Two days after the Martin Luther King, Jr. holiday, the Supreme Court will hear arguments about one of the most important civil rights cases of modern times.
At question is whether or not Americans will be able to continue to use a provision of the Fair Housing Act called disparate impact. It sounds complex, but the concept is really quite simple.
Disparate impact says that banks and other housing service providers must use policies that are fair and do not have unnecessary discriminatory consequences.
Both the government and private civil rights advocates have used disparate impact for more than 40 years to increase and ensure fairness in our lending markets and provide access to credit on an equal basis. In fact, all 11 appellate courts that have taken up the matter have found that disparate impact is a viable means of enforcing the Fair Housing Act.
This broad consensus of the federal circuit courts underscores the judiciaries’ keen awareness that discrimination can manifest in varied ways, including those that are covert or may appear innocent at first blush.
Indeed, for several decades, federal regulators have employed the use of the disparate impact analysis in an effort to help keep our financial markets free from discrimination and provide borrowers access to quality financial products and services.
Ensuring fair and equal access to traditional credit has not been an easy task. The history of our country has not been pleasant when it comes to fair lending issues. Consider this — there has never been a time when African-Americans and Latinos have primarily accessed credit in the mainstream, prime lending markets.
These communities have primarily been served by the fringe or residual markets, including subprime financial institutions. In fact, if it were not for the Federal Housing Administration (FHA) and Veterans Affairs (VA) programs, mortgage lending to borrowers of color would be practically non-existent.
The Fair Housing Act and its disparate impact provision provide the needed mechanism to address many barriers in the lending sector that unfairly and unnecessarily restrict credit access.
The Department of Justice (DOJ) has settled significant disparate impact claims against several lending institutions for charging African-American and Latino borrowers higher interest rates and fees even though these borrowers had substantially similar credit histories and financial profiles as white borrowers, as well as for steering borrowers of color to subprime loans while providing prime loans for white borrowers with substantially similar credit profiles. Additional cases have been settled with a number of lenders challenging policies that resulted in discriminatory disparities for borrowers of color.
I think all fair-minded people would agree that we should not allow these types of discriminatory outcomes to persist. Private civil rights attorneys, state Attorney Generals, federal enforcement agencies and others continue to work diligently to ensure that those practices are part of the past — and not our future.
As Americans, we believe in fairness and equality, and we must ensure that our laws and actions support these principles.
America is growing more diverse every day. African-Americans, Latinos and other borrowers of color will make up the lion’s share of the lending markets going forward. It not only makes moral sense but it is also economically logical that if we are to have a healthy, viable and growing market, these consumers must be able to actively participate in our financial system.
If these borrowers lose the opportunity to fairly access the financial markets, it is a fact that these individuals will be harmed — but our nation will suffer even more.
If the Supreme Court restricts consumer access to fair credit, our economy will certainly pay the price.