Last month, Republican staff members on the Committee of Financial Services in the U.S. House of Representatives issued a Report criticizing tactics used by the Consumer Financial Protection Bureau in the auto finance area. The Staff Report generally questions the CFPB’s disparate-impact claims under the Equal Credit Opportunity Act (“ECOA”) and the Bureau’s use of questionable statistical analyses to pressure auto finance companies to end discretionary pricing by auto dealers, a segment of the industry that is expressly exempted from CFPB supervisory authority under the Dodd-Frank Act. Along with its many criticisms of the CFPB, the Staff Report also summarizes the legal argument currently gaining traction within the lending industry regarding whether claims based on disparate-impact liability are cognizable under the Equal Credit Opportunity Act (“ECOA”). Although the Report focuses on the auto lending industry, the Committee’s comments and legal analysis should interest anyone monitoring CFPB activity and regulation or the next Supreme Court disparate-impact battle.
On April 18, 2012, the CFPB issued its Bulletin concluding that claims of disparate-impact liability are cognizable under ECOA. The Staff Report criticizes that determination on two bases.
First, the Report notes that the CFPB’s conclusion lacks any legislative or congressional authority. Instead, “the only authorities the Bureau citied to support its assertion that disparate impact claims are cognizable under ECOA were pronouncements made by other federal agencies.” Furthermore, the legislative history of ECOA, including its original enactment in 1974 and the amendments in 1976, indicates that Congress never intended for disparate-impact claims to be cognizable under ECOA.
Second, the Supreme Court’s recent decision in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc., 135 S. Ct. 2507, 2514 (2015), casts further doubt on the CFPB’s conclusion that disparate-impact liability exists for violation of ECOA. In Texas, the Supreme Court ruled that disparate-impact claims are cognizable under the Fair Housing Act (“FHA”). In its analysis, the Supreme Court compared the text of other federal statutes designed to protect against discrimination, including Title VII of the Civil Rights Act of 1964 (“Title VII”) and the Age Discrimination in Employment Act (“ADEA”), and determined that they allowed for disparate-impact liability based on statutory language regarding the adverse effects on a protected class. Like Title VII and ADEA, the FHA encompasses disparate-impact claims because the “text refers to the consequences of action and not just to the mindset of the actors.” According to the Staff Report, the text of ECOA does not include any similar references to the effects on a protected class. Therefore, because ECOA lacks language signaling a shift from intent to effect, pursuant to Texas, disparate-impact liability is unavailable under the statute.
Of course, the Staff Report can be attacked as partisan and biased against the CFPB, and the Supreme Court has not yet addressed whether ECOA recognizes disparate-impact claims. However, the Staff Report reveals that CFPB representatives recognize the precariousness of their own position on this issue based on internal communications within the Bureau. Many legal commentators, including Troutman Sanders, predicted in an earlier blog post that the Supreme Court’s decision in Texas may limit disparate-impact liability under ECOA. The Staff Report lends credence to these earlier analyses by providing clear and reasoned legal analysis directly contrary to the CFPB’s conclusion regarding ECOA and disparate-impact claims. The groundwork for the next big challenge for the Supreme Court has been laid.