WASHINGTON — Eight trade associations sent a letter to Department of Housing and Urban Development (HUD) Secretary Shaun Donovan and Consumer Financial Protection Bureau (CFPB) Director Richard Cordray requesting guidance and clarity on the bureau’s use of disparate impact, a legal theory the CFPB recently evoked to target auto lending.
According to the letter, the HUD recently finalized a regulation under the Fair Housing Act that expressly provides for liability for a facially neutral mortgage lending or servicing practice that has a disparate impact, or “discriminatory effect,” upon a protected class, even in the absence of any intention to discriminate.
The CFPB similarly stated in recent guidance that a disparate impact theory of discrimination applies to and will create liability under the Equal Credit Opportunity Act (ECOA).
The letter was signed by the American Bankers Association, American Financial Services Association, Consumer Bankers Association, Consumer Mortgage Coalition, Housing Policy Council of The Financial Services Roundtable, Independent Community Bankers of America, Mortgage Bankers Association and U.S. Chamber of Commerce.
“While we question the legal foundations underlying HUD’s final rule, especially the burden shifting standards, this letter seeks clarity on how the rule interacts with other requirements since the disparate impact liability concerns appear incompatible with other federal standards,” the letter reads. “Members of the associations seek written guidance from HUD and the CFPB so that mortgage lenders and servicers are able to meet their responsibilities under all mortgage lending standards.
“Given the significant amount of uncertainty created by the final disparate impact rule and its intersection with the CFPB’s mortgage rules, we urge you to set out written guidance for the industry that makes clear that a lender will not be subject to disparate impact liability based on specific actions undertaken to avoid liability under the Dodd-Frank rules, such as making only or primarily QM safe harbor loans or limiting QM rebuttable presumption or non-QM loans to borrowers whose risks of default are low.”
To read the full letter, click here.