Defund HUD's Enforcement Of 'Disparate Impact' Rule

06/22/2015 07:02 PM ET

Regulation: Senate Democrats vow to block a bill that bars funding for a new HUD rule creating unfair and costly discrimination liability for home lenders. Passage is critical to protecting businesses from government overreach.

The HUD appropriations bill, set Tuesday for committee markup, includes an amendment first offered by Rep. Scott Garrett, R-N.J., in the House version of the legislation. It would defund HUD's ability to implement, administer or enforce the agency's dubious "disparate impact" rule, finalized in late 2013.

Disparate impact discrimination claims are suspect because they rely on statistics to prove racism, rather than actual acts — a much lower standard of proof.

In HUD's view, any business policy, practice or standard that results in different outcomes for minorities is racist, regardless of any intent to discriminate.

Under this potentially unconstitutional regulation, even when a mortgage lender takes every step to prevent discrimination and treats all borrowers fairly and equally, neutral policies such as minimum down payment and credit score requirements can serve as a legal basis for a federal bias lawsuit that poses stiff costs to defend and severe damage to reputation.

As consumers, we would all end up eating the legal and compliance costs that banks will have to front under this regulation.
"Our member companies use facially neutral standards in mortgage underwriting and resident screening because they are nondiscriminatory," the Credit Union National Association said in a letter to lawmakers backing the ban on HUD funding.

"Under HUD's rule, a lender, apartment owner, apartment manager or housing cooperative could be challenged if these practices yield different results for a protected class."

The Independent Community Bankers of America has also come out strongly against the rule, arguing: "Virtually every lender in the United States could be sued for using nondiscriminatory credit standards simply because variations in economic and credit characteristics produce different credit outcomes among racial and ethnic groups."

HUD's disparate-impact rule effectively criminalizes legitimate business practices.

To avoid liability under this perverse regulatory scheme, lenders, insurers and landlords will end up making poor business decisions.

For example, lenders will be under pressure to relax their loan approval standards to ensure there's no disparate impact violation, repeating the pre-crisis insanity of providing riskier and riskier loans to politically favored groups who don't have the ability to pay back those loans.


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