Senator Toomey Urges CFPB to Stop Using Disparate Impact Theory to Establish Liability

Senate Banking Committee Ranking Member Pat J. Toomey (R-PA) urged the CFPB to stop using disparate impact theory as guidance for evaluating whether racial discrimination occurred, saying that the theory is misguided and encourages regulators to abuse authority.

In a statement, Senator Toomey asserted that the CFPB uses disparate impact theory - which establishes liability for discriminatory effects arising from facially neutral policies - to justify the pursuit of discrimination-related enforcement actions. He argued that such actions have carried significant costs and reputational risks for firms even in instances where no discrimination occurred.

He accused the agency of launching actions based on the theory, which were likely to fail in court, as a form of leverage to convince companies to settle rather than suffer the reputational damage. Senator Toomey said that CFTC disparate impact claims include instances where neither the accused company nor the regulator actually knew the race of the alleged victims of discrimination. Senator Toomey also argued that the CFPB is able to get away with overly expansive regulatory interpretations because its structure insulates it from congressional oversight.

Senator Toomey concluded that firms have incurred significant costs to avoid disparate impact liability and "frivolous" litigation, costs that are ultimately passed on to consumers. He argued that this practice will ultimately limit access to financial services for low-income families.