The Justice Department has unofficially declared war on banks, as evidenced by the onslaught of discriminatory lending lawsuits in the last three years, claiming some banks’ lending policies have a disparate impact on certain groups of borrowers.
“Disparate impact” is the key phrase — an alleged disparate impact is the statistical summary prosecutors point at to say banks must have behaved in a discriminatory manner, because, see, here are the figures that show Group A received fewer loans or less favorable loan terms than Group B.
Once a disparate impact claim has been borne out by the Justice Department’s statistical sifting, the burden of proof essentially shifts to banks to show how the differences between Group A’s loans and Group B’s loans were justified by business necessity.
Therein lies the rub — several of them, to be exact.
First, disparate impact in a discriminatory lending context is poorly defined at best, and completely subjective at worst. Depending on which statistics are measured, and how they are weighted, prosecutors can support a claim against virtually any bank at any time, regardless of the bank’s intent.
Second, disparate impact is not included in ECOA or FHA as a permissible means of proving discriminatory practices. It is a theory proposed by prosecutors as an alternative means of supporting their claims and relied on by courts following outdated law.
Third, the mechanics of lending are customer-specific, with customer privacy tightly protected and regulated. Lenders consider many aspects of borrowers’ private financial information, which are not publicly available for Justice’s purview and number crunching. Comparing apples to oranges will never result in a reasonable assessment of fairness.
In upcoming articles, we will examine each of these issues in further detail, supporting our position against disparate impact claims in a discriminatory lending context.
We will also address related issues, including the chilling effect of the disparate impact theory on the banking industry, and how the Justice Department appears to be more interested in engineering certain social outcomes than enforcing the law.
Check back soon to read more about the challenges currently facing the banking industry.
If you are a bank or another business facing regulatory compliance issues, consult with legal counsel to help you develop a sound legal strategy. The attorneys at Glass & Goldberg provide high quality, cost-effective legal services and advice for clients in all aspects of business litigation and transactional law. Call us at (818) 888-2220, email us at email@example.com, or visit us on the web at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.