“Disparate impact” as the basis for finding fair lending discrimination got a boost last week from HUD (paid subscription required), which issued an 83-page rule in support of that theory. As regular readers know, we at BLB have a long-standing antipathy to claims that spring fully-formed from the brains of those who live to ensure that every American has a right to obtain any loan that he or she applies for, especially if they won’t have one chance in a million of ever repaying it. After all, banks are public utilities, right?
The usual suspects came out in droves to bloviate about this latest exercise in pushing a political-social agenda through federal government action. On one side, you had the consumer advocates, who thought this rule might have originally been a part of the Arc of the Covenant.
"We're happy that the rule's out, and believe it's consistent with 40 years of policy," says Dory Rand, president of the Woodstock Institute, a nonprofit advocacy group.
Dory then reentered the Woodstock Institute and toked up a fat boy with Wavy Gravy.
From the dark side of The Force came the yowlings of the hounds of hell, otherwise known as bank lawyers.
"It's as extreme as it could be in adopting the disparate impact approach," says Paul Hancock, a partner at K&L Gates.
"There's concern that each element of the three-part test has some language that could make it easier to proceed with a disparate impact case, and harder to defend," says Joseph Barloon, a partner at Skadden Arps.
Messrs. Hancock and Barloon then paused to beat a homeless man senseless before stealing a third grader’s milk money and pushing an elderly dowager in front of an onrushing trolley.
None of this should come as a shock from an administration that also includes an ironically named “Justice Department” that has gone to great lengths to use disparate impact to squeeze lenders into coughing up mucho dinero. It is also no surprise that this rule was expectorated shortly after the second inauguration of the future “Lone Bust On Mount Rushmore.” Launching this thing off the pad in September 2012 might have posed some political risk. Now, the administration isn’t worried about re-election, only in firing the opening salvo in what will be four more years of beating banks into line to serve a progressive social agenda on “fair” lending. “Game On!”
There’s always the chance that the SCOTUS could throw a strip of road spikes in front of this speeding bus.
The rule also comes at a time when the Supreme Court has been mulling whether to rule on the applicability of disparate impact theory in the fair lending context.
In 2011, the high court agreed to hear a case involving the city of St. Paul, Minn., that might have resolved the issue. But St. Paul officials scuttled their appeal after the Justice Department agreed not to join another lawsuit against the city. Congressional Republicans are now accusing the Justice Department of entering into an inappropriate quid pro quo with the city of St. Paul.
The Justice Department's maneuver irked the lawyers who represent banks in fair-lending suits. "If the government was confident in its position on this issue, why didn't they let the Supreme Court decide the case?" Hancock asks.
Obviously, Paul was asking a rhetorical question, the answer to which is “Because they know they’d lose it.”
While some legal experts opined that the promulgation of HUD’s rule will make it more difficult for the Supreme Court to overturn the “disparate impact” theory because of traditional deference shown to regulatory interpretations by federal courts, others were less pessimistic.
I’m with Rich on this one. As long as Justice Scalia doesn’t stoke out or end up shot dead in the street by a jealous husband, and Justice Thomas continues to honor his vow of silence and thereby avoid a rip in the space-time continuum, I think the SCOTUS will ultimately trim the wingtips from this high-flying bird. On the other hand, I wouldn’t take that prognostication to the bank.
Rich Andreano, a partner at Ballard Spahr, disagrees. He says that in some recent decisions the Supreme Court has given less deference to federal agencies than it did in the past.
"They're going to base it on their own interpretation and won't particularly care what HUD's interpretation is," Andreano says.