NYDFS says disparate impact remains in effect
Countering an Executive Order issued by President Trump and the adoption by the CFPB of its final rule revising Regulation B, the New York Department of Financial Services recently issued an Industry Letter warning the financial institutions that it regulates that they must consider disparate impact when lending.
“Regulated Entities are reminded that under Section 296-a, covered credit decisions that result in a disparate impact may constitute an unlawful discriminatory practice,” the agency wrote in a letter to financial institutions.
The department said that section “prohibits discrimination in, among other things, the granting, withholding, extending, or renewing, or in the fixing of the rates, terms, or conditions of any form of credit on the basis of statutorily established characteristics. N.Y. Exec. L. § 296-a(1)(b). Discrimination is prohibited on the basis of race, creed, color, national origin, citizenship or immigration status, sexual orientation, gender identity or expression, military status, age, sex, marital status, status as a victim of domestic violence, disability, or familial status.”
The letter runs counter to Executive Order 14281 issued by Trump. In that order, Trump wrote that “disparate-impact liability all but requires individuals and businesses to consider race and engage in racial balancing to avoid potentially crippling legal liability. It not only undermines our national values, but also runs contrary to equal protection under the law and, therefore, violates our Constitution.”
The letter also runs counter to the CFPB’s final rule revising Regulation B, which eliminated all references to disparate impact in the text of the rule and in the Official Staff Commentary. Having examined Regulation B, and the comments received on its proposed rule, the CFPB “determined that, under the best reading of the statute, disparate impact claims are not cognizable under [the Equal Credit Opportunity Act] (ECOA).”
In finalizing its revisions to Regulation B, the CFPB declined to provide guidance on how to comply with state antidiscrimination laws, noting that it has no authority over or expertise regarding state laws that include a disparate impact component. However, consistent with Section 705(f) of the ECOA and Section 1002.11(a) of Regulation B, which provide that state laws that provide greater protection for an applicant are not preempted, it did observe that creditors “are still liable” under applicable state antidiscrimination statutes, and, accordingly, that “the incentives for [creditors] to implement policies or engage in practices that lead to disparate impact may be restricted.”
By contrast, in the executive order Trump addressed the existence of fair lending and fair housing provisions in state laws, saying that the administration would determine if federal law preempts state regulations, policies, or practices that impose disparate-impact liability based on a “federally protected characteristic such as race, sex, or age, or whether such laws, regulations, policies, or practices have constitutional infirmities that warrant Federal action, and shall take appropriate measures consistent with the policy of this order.”