On behalf of the American Bankers Association and state bankers associations across the country, K&L Gates partner Paul F. Hancock and associate Olivia Kelman crafted a comment that was submitted to the U.S. Department of Housing and Urban Development (“HUD” or “Department”) on August 20, 2018, in support of reopening rulemaking regarding the Department’s implementation of the Fair Housing Act’s disparate impact standard. On June 20, 2018, HUD issued an advance notice of proposed rulemaking that sought public comment on possible amendments to the Department’s 2013 final disparate impact rule in light of the U.S. Supreme Court’s decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507 (2015). In that decision, the Supreme Court articulated the standards for, and the constitutional limitations on, disparate impact claims under the Fair Housing Act. The comment explains that the rule should be amended because it adopts standards that are inconsistent with Supreme Court precedent, fails to provide much needed guidance to entities seeking to comply with the law, and is therefore outdated and ineffective. A copy of the comment is available here.
Members of the K&L Gates Financial Institutions & Services Litigation Group will speak on key topics at the upcoming the MBA’s Legal Issues and Regulatory Compliance Conference in Miami, FL (May 7-10).
Olivia Kelman will review the Home Mortgage Disclosure Act (HMDA) as well as other lending-related requirements of the Fair Housing Act and the Equal Credit Opportunity Act (ECOA) on Sunday afternoon (May 7).
Andrew C. Glass will address major litigation and enforcement trends, including cases heard or pending before the Supreme Court and other federal courts on Monday afternoon (May 8).
Paul F. Hancock will discuss fair lending issues affecting business models and practices, a topic of particular interest with the entrance of a new administration, on Monday afternoon (May 8). Paul also will facilitate a fair lending roundtable discussion later that same afternoon.
In addition, many of our group’s attorneys are attending the conference. We look forward to seeing you all in Miami!
K&L Gates LLP previously observed that the U.S. Supreme Court’s recognition of disparate-impact claims under the Fair Housing Act in Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc. had a “silver lining.” In particular, the Supreme Court identified that a plaintiff must meet a rigorous standard to establish a prima facie case of disparate-impact discrimination under the Fair Housing Act. On remand, the U.S. District Court for the Northern District of Texas applied that standard, holding that the plaintiff fell far short of meeting the Supreme Court’s “proof regimen” necessary to sustain a disparate-impact claim. The district court’s decision reaffirms that, in interpreting the Supreme Court’s decision properly, a Fair Housing Act plaintiff proceeding under a disparate-impact theory faces a significant burden.
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On Thursday, September 24, 2015, the CFPB and DOJ filed a complaint and proposed consent order against Hudson City Savings Bank (“Hudson City”) alleging violations of the Equal Credit Opportunity Act and Fair Housing Act. The complaint alleges that Hudson City discriminated against Black and Hispanic borrowers by redlining majority-Black-and-Hispanic neighborhoods (defined in the consent order as a census tract in which more than 50 percent of the residents are identified in the 2010 U.S. Census as either “Black or African American” or “Hispanic or Latino”) in its residential mortgage lending in New York, New Jersey, and Pennsylvania. The complaint alleges that Hudson City engaged in redlining through its (1) location of branches and loan officers, (2) exclusion of Black and Hispanic census tracts from its Community Reinvestment Act (“CRA”) assessment area, (3) use of brokers outside of majority Black and Hispanic neighborhoods, (4) marketing directed at neighborhoods with relatively few minority residents, and (5) exclusion of residents from majority-minority counties from discounted home improvement loans for borrowers with low to moderate incomes.
By: Paul F. Hancock
The Court’s decision today resolves an important legal issue about which there has been principled disagreement among White House administrations, as well as among advocacy and industry groups, for decades. While the Court, by a razor thin margin, upheld the application of disparate impact under the Fair Housing Act, the Court also imposed important limitations on the application of the legal theory. For example, the Court held that a racial imbalance, without more, does not establish a case of discrimination, and directed lower courts to “examine with care” the claims presented at the pleading stage. The Court further directed that remedial orders in disparate impact cases must “concentrate on the elimination of the offending practice” and employ “race-neutral [remedial] means.” The limitations that were announced were believed necessary by the Court to “avoid serious constitutional questions that might arise” and “to protect potential defendants against abusive disparate-impact claims.”
On May 28, 2015, the DOJ and the CFPB filed a complaint and proposed consent order against Provident Funding Associates (Provident) alleging that the mortgage lender violated the Fair Housing Act and ECOA by charging African American and Hispanic borrowers higher broker fees than it charged white borrowers. To resolve these claims, Provident will pay $9 million to approximately 14,000 borrowers who allegedly paid higher interest rates and/or fees for mortgages between 2006–2011. The agencies did not impose a civil money penalty against Provident.
On May 26, 2015, the Department of Housing and Urban Development (“HUD” or the “Department”) announced an approximately $200 million settlement with Associated Bank resolving allegations that the bank engaged in racial redlining in violation of the Fair Housing Act.
The United States District Court for the Southern District of New York recently denied class certification in a Fair Housing Act disparate-impact case in which plaintiffs attempted to hold Morgan Stanley liable for investing in subprime mortgage loans that another entity originated. Adkins v. Morgan Stanley, No. 12-CV-7667, 2013 WL 3835198 (S.D.N.Y. May 14, 2013).
On January 21, 2015, the United States Supreme Court heard oral argument in Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc. (the “Texas DHCA case”). The case presents the question whether the Fair Housing Act recognizes a disparate-impact theory of liability. See Tex. Dep’t of Hous. & Cmty. Affairs v. The Inclusive Cmtys. Project, Inc., — S. Ct. —, 2014 WL 4916193 (Oct. 2, 2014) (No. 13-1371) (granting petition for writ of certiorari). Under that theory, a plaintiff may challenge a defendant’s policies or practices that are neutral on their face (that is, do not reflect any intent to discriminate) but that purportedly have a disproportionate effect on groups sharing certain statutorily-defined characteristics such as race or national origin. The Supreme Court has expressed strong interest in the issue, granting certiorari three times in the last four terms to decide the question, only to have the parties settle just before oral argument in the previous two matters. See Magner v. Gallagher, S. Ct. No. 10-1032, and Township of Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc., S. Ct. No. 11-1507. At argument in the Texas DHCA case, the public was finally able to hear the nature of the Court’s interest in the issue.
On Tuesday, the Consumer Financial Protection Bureau (“CFPB” or the “Bureau”) issued a compliance bulletin, CFPB Bulletin 2014-03, to help lenders avoid discrimination against recipients of Social Security Administration (“SSA”) disability income in violation of the Equal Credit Opportunity Act and its implementing regulation, Regulation B.
Creditors may occasionally feel stuck between a rock and a hard place when underwriting mortgage loans for disability income recipients. On the one hand, creditors have a legal obligation to ensure that applicants are able to repay any credit extended. When an applicant receives public assistance, Regulation B expressly allows creditors to consider the length of time that such assistance is likely to continue. On the other hand, while SSA provides recipients with disability benefits documentation, that documentation generally does not detail how long benefits will last. Creditors seeking to responsibly underwrite mortgage loans must somehow make that determination on their own.