On June 4, eight industry groups sent a letter addressed to HUD Secretary Shaun Donovan and CFPB Director Richard Cordray requesting much needed written guidance from HUD and the CFPB that makes clear that compliance with the CFPB’s ability-to repay/qualified mortgage (QM) final rule will not expose lenders to disparate impact liability under the Fair Housing Act (FHA) or the Equal Credit Opportunity Act (ECOA).
In April 2012, the CFPB issued a bulletin confirming that it plans to apply a disparate impact test in exercising its supervisory and enforcement authority under the ECOA for all types of credit, including mortgage lending. In February 2013, HUD issued a final rule providing that disparate impact can be used to establish liability under the FHA. Use of disparate impact allows the CFPB, HUD, or a private plaintiff to prove unlawful discrimination even if there is no discriminatory intent.
In their letter, the industry groups express concern that the CFPB’s QM rule appears “incompatible” with disparate impact liability because it will tighten credit standards through facially neutral requirements that could lead to disparate impacts on protected classes of borrowers. Accordingly, they assert that guidance is needed to address “the significant amount of uncertainty created by the final disparate impact rule and its intersection with the CFPB’s mortgage rules.” More specifically, the groups note that there is no guidance on “whether and to what extent” compliance with the rule’s requirements, such as the QM minimum debt-to-income ratio, “amounts to a sufficient business necessity” that would provide a defense to disparate impact liability. They also note that there is little guidance on “the standards used to assess less discriminatory alternatives in the context of complying with federal requirements.”
We share the concerns of the industry groups. The industry groups signing the letter were the Mortgage Bankers Association, American Bankers Association, American Financial Services Association, Consumer Bankers Association, Consumer Mortgage Coalition, Housing Policy Council of the Financial Services Roundtable, Independent Community Bankers of America, and U.S. Chamber of Commerce.