Today's Trends in Credit Regulation

On Pins and Needles
By Michael A. Benoit

The United States Supreme Court heard oral argument on January 21st in a case to determine whether disparate impact discrimination cases are cognizable under the Fair Housing Act. The opinion in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc. is anxiously awaited by creditors, regulators, and consumers alike due to the implications it has for disparate impact claims under the Equal Credit Opportunity Act.

The FHA provides that is it unlawful "[t]o refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin ... ." Texas focused on a textual argument supported by 2005 Supreme Court precedent, i.e., that the text must provide for claims based on the "effects" of facially neutral policies in order for a disparate impact claim to be cognizable. Texas asserted that the FHA anti-discrimination language proscribes only actions taken because of race, not policies that may merely result in racial disparities.

It was no surprise that the Court's four liberal justices (Ginsburg, Breyer, Sotomayor, and Kagan) seemed to favor finding disparate impact claims cognizable under the FHA. However, arch-conservative Justice Scalia shook things up when he argued that "otherwise make [housing] unavailable" essentially authorized claims based on unintended effects. He and the liberal justices also gave weight to the fact that 10 circuit courts of appeals had already found disparate impact claims cognizable under the FHA.

Justice Scalia returned to expectations in the second half of the argument, but his early attack on the textual argument appears to make him the swing vote on this case - an unusual position for him, to be sure. While the other conservative justices (Roberts, Alito, Kennedy, and Thomas) did little to show their hands, conventional wisdom seems to suggest that they are skeptical of disparate impact claims. Still, Justice Scalia's questions were a game changer, and the outcome of no disparate impact claims that many thought certain before the argument suddenly seems less clear. I'm not going to handicap the outcome, other than to say that oral arguments often do little to signal the final result.

A finding that disparate impact claims are not cognizable under the FHA would certainly seem a death knell for such claims under the ECOA. However, to the extent the Court goes the other way by finding that the text does in fact support such claims, it may not mean much for the eventual ECOA case that will find its way to the Supreme Court because the ECOA language does not have putatively ambiguous language. Its anti-discrimination language provides: "It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction (1) on the basis of race ... ." The ECOA language doesn't contain the squishy "otherwise make unavailable" language found in the FHA that the liberal justices (and, for a while, Justice Scalia) focused on. The ECOA simply says you can't discriminate in a credit transaction on the basis of race. Sure, one could argue that "discriminate" means intentional or unintentional action or effect, but that would really stretch the Supreme Court's requirement that the statue contain clear "effects" language. The better argument would seem to be that the ECOA proscribes only purposeful discrimination.

The ability to bring disparate impact claims under the ECOA is very important to the CFPB, so everyone is on pins and needles waiting for the Inclusive Communities decision to be handed down. A decision that such claims are not cognizable will be great for industry and good for the economy. But even if the Court upholds disparate impact claims under the FHA, the arguments to the contrary are even stronger under the ECOA. Here's hoping the Court will see that Congress never intended for companies to suffer economic harm, as well as reputational damage and distress, for disparities that were not the intended outcome of neutral and sound business policies.

Michael A. Benoit is a partner in the Washington, D.C., office of Hudson Cook, LLP. Michael can be reached at 202-327-9705 or by email at

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