The federal government doubled down on fair-lending enforcement Wednesday when the Consumer Financial Protection Bureau said it planned to pursue actions against lenders even when discrimination was unintentional.
The bureau said institutions whose lending policies have a "disparate impact" — meaning they put certain groups of borrowers at a disadvantage even if that was not the clear intention — should be on notice in addition to those that outwardly discriminate.
In a press release issued Wednesday, the bureau said it will use "all available legal avenues, including disparate impact, to pursue lenders whose practices discriminate against consumers." The agency also issued a compliance bulletin reaffirming its commitment to enforcing the Equal Credit Opportunity Act, which it enforces jointly with the Justice Department, by "recognizing the disparate impact doctrine."
The Justice Department has raised the ire of banks in recent years by claiming violations of fair lending laws when a policy has a disparate impact on a group of borrowers.
"We cannot afford to tolerate practices, intentional or not, that unlawfully price out or cut off segments of the population from the credit markets," CFPB Director Richard Cordray said in the release. "That's why the CFPB is educating consumers about their fair lending rights and pursuing lenders whose practices are discriminatory."
But the bureau said it would afford institutions some flexibility. Similar to the test used in previous fair-lending policies, the CFPB said some practices that have a discriminatory effect "meet a legitimate business need that cannot reasonably be achieved as well by means that are less disparate in their impact."
"But sometimes, they do not," the bureau said in the release.
The consequences of "disparate impact" discrimination, however unintentional, can affect consumers just as significantly as other forms of discrimination, Cordray said Wednesday in a speech to the National Community Reinvestment Coalition conference in Washington.
"Conduct that may seem benign — what the lawyers call 'facially neutral' actions — can create effects that are just as devastating for those marginalized communities," he said.
"An example of this kind of conduct is giving loan officers wide discretion to determine how much to charge borrowers. This can result in an aggregate pattern of African-American or female borrowers paying more than similarly situated white or male borrowers."
The Justice Department in December reached the largest fair lending settlement in history — a $335 million settlement with Countrywide Financial — for similar claims of pricing discrimination. The department's fair lending unit filed eight lending-related lawsuits last year and reached eight settlements, most originating from referrals from other regulators.
But the CFPB, unlike other regulatory agencies, has the unique authority to bring its own cases against lenders in federal court.
Given this authority, the announcement Wednesday did not come as a surprise to industry observers, several of whom said they had long expected CFPB to join the Justice Department in aggressively pursuing fair lending cases.
