TriceEdneyWire.com — For more than 50 years, the Equal Credit Opportunity Act (ECOA) has been an effective federal safeguard to ensure that Black, Latino, Native Americans and other economically marginalized people have fair access to safe and affordable credit. Enacted with bipartisan support in Congress and signed into law by President Gerald Ford in 1974, ECOA has been a legal backbone in the fight against financial discrimination for literally millions of qualified borrowers.
But this April, the agency created to be the nation’s consumer financial cop on the beat issued a new rule to roll back enforcement of anti-discrimination efforts. The bureau’s proposal will end disparate impact standard for enforcement actions, allow lenders to discourage applicants by race, and limit the use of special purpose credit programs to expand access to credit for women, Blacks, Latinos, Asian Americans, Pacific Islanders, Native-Americans, older Americans and other economically vulnerable families.
“The amendments represent one of the most consequential shifts in federal fair-lending policy in decades and are likely to prompt litigation challenging key aspects of the rule,” predicted a recent legal blog.
That prediction proved correct.
On May 27, a federal lawsuit was filed in the U.S. District Court for the District of Columbia by the National Fair Housing Alliance and four other housing organizations that are suing the Consumer Financial Protection Bureau (CFPB) and its Acting Director Russell Vought.
“The statute did not change. The legal decisions did not change. Washington’s commitment did,” said Lisa Rice, NFHA president/CEO. “This reversal by the CFPB is a continuation of this administration’s efforts to gut fair housing and lending protections.”
“To start, the CFPB failed to identify any concrete problem with the current regulatory regime,” states the lawsuit. “The CFPB relied on conclusory assertions and speculation, not evidence, to justify its dramatic departure from decades of settled ECOA implementation. The CFPB’s approach is at odds with the available evidence: As commenters to the proposed rule made clear, public data and research (much of it from the CFPB itself) show that the Final Rule is ill-conceived and likely to harm covered entities and consumers alike.”
The lawsuit also raises the question of Vought’s authority as an ‘acting CFPB director.’ The law that created CFPB explicitly awarded rule making authority to Senate-confirmed CFPB directors, which Vought is not.
According to the advocates, during an abbreviated public comment period, an estimated 64,500 industry participants, including a coalition of 78 civil rights organizations, other consumer advocates, state attorneys general, and members of Congress, registered their opposition to the reversal.
“The CFPB set an unusually short 30-day public comment period over the Thanksgiving holiday, failed to employ a small business advocacy review panel, and made not a single material change to the rule in response to tens of thousands of comments, the overwhelming majority of which opposed the rule,” said Janell Byrd-Chichester, National Fair Housing Alliance general counsel.
Recapping registered opposition comments, the housing plaintiffs found that more than 90% opposed dropping disparate impact liability, changes to discouragement protections, and the elimination of Special Purpose Credit Programs that expand credit access for communities that historically face persistent barriers.
“The CFPB needs to follow the law and return to its core mission of protecting consumers and small businesses,” said Paulina Gonzalez-Brito, CEO of Rise Economy, whose organization is also a plaintiff.
If allowed to stand, CFPB’s new rule will shift the burden of proof in cases of discrimination from the powerful to the vulnerable. It is also a misguided effort to make consumers prove intent instead of analyzing available, fact-based patterns of economic exclusion.
Equity in our nation’s housing finance system cannot be achieved until or unless families of color are afforded equal opportunities to build wealth through homeownership. Disparate impact rightly places the burden in proving marketplace discrimination on lenders and should be preserved.
“When the agency built to enforce civil rights and protect consumers walks away from the job, the rule of law remains” said NFHA’s Rice. “That is why we are in court.”
(Charlene Crowell is a senior fellow with the Center for Responsible Lending. She can be reached at <Charlene.crowell@responsiblelending.org>.)
