ABA Urged End to Disparate Impact in Fair Lending Cases

WASHINGTON — ABA urged federal agencies to stop using disparate impact analysis in fair lending cases as its use is based on unsupported legal theory, yet carries real consequences for banks and consumers that detract from legitimate fair lending efforts.

ABA provided officials at the Consumer Financial Protection Bureau, the banking agencies, the Housing and Urban Development and Justice Departments with a white paper presenting the legal arguments that disparate impact has no valid statutory foundation.

"ABA members are strong advocates for fair lending and fully support enforcement against practices that intentionally discriminate," said Frank Keating, ABA president and CEO. "However, disparate impact asserts fair lending violations occurred based only on statistical differences, where neither intent nor discrimination can be proven."

"Disparate impact relies on a legal theory that more recent Supreme Court cases have found invalid. Using disparate impact creates unnecessary compliance risk, limiting credit availability and driving up the cost of borrowing.” said Keating. "We urge our regulators to refocus their fair lending supervision on reforming policies that intentionally discriminate and have no place in the banking industry."

ABA’s engagement on this subject is its latest effort to work with agencies to establish clear expectations about how a bank’s fair lending performance will be judged. Earlier this year, ABA released an updated Fair Lending Toolbox that includes resources to help banks ensure their programs are keeping pace with accepted legal and regulatory standards as they strive to expand lending opportunities to all who are qualified.