White Paper: Disparate Impact Under FHA and ECOA: A Theory Without a Statutory Basis

The federal regulatory and enforcement agencies with fair lending responsibility, including the DOJ and the CFPB, have taken the position that violations of the Fair Housing Act (“FHA”) and Equal Credit Opportunity Act (“ECOA”) can be shown by use of the disparate impact discrimination theory. Under this theory, the government or private litigants can bring claims based solely on statistics that suggest an otherwise neutral policy disparately affects minorities. Unlike other illegal credit discrimination claims, disparate impact claims do not require the government or a private plaintiff to prove intent to discriminate. While many courts previously have agreed with this view and have allowed the use of the disparate impact theory in FHA and ECOA fair lending cases, all of those decisions rely on an interpretation of Supreme Court employment discrimination cases that more recent Supreme Cases has invalidated.

A recent line of Supreme Court cases has emphasized that the text of the statute— not vague notions of statutory purpose—determines whether a statute permits particular claims. One of these cases, the Court’s 2005 decision in Smith v. City of Jackson, clarified that the Court’s decisions that disparate impact claims are permitted in employment cases were based on a specific language in Title VII and not the statute’s broader purpose. The Court explained that Title VII contains two different provisions that prohibit discrimination, the second of which provides that an employer may not take actions that negatively “affect” a person’s employment on the basis of race, sex, and other attributes. The City of Jackson Court explained that this “effects” language permits disparate impact claims and does not require a showing of intent. However, a close reading of the FHA and ECOA reveals that they have only the language which the Supreme Court explained requires claimants to prove intent to discriminate—and neither has the “effects” language that the Court explained permits disparate impact claims.