Automotive Compliance Consultants insisted that contrary to recent developments on Capitol Hill, the U.S. House of Representatives’ vote to eliminate the Department of Justice’s use of disparate impact does not negate the Consumer Financial Protection Bureau’s use of the legal theory in auto finance cases.
The firm went on to say that the possibility of the CFPB leveraging disparate impact will not disappear even if the bill passes the Senate and is not vetoed by President Barack Obama.
Automotive Compliance Consultants general counsel David Missimer explained that he spotted several media reports highlighting how the House passed an amendment to H.R. 2578, the Fiscal Year 2016 Commerce, Justice, and Science Appropriations Act, that would bar the Department of Justice from using funds for litigation in which the regulator seeks to apply the disparate impact theory.
Missimer went on to mention that his research uncovered discussions about the significance of the amendment to the use of disparate impact by the CFPB to support actions in auto finance.
“The amendment to H.R. 2578 will have no effect on the CFPB’s use of the legal theory in auto finance,” Missimer said. “The reason for this is the amendment is limited, and only bars the use of appropriated funds by the Department of Justice to bring Fair Housing Act enforcement actions that rely on an allegation of liability under the HUD Disparate Impact Rule.”
The bill was introduced by Rep. Scott Garrett, a New Jersey Republican. Garrett stated that in recent years, the Department of Justice has pursued and obtained large legal settlements from finance companies, landlords and insurers in discrimination lawsuits using the dubious legal theory of disparate impact.
“Disparate impact liability allows the government to allege discrimination on the basis of race or other factors based solely on statistical analyses that find disproportionate results among different groups of people, regardless of evidence of actual discriminatory actions or intent,” Garrett said. “Instead of making decisions based on neutral standards of creditworthiness, lenders must consider these demographic factors or risk running afoul of the Justice Department.”
The amendment voted on states that none of the funds made available in the act may be used by the Department of Justice to enforce the Fair Housing Act in a manner that relies upon an allegation of liability under section 100.500 of title 24, Code of Federal Regulations (rule prohibiting discriminatory effect).
“While everyone agrees that discrimination has no place in the lending practices of any respectable institution, the application of disparate impact theory has had devastating impacts on law-abiding businesses who have diligently maintained fair and consistent lending standards,” Garrett said.
“The federal government should be encouraging sound business practices, not punishing those that utilize them,” he continued. “I thank my colleagues for taking a stand for small businesses and reinstating equal protection under the laws as guaranteed in our Constitution by the Fourteenth Amendment.”
While the development might be beneficial to the housing market, Missimer reiterated that it’s not the auto finance players who disagree with the use disparate impact might be seeking.
“The Act if passed will not preclude the Department of Justice from continuing to use disparate impact in Equal Credit Opportunity Act cases,” Missimer said. “Thus, disparate impact very much remains an issue for dealers and finance companies.”
Automotive Compliance Consultants specializes in dealership and auto finance compliance, providing in-dealership consultations and analysis, compliance audits and training, and offers solutions for compliance needs. The Automotive Compliance Consultants staff has extensive experience in the retail automotive industry and focuses exclusively on dealership compliance issues.
For information, visit www.compliantnow.com.