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A probe into PNC Financial Services' mortgage lending is stoking fears that regulators are preparing to crack down on other large banks for alleged loan discrimination ahead of a Supreme Court case that might curb the use of the controversial "disparate impact" theory.
August 13 -
A fair-housing case provides the industry an opportunity to stamp out the longstanding legal theory that there can be lending discrimination without evidence of intent.
June 17 -
The CFPB has made fair lending a top priority. To avoid problems, scrutinize the agencys view of the laws, proactively analyze policies and document the reasons behind your loan decisions.
May 28
Disparate impact suits often have much merit, but do not always benefit underserved minority communities.
On the 50th Anniversary of Dr. Martin Luther King Jr.'s speech to bring America together and to secure equal justice, we have no question as to the value of disparate impact suits in certain circumstances. However, as many banking industry leaders have contended, disparate impact is a blunt instrument that may actually harm large financial institutions that have the best records in reaching out to and serving the minority community.
Unless the U.S. Supreme Court, in the disparate impact case to be heard this fall, totally eliminates disparate impact cases (which we believe would be an ill-advised decision), we would propose a more effective policy for all of the regulators, including the Consumer Financial Protection Bureau and the U.S. Department of Justice.
Our six-pronged proposal is:
- Continue to bring disparate impact cases, but allow financial institutions to demonstrate that any adverse impacts are unintentional.
- Allow financial institutions to demonstrate through community support that underserved communities would benefit from these efforts either before or after a disparate impact lawsuit is contemplated. This is similar to the Federal Reserve's policy of holding public hearings on the impacts of major mergers on the Community Reinvestment Act and underserved communities.
- Allow a bank to offer evidence on its other programs that clearly benefit minority and underserved communities in order to counteract disparate impact claims.
- Give some weight to the regulators' CRA ratings to rebut any presumption of discrimination either prior to or subsequent to filing a disparate impact case. That is, an "Outstanding" rating in the three categories of lending, service and community investments should be considered evidence in favor of the bank's position. In contrast, "Low Satisfactory" or "Needs to Improve" CRA ratings should be used against the banks.
- Allow banks to provide evidence that they have binding long-term CRA commitments that make a substantial difference in underserved communities and that these commitments have been made with credible community groups and are fully met.
- And, consistent with Rep. Maxine Waters' Section 342 diversity provisions of the Dodd-Frank Act, allow a bank to demonstrate its diversity at the board of directors level and at all executive positions prior to or after a disparate impact suit is filed. Unfortunately, some major banks cannot yet meet this standard, but early CFPB enforcement of Waters' diversity provisions could both help minority victims and prevent disparate impact suits.
These recommendations could go a long way in helping regulators secure a balance between literal enforcement of statistical conclusions and the actual intention of the bank and the real needs of the community.
We would suggest, for example, that CFPB Director Richard Cordray, Treasury Secretary Jacob Lew, Federal Reserve Chairman Ben Bernanke and Comptroller of the Currency Thomas Curry quickly invite the senior executives from the major banks to a meeting to discuss a more balanced regulatory approach.
We would also advise that major community reinvestment advocates, such as the National Community Reinvestment Coalition, be invited to attend, as well as perhaps some pastoral leaders from the minority community.
The objectives of banking regulators (consistent with President Barack Obama's recent urging of all banking regulators to address key bank reform issues now), should be to make Dr. King's "I Have a Dream" speech of fifty years ago a reality by the time we celebrate his next birthday on January 15th, 2014.
Mark Whitlock is the senior minister for COR AME Church in Irvine, Ca. He is also the international director for Corporate Partnerships for 5,000 AME churches in the U.S. Robert Gnaizda was the general counsel for the original Greenlining Coalition founded in 1971 and former general counsel for the Greenlining Institute. He is now general counsel for the Ecumenical Center for Black Church Studies and the National Asian American Coalition.
