CFPB Embraces Contentious 'Disparate Impact' Theory for Discriminatory Lending

American Banker
April 19, 2012
Davidson, Kate

On April 18, the Consumer Financial Protection Bureau (CFPB) took a hard line against lending abuses, saying it will pursue actions against lenders that discriminate -- even when that discrimination is inadvertent. Financial institutions can have a "disparate impact" when their policies put certain borrowers at a disadvantage, even if there is no intent to do so; and that impact can be just as damaging as overt discrimination, officials declared. "We cannot afford to tolerate practices, intentional or not, that unlawfully price out or cut off segments of the population from credit markets," said CFPB director Richard Cordray, speaking before the National Community Reinvestment Coalition. While he said financial institutions would be given some measure of flexibility, Cordray stressed the importance of ensuring fair lending practices. "Conduct that may seem benign -- what the lawyers call 'facially neutral' actions -- can create effects that are just as devastating for those marginalized communities," he said. As an example, Cordray said that giving loan officers too much latitude in deciding how much borrowers should pay can lead to minority or female consumers systemically being charged more than white or male borrowers with similar credit backgrounds.
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