CFPB Hints At Possible Disparate Impact Rulemaking
On October 17, the Bureau released its Fall 2018 Rulemaking Agenda, but it included a surprise for those interested in fair lending. Under the section of the associated blog post entitled “Future Planning” appears the following statement:
“The Bureau is considering future [rulemaking] activity with regard to specific areas of consumer financial law of significant public interest. For example, the Bureau announced in May 2018 that it is reexamining the requirements of the Equal Credit Opportunity Act (ECOA) concerning the disparate impact doctrine in light of recent Supreme Court case law and the Congressional disapproval of a prior Bureau bulletin concerning indirect auto lender compliance with ECOA and its implementing regulations.”
This is a very interesting development, because it suggests that the Bureau’s “reexamination” of disparate impact may not merely be a matter of informal interpretation or enforcement/supervision priorities, but may become enshrined in a rule (presumably an amendment to Regulation B). If this happens, its effects would likely be more permanent and widespread than a more informal statement of position relating to disparate impact. A rule, once finalized, would presumably:
remain in effect indefinitely, until altered by another notice-and-comment rulemaking;
be binding on other federal agencies (like the Department of Justice) and on courts, as an authoritative interpretation of ECOA;
survive any leadership change at the Bureau, again subject to the rulemaking process being restarted; and
prevent the Bureau from applying any different standard for disparate impact retroactively upon a change in leadership at the agency.
So, a disparate impact rulemaking could be very significant over the long term. But what direction might such a rulemaking take?
One possibility would be to remove the “effects test” language from Regulation B (§ 1002.6(a)) and state affirmatively that there is no disparate impact theory of liability under ECOA. There is certainly support in the statutory language, and the reasoning of Inclusive Communities, for that result. Indeed, this conclusion was the one highlighted in the House Financial Services Committee’s Unsafe at Any Bureaucracy report, including a chart that shows the distinctions between ECOA and other federal statutes illustrating that there is no language in ECOA to support a disparate impact theory of liability.
Another idea might be to follow the path of the HUD disparate impact rulemaking under the Fair Housing Act, to carefully define the elements of a disparate impact claim in a way that limits application of the theory to more well-settled situations and which gives appropriate deference to reasonable business justifications. We blogged about the HUD rulemaking most recently here.
A third potential would be to flesh out the “robust causality” requirement discussed in Inclusive Communities to require significant proof beyond statistical analysis for any disparate impact claim, which again could serve to curb what the Supreme Court labeled “abusive” claims of disparate impact.
We don’t know what the Bureau may do in this regard, or whether the foreshadowing of an ECOA rulemaking will actually be carried through to completion, but if it is, it could be a very significant, long-term development for fair lending law.