November 18, 2018

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State AGs Urge Mulvaney To Continue Use Of Disparate Impact Theory Of ECOA Liability

On September 5, 2018 a group of 14 state Attorneys General and the AG for the District of Columbia sent a comment letter to CFPB Acting Director Mick Mulvaney, urging him to refrain from “reexamining the requirements” of the Equal Credit Opportunity Act (“ECOA”). The AGs seek to preserve the interpretation that the ECOA provides for disparate impact liability.

This letter was written in response to the statement issued by the CFPB on May 21, 2018, responding to the enactment of S.J. Res. 57, disapproving of the CFPB’s Bulletin 2013-2 regarding “Indirect Auto Lending and Compliance with the Equal Credit Opportunity Act.” Through this joint resolution, Congress rejected the disparate impact theory underlying enforcement actions brought by the CFPB under the ECOA, related to auto dealer finance charge participation.  Although this enactment would appear to mark the demise of such enforcement actions, recent announcements from the New York Department of Financial Services have called that conclusion into question.

In its May 21, 2018 statement, the CFPB indicated that it “will be reexamining the requirements of the ECOA” in light of “a recent Supreme Court decision distinguishing between antidiscrimination statutes that refer to the consequences of actions and those that refer only to the intent of the actor” and “the fact that the Bureau is required by statute to enforce federal consumer financial laws consistently.”  (The statement presumably refers to the Supreme Court’s Inclusive Communities decision.)

Referencing the language in Regulation B and Regulation B Commentary regarding the “effects test,” the AGs argue in their letter that the regulations implementing the ECOA have continuously interpreted the statute as providing for disparate impact liability.  They assert that action by the CFPB in derogation of those regulations would violate the Administrative Procedure Act.

The AGs further argue that because their states have enacted statutes modeled on the ECOA, responsibility for enforcing the statutory protections is shared among the states and the federal government, such that the CFPB cannot overturn the Supreme Court’s 2015 ruling in Inclusive Communities.  The AGs state that the holding of Inclusive Communities, “dictates” that the ECOA provides for disparate impact liability, because the FHA and the ECOA contain identical language stating that it “shall be unlawful for any person . . . to discriminate against any person . . . because of race, color, religion, sex, handicap, familial status, or national origin.”

As we have observed previously, however, the Supreme Court’s conclusion in Inclusive Communities, that disparate impact liability is cognizable under the FHA, was largely based upon, “its results-oriented language, [and] the Court’s interpretation of similar language in Title VII and the [Age Discrimination in Employment Act (ADEA)].”  We commented that the Court’s analysis highlights material differences between the FHA and the ECOA; namely the lack of comparable “results oriented language” in the ECOA.

The states whose AGs signed the comment letter are North Carolina, California, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oregon, Rhode Island, Vermont, and Virginia.  The same group of state AGs, with the addition of the Attorneys General for Iowa and Pennsylvania, recently sent a letter to HUD urging it not to make changes to its 2013 Disparate Impact Rule in light of the holding in Inclusive Communities.

As the Supreme Court aptly recognized in Inclusive Communities, limitations on disparate impact liability are necessary to protect potential defendants from abusive disparate impact claims.  The requirement of a “robust” causality requirement helps to safeguard potential defendants from claims that, in effect, seek to hold them “liable for racial disparities they did not create.”  These considerations, along with the materially different language in the two statutes, raises substantial questions as to how persuasive the CFPB will find the arguments presented by the state AGs.

Copyright © by Ballard Spahr LLP

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About this Author

Elisabeth R. Connell, Litigation attorney, Ballard Spahr
Associate

Elisabeth R. Connell represents clients in commercial litigation matters, including lead-based paint claims, labor and employment law issues, and insurance coverage and defense.

Judicial Clerkships/Internships

Clerk, Hon. Stephen J. Sfekas, Baltimore City Circuit Court, 2014-2015

Intern, Hon. Edward R. K. Hargadon, Baltimore City Circuit Court, 2012

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