Business groups warn that some regulations aiming to combat discrimination are counterproductive and could end up hurting the very people they were meant to help.
Money lenders and the insurance industry say that the government policy, which has been used by agencies for years, gives them too much leeway to charge companies with discrimination, even if their policies are written neutrally with no intent to treat African-Americans, Hispanics or other people differently.
“The focus is not on the intent of the actor,” Randi Cigelnik, a senior vice president with the Property and Casualty Insurance Association of America said on Tuesday.
“In other words, the practice can be illegal even without evidence of discrimination or motive.”
{mosads}In February, the Department of Housing and Urban Development issued a regulation allowing it to use the theory, known as disparate impact, to bring discrimination claims.
Civil rights groups cheered the regulation as a key step to combat systemic housing discrimination.
At the time, the director of the NAACP’s Legal Defense and Education Fund’s Washington office, Leslie Proll, said the regulation “will promote stronger fair housing enforcement across communities and in all aspects of the housing market.”
But Cigelnik said at a forum hosted by the U.S. Chamber of Commerce that the rule partly created an “imminent threat of litigation and enforcement” for insurance companies.
The Consumer Financial Protection Bureau (CFPB) has also committed to use disparate impact in its regulatory actions.
Last month, CFPB Director Richard Cordray said that the agency “will pursue discrimination in consumer financial markets based on disparate impact as well as disparate treatment.”
“From the perspective of a consumer disadvantaged by policies that have a discriminatory effect, it makes no practical difference whether a lender consciously intended to discriminate,” Cordray said.
Earlier this year, the agency announced that it would take action against auto lenders that adjust their rates for different customers, sometimes known as a “dealer markup.” The CFPB said that the practice, whereby lenders and dealers share parts of the extra revenue, can be discriminatory.
But auto lenders say that the markup just increases competition, which ends up helping out the consumer.
“They are removing the competitive forces from the marketplace which will raise the cost for consumers inevitably,” said Andrew Koblenz, the executive vice president for legal and regulatory affairs at the National Automobile Dealers Association.
He added that the CFPB has been “categorically silent” about how auto lenders’ policies will be evaluated for having a disparate impact.
In December, the Supreme Court is scheduled to hear a case about racial discrimination in the housing sector that relies on disparate impact claims.
The case centers on a small Philadelphia suburb, Mount Holly, N.J., which asserted its powers of eminent domain to redevelop a low-income residential area. Residents of the area argued that the redevelopment would disproportionately impact African-American and Latino households.
If the high court rules in favor of the town and decides that housing discrimination must be intentional to be illegal, it could dramatically limit the government’s ability to write rules based on the disparate impact philosophy, according to Lisa Blatt, a partner at the Arnold and Porter law firm.
“If the statute doesn’t prohibit disparate impact, then I don’t see how the government can talk about it, much less regulate it,” she said, comparing it to the court’s ruling earlier this year striking down part of the Voting Rights Act.
“It is a huge, huge deal to them if they lose this case because they have to prove intent and basically the game’s over.”
Blatt predicted that Justice Antonin Scalia would be the swing vote in the case.
The Chamber of Commerce, the American Bankers Association, the American Financial Services Association and the American Insurance Association have joined in briefs supporting the township’s argument that federal law only prohibits intentional discrimination, not disparate impact claims.
Blatt compared the questions before the high court to other types of requirements that might seem to exclude some people.
“Imagine a fire department or a police department that has either a performance test or an intelligence test,” she said. “Is the city discriminating or is that unfair to minorities who may not score as well, or to women who may not be able to bench press the same amount as men?”