The Evolution of Disparate Impact & Its Use by Federal Regulators

Transcription

1 The Evolution of Disparate Impact & Its Use by Federal Regulators Louisiana Bankers Association Bank Counsel Conference Andrew L. Sandler Chairman & Executive Partner December 11,

2 2

3 Supreme Court Rules On June 25, 2015, the Supreme Court in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. held that disparate impact claims are cognizable under the Fair Housing Act But Court cautioned that such claims are appropriate only in limited circumstances 3

4 Inclusive Communities: Overview Inclusive Communities upheld disparate impact in a 5-4 divided opinion Majority opinion authored by Justice Kennedy, and joined by Justices Breyer, Ginsburg, Kagan, and Sotomayor Two dissents Alito joined by Chief Justice Roberts, Scalia, and Thomas Thomas also filed separate dissent while joining Alito s 4

5 Inclusive Communities: Statutory Analysis Focus on effects-based text of the statute otherwise make unavailable of central importance to the analysis 804 and 805 Effects-based language only in 804 Section 805 contains no effects-based language Kennedy opinion folds in 805 because the Court has upheld disparate impact in cases involving similar language Alito dissent notes that the similar language is similar except for the actual text of the statute, the structure, the purpose, and the context 805 seems to have been included as an afterthought 5

6 Inclusive Communities: Conceptual Drift Initially focused on policies that are a pretext for discrimination (insuring equal opportunity) Wards Cove Has gradually drifted toward ensuring equal outcomes HUD Disparate Impact Rule Standard in debate HUD Rule shows where agencies/plaintiffs would like to see the standard Court has reaffirmed that Wards Cove applies to all civil rights laws other than Title VII (Smith v. City of Jackson) Inclusive Communities discussion of the burden shifting framework seems more in keeping with the Wards Cove formulation than the HUD Rule formulation Not the model of clarity artificial, arbitrary, and unnecessary standard 6

7 Inclusive Communities: And the HUD Rule Inclusive Communities Court did not endorse or defer to HUD Rule Although the Court discussed the burden shifting framework at length, and even cited the HUD rule a few times in other contexts, it did not cite the HUD rule in discussing the standards that apply to the different stages of the burden shifting framework Did not defer to the HUD rule Dissent: recounts the unusual pattern in the background to the adoption of the HUD rule, and expressly says there is an argument that deference may be unwarranted. Court emphasized the need for a rigorous application of the burdenshifting framework: Were standards for proceeding with disparate-impact suits not to incorporate at least the safeguards discussed here, then disparate-impact liability might displace valid governmental and private priorities, rather than solely removing artificial, arbitrary, and unnecessary barriers. And that, in turn, would set our Nation back in its quest to reduce the salience of race in our social and economic system. Court also articulates the burden-shifting framework in a way materially inconsistent with the HUD Rule 7

8 Inclusive Communities: Statistical Analysis [A] disparate-impact claim that relies on a statistical disparity must fail if the plaintiff cannot point to a defendant s policy or policies causing that disparity. The Court noted that a robust causality requirement must be satisfied to show that a specific policy caused a statistical disparity to protect[] defendants from being held liable for racial disparities they did not create. 8

9 Inclusive Communities: Business Justification artificial, arbitrary, and unnecessary Critical to ensure that defendants must not be prevented from achieving legitimate objectives Court endorsed the importance of considering practical business choices and profit-related decisions that sustain a vibrant and dynamic free-enterprise system in determining whether a company s policy is supported by a legitimate business justification. The Court further explained that entrepreneurs must be given latitude to consider market factors, as well as other objective and subjective factors. The Court emphasized that before rejecting a business justification, a court must determine that a plaintiff has shown that there is an available alternative practice that has less disparate impact and serves the entity s legitimate needs. 9

10 Enforcement Environment CFPB and DOJ Leading the Charge Top enforcement priorities of CFPB and DOJ are mortgage redlining and indirect auto pricing Many redlining settlements in past three years (Eagle Bank, Hudson City Savings Bank, Associated Bank, Five Star Bank, Luther Burbank Savings Bank) Three significant indirect auto consent decrees focused on discretionary pricing: Fifth Third, American Honda Finance, and Ally. A number of MOUs signed, and many active investigations HUD becoming more active in range of fair lending issues related to loan underwriting limitations including FICO score, disability income, and marital status Prudential and State Regulators Also active in pursuing disparate impact fair lending claims against institutions within their jurisdictions with focus on access to credit related issues. (e.g. NY AG pursuit of redlining cases) 10

11 Questions Andrew L. Sandler Chairman and Executive Partner BuckleySandler LLP