ABA Supports CFPB Proposal to Eliminate Disparate Impact Under ECOA
Commentary by Steven Lofchie
The American Bankers Association ("ABA") supported the Consumer Financial Protection Bureau's ("CFPB's") proposed amendments to eliminate disparate impact liability under the Equal Credit Opportunity Act ("ECOA"). (See previous coverage.)
In the comment letter, the ABA asserted that the proposal would create a more durable regulatory framework grounded in ECOA's statutory text while reinforcing antidiscrimination principles.
The ABA urged the CFPB to finalize three key aspects of the proposal. First, the ABA supported the proposal's recognition that disparate impact liability is not cognizable under the ECOA.
The CFPB's proposal would amend the Act and its commentary to remove references to the "effects test" and clarify that ECOA does not prohibit facially neutral practices except when such "criteria function as proxies for protected characteristics designed or applied with [discriminatory intent]." The ABA claimed that eliminating the "disparate impact theory" would minimize regulatory ambiguity and uncertainty while advancing ECOA's purposes.
Commentary
The concept of "disparate impact" removes the relationship between principles of morality and the laws against discrimination because it makes illegal conduct that is not only not malevolent, it is not intentional. If conduct causing disparate impact is to be illegal without any intent, it should follow, at a minimum, that there is some publicly-announced standard of equal results that lenders must meet. In the absence of either a lender's bad intent, or an announced standard that a lender must meet and fails to do so, what is the justification for punishment?