school diploma or IQ scores equal to those of the average high school graduate after the passage of Title VII of the Civil Rights Act of 1964, which made it illegal for employers to discriminate on the basis of race. Those requirements disqualified African-Americans at a higher rate than other applicants.
The Supreme Court decided that the Civil Rights Act required “the elimination of artificial, arbitrary, and unnecessary barriers to employment” that keep minorities out if they can’t be shown to be related to job performance.
Disparate impact claims are difficult to prove, however, because the lawyers bringing the cases need to have sophisticated statistical analysis to show the effects of the discrimination and identify what is causing these effects.
Seicshnaydre looked at four decades of disparate impact claims under the Fair Housing Act, from 1974 to 2013. She found that plaintiffs had historically been “overwhelmingly unsuccessful,” with wins in only 20 percent of the FHA disparate cases considered on appeal.
But even as Seicshnaydre researched her paper, the Obama administration was moving to use disparate impact analysis more aggressively. The Consumer Financial Protection Bureau announced in 2012 that it would use disparate impact to look at problems with access to credit. The bureau teamed up with the Department of Justice to enforce fair lending laws.
In 2013, the bureau and the Department of Justice ordered Ally Financial Inc. and Ally Bank (formerly GMAC) to pay $80 million in damages to car buyers who had been overcharged for car loans, along with $18 million in penalties.
“Discrimination is a serious issue across every consumer credit market,” said Richard Cordray, the director of the bureau. “We are returning $80 million to hard-working consumers who paid more for their cars or trucks based on their race or national origin.”
An investigation by the bureau and the Department of Justice found that about 100,000 African-Americans were each charged an average of over $300 more in interest than similarly qualified non-Hispanic whites for their loans. About 125,000 Hispanic borrowers were charged over $200 more, as were about 10,000 Asian and Pacific Islander borrowers. Ally did not monitor whether discrimination was occurring.
On the housing front, Obama’s Department of Housing and Urban Development adopted a rule using disparate impact analysis in 2013. The insurance industry promptly sued. The Property Casualty Insurers Association of America argued that homeowners’ insurance relied on setting prices based on risk, such as the age and condition of homes, and that the rule violates a federal law that exempts the business of insurance from most regulation.
HUD reconsidered the public comments and essentially told the insurance industry “too bad,” noting its “long, documented history of discrimination.“
That history included the Missouri Department of Insurance finding in 1993 that residents of low-income minority neighborhoods in St. Louis paid 50 percent more than residents of low-income white areas for comparable policies.
The Property Casualty lawsuit is pending.
The 2015 Supreme Court decision that upheld disparate analysis in housing cases, Texas Department of Housing v. Inclusive Communities Project, stemmed from claims that the state housing authority set up a system that encouraged developers to produce housing units in minority neighborhoods.
Inclusive Communities, a nonprofit that helps low-income families find affordable housing, accused the agency of perpetuating segregated housing by allocating too many tax credits in predominantly black inner-city areas and too few in predominantly white suburban neighborhoods.
Justice Anthony Kennedy, casting the crucial vote in a 5-4 decision, tightened the standard to prevail in such cases. He wrote that such claims must fail if the plaintiff can’t point to policies that cause the racial disparity and that a “robust causality” requirement was needed to ensure that defendants don’t use racial quotas.
“It would be paradoxical to construe the FHA to impose onerous costs on actors who encourage revitalizing dilapidated housing in the nation’s cities merely because some other priority might seem preferable,” Kennedy wrote.
All four of the court’s prominent conservatives at the time, Chief Justice John Roberts, Samuel Alito, Clarence Thomas and Antonin Scalia, dissented from the decision.