Pub. 13 2016 Issue 3

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S 18 employees challenged the employer’s decision to give greater raises to employees with less than five years of experience. In that case, the Court recognized that the ADEA must be interpreted to allow disparate impact claims because the text of the statute focuses on the effects of the action on the employee rather than the employer’s motivation for the action. The Court found that antidiscrimination laws must be construed to include disparate impact claims when statutory text refers to the consequences of actions and not just to the intentions of the actors. In a nod to HUD’s rulemaking described above, the Court also rec- ognized that employers and other regulated entities should be per- mitted to make “practical business choices and profit-related deci - sions that sustain a vibrant and dynamic free-enterprise system.” The Court cautioned that, before rejecting a business justification, a court must deter-mine that the plaintiff has shown that there is an available alternative practice that has less disparate impact and serves the defendant’s legitimate needs. The Court then turned to applying the above principles to ICP’s claims under the FHA. The Court noted that the FHA includes the catchall phrase “otherwise make unavailable,” which points to the consequences of a practice and not necessarily the intent of the actor. The Court concluded that recognition of disparate impact claims under the FHA is consistent with the FHA’s central pur- pose of eradicating discriminatory practices. The Court cautioned, however, that the FHA is not intended to be a tool to force housing authorities to reorder their priorities. Instead, housing authorities and developers should be given leeway to state and explain the valid interest served by their policies – in effect, a “business necessity” standard. The Court affirmed the Fifth Circuit Court of Appeals and remanded for further proceedings consistent with its opinion. On remand, the District Court found that ICP had not proved a prima facie case of discrimination because ICP relied primarily on statistics and did not point to a specific, facially neutral policy that allegedly caused a racially disparate impact in the location of af- fordable housing. 8 The District Court noted that identification of a specific policy or practice is essential for determining how to rem - edy the disparate impact. ICP did not identify an offending policy or practice that could be remedied. For those reasons, the District Court dismissed ICP’s disparate impact claim and entered judg- ment in favor of TDHCA. Potential Impact on Lending Practices. The Inclusive Communities case may have an impact on enforcement of the Equal Credit Opportunity Act (ECOA) and the FHA against resi- dential lenders. Commercial lending is not immune – the Consum- er Financial Protection Bureau (CFPB) has indicated its intent to issue rules designed to implement Section 1071 of the Dodd-Frank Act, which requires that the CFPB collect data related to access to credit for woman-owned and minority-owned businesses. FHA andECOA. The FHAprohibits any business engaged in resi- dential real estate-related transactions from discriminating against any person “in making available such a transaction” based on race, color, religion, sex, handicap, familial status, or national origin. A “residential real estate-related transaction” includes the making or furnishing of loans or providing other financial assistance. 9 The ECOA prohibits discrimination against any applicant with respect to any aspect of a credit transaction on the basis of race, col- or, religion, national origin, sex, marital status, or age. 10 While the ECOA does not contain a catchall phrase such as those included in the FHA, Title VII and the ADEA, the ECOA authorizes supervisory agencies to report to HUD any violation of the ECOA if the supervi- sory agency has reason to believe that a violation of the ECOA has occurred that would also be a violation of the FHA. 11 Thus, a lend- er’s residential lending practices, and their potential discriminatory effects, could be challenged under both the ECOA and the FHA. Dodd-Frank. One of the stated purposes of the Dodd-Frank Act is facilitation of fair lending laws and identification of opportuni - ties for woman-owned, minority-owned and small businesses. 12 To accomplish this, the Act requires financial institutions to in - quire whether an applicant for a loan is a woman-owned or mi- nority-owned business, and to maintain a record of the response separate from the application and accompanying information. 13 In its spring 2016 rulemaking agenda, the CFPB announced that it is in the early stages of work on Section 1071 of the Dodd-Frank Act. The CFPB intends to develop regulations concerning the data to be collected and determine the appropriate procedures and privacy protections needed for information-gathering and public disclo- sure. Though the CFPB did not expressly state that it will use this data to analyze fair lending practices or impacts, based on its activi- ty in recent redlining cases, lenders should anticipate that the CFPB will analyze woman-owned and minority-owned business data to determine whether lending practices are causing disparate impacts in those business segments. Practical Implications. Lenders engaging in residential lend- ing transactions should evaluate their loan policies and procedures to ensure that their lending practices do not result in disparate im- pacts on any of the protected classes listed in the FHA and ECOA (and LGBT applicants 14 ) and that loan criteria are objective and have a legitimate business purpose. In the context of loans to wom- an-owned and minority-owned businesses, lenders should antici- pate that, under its forthcoming regulations, the CFPB will exam- ine trends in the data collected to ensure that woman-owned and minority-owned businesses are given a fair opportunity to obtain credit. n Debbie Ramirez is a Shareholder in the Modrall Sperling Law Firm in Albuquerque and Santa Fe. She represents NewMexico and national lenders throughout the state and may be reached at (505) 848-1800 or debbie.ramirez@modrall.com 1 42 U.S.C. §§ 3604(a) and 3605(a) (emphasis added). 2 24 CFR § 100.500(c)(1) (2014). 3 Id., at § 100.500(c)(2). 4 Id., at § 100.500(c)(3). 5 The Inclusive Communities Project, Inc. v. The Texas Department of Housing and Community Affairs, et al ., 747 F. 3d 275, 280 (2014). 6 Id., at 282–283. 7 135 S. Ct. 2507 (2015). 8 The Inclusive Communities Project, Inc. v. The Texas Department of Housing and Community Affairs, et al., 2016WL 4494322 (N.D. Tex.). 9 42 U.S.C. § 3605(a) and (b) (emphasis added). 10 15 U.S.C. § 1691(a). 11 15U.S.C.§1691e(k)(2)(authorizingtheCFPB,theOfficeoftheComptrolleroftheCurrency,theFederal Deposit Insurance Corporation, the National Credit Union Administration and the Federal Reserve to make reports to HUD of FHA violations). 12 15 U.S.C. § 1071(a). 13 Id., at 1071(b). 14 At the American Bar Association’s Consumer Financial Services Institute in October 2015, Patrice Ficklin, Director of the CFPB’s Office of Fair Lending, suggested that the ECOA’s prohibition against discrimination on the basis of “sex” includes discrimination on the basis of gender identity and sexual orientation. In a memo to staff dated June 25, 2014, CFPB Director Richard Cordray stated that it is the CFPB’s policy to use and interpret the terms “spouse,” “marriage,” “married,” “husband,” “wife,” and anyothersimilartermsrelatedto familyormaritalstatus instatutes,regulations,andpoliciesto include same-sex marriages and married same-sex spouses. n The Inclusive Communities Case  continued from page 17