New guidance issued by the U.S. Department of Housing and Urban Development (HUD) on Fair Housing Act (FHA) protections for persons with limited English proficiency (LEP) could have reverberations under the Equal Credit Opportunity Act (ECOA) for creditors serving LEP consumers. An LEP consumer is a person with a limited ability to read, write, speak, or understand English.

The FHA prohibits discrimination in the sale, rental, or financing of housing based on various protected characteristics, including race and national origin. The guidance stops just short of treating LEP as a protected characteristic. Although noting the close relationship between LEP and national origin, it indicates that a housing provider violates the FHA if it uses a person's LEP to intentionally discriminate based on race, national origin, or another protected characteristic, or if its practices have a discriminatory effect or disparate impact based on race, national origin, or another protected characteristic.

The guidance discusses how restrictions against all persons whose primary language is not English or who have accents, as well as policies and practices that discriminate based on a person's particular primary language or accent, or that make distinctions between persons with certain accents and persons with other accents, whether facially or through selective enforcement, can violate the FHA. It also states that intentional discrimination can exist where a provider targets LEP individuals for unfair or illegal housing practices (a practice HUD calls "akin" to reverse redlining) or where a provider fails to comply with a legal or contractual requirement to provide housing-related assistance to LEP persons. Alarmingly, for creditors struggling with how best to begin to serve LEP consumers, the guidance warns that conducting business in some foreign languages but not others could be intentional discrimination based on national origin.

The guidance also discusses how a facially neutral practice that uses LEP could violate the FHA based on a "discriminatory effect" or "disparate impact" theory. (Last year, in its Inclusive Communities decision, the U.S. Supreme Court held that disparate impact claims are cognizable under the FHA.) As examples of such practices, the guidance mentions lender policies or practices such as not allowing an LEP borrower to have mortgage documents translated, refusing to provide an LEP borrower with translated documents that the lender has readily available, restricting an LEP borrower's use of an interpreter, or requiring a mortgage to be signed by an English speaker.

The guidance expresses some skepticism as to whether any practice that has a disparate impact is ever necessary to achieve a substantial, legitimate nondiscriminatory interest. It cautions that any business justification proffered for such a practice will be closely scrutinized for evidence that the practice is a proxy or pretext for race or national origin discrimination. Moreover, it specifically rejects the argument that a housing provider is justified in refusing to serve LEP consumers because of the costs and burdens that would be imposed by state consumer protection laws, such as those in existence in California and Oregon, that would require translations of some or all mortgage documents.

The HUD guidance is likely to be used to support claims by regulators in supervisory and enforcement actions and private plaintiffs in individual or class action lawsuits that a creditor’s policies and practices regarding LEP consumers violate the ECOA. Because the ECOA prohibits creditors from discriminating in providing credit based on protected characteristics such as race and national origin, a creditor that targeted LEP individuals for unfair treatment or failed to comply with a legal or contractual requirement to provide credit-related assistance to LEP persons could similarly be charged with intentional discrimination under the ECOA. In addition, a creditor that engaged in the practices mentioned by HUD as examples of practices that could violate the FHA based on their disparate impact could also face an ECOA claim based on a disparate impact theory. Indeed, despite the fact that Inclusive Communities did not address whether disparate impact claims are cognizable under the ECOA, Richard Cordray, Director of the Consumer Financial Protection Bureau, has stated that the decision reaffirmed the validity of using disparate impact to prove discrimination under the ECOA.