The American Bankers Association this week urged the Department of Housing and Urban Development to rescind its 2023 disparate-impact rule and replace it with one that more closely aligns with the findings of the U.S. Supreme Court.
HUD in 2013 published a disparate-impact rule formalizing a burden-shifting test for determining whether a given practice has an unjustified discriminatory effect. The rule was challenged in court, with the plaintiffs claiming it was inconsistent with a Supreme Court decision regarding disparate-impact claims under the Federal Housing Administration. HUD later issued a new rule that was challenged in court by consumer groups, so in 2023, it recodified the earlier rule. The recodified rule has been challenged in court, and ABA has filed an amicus brief in support of that effort.
President Trump has directed federal agencies to identify regulations that undermine free-market competition and harm consumers and businesses, with the goal of possibly eliminating those regulations. In a letter to HUD Secretary Scott Turner, ABA recommended the agency rescind the disparate-impact rule as part of that effort. Among other things, the association pointed to the harmful burdens on banks.
“For instance, credit decisions related to residential mortgage applications do not align neatly with the realities of racial distribution within the population,” ABA said. “Differences that might be correlated with factors such as age, race or national origin are to be expected even with the application of fair and prudent underwriting standards, simply because of societal differences in wealth, income, employment and credit scores.”
ABA said its members have long supported the fair enforcement of laws prohibiting discrimination in lending, noting that banks devote substantial resources to compliance. But the rule is not consistent with legal precedent and administration policy, it added.
“The 2023 rule does not accurately state the law, puts necessary and nondiscriminatory lending practices at risk, and creates incentives to discriminate rather than reducing discrimination,” ABA said. “Moreover, it continues to create confusion in the courts as to the proper standards under the FHA as interpreted by the Supreme Court … The harmful effects of the rule should be addressed by its immediate recission.”
Editor’s note: This story has been corrected to clarify that ABA filed an amicus brief in support of a lawsuit to overturn the 2023 rule.
