Supreme Court Slams The Brakes On Challenge To Disparate Act

McNees Wallace & Nurick LLC

[co-author: Emily Hart*]

As of now, the Equal Credit Opportunity Act (ECOA) prohibits dealers from unintentional, or “disparate impact,” discrimination in setting dealer reserves in auto financing.  This disparate impact can result from policies or practices which have disproportionately adverse effects on members of a protected class (race, national origin, religion, sex, etc.). 


Last month, in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., the Supreme Court upheld disparate impact as a valid theory of discrimination under the Fair Housing Act (Act).  While there was no question that the Act prohibits intentional discrimination, some believed the Court accepted the case to invalidate disparate impact.  However, the Court upheld disparate impact, noting that the language of the FHA focuses on the consequences of a policy or practice, not just the motivation, or intent, behind them.


This decision only applies to disparate impact under the FHA, so it is not clear whether the Court would uphold a challenge to disparate impact under ECOA. However, the Court’s validation of disparate impact in the context of the FHA will aid the Consumer Financial Protection Bureau under ECOA, to make good on its promise to eradicate unintentional, statistical discrimination from dealer-assisted financing.


The NADA has published and recommended guidelines to establish a Standard Dealer Participation Rate and implement a Fair Credit Compliance Program as ways to reduce exposure to disparate impact liability.


The take-away is simple: nothing has changed, disparate impact is alive and well.


* Emily Hart is part of the McNees 2015 Summer Associate Program and is currently enrolled at Drexel University School of Law.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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