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High Court to Review “Disparate Impact” Theory of Racial Bias in Lending, Housing

Monday, June 17, 2013 19:10
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Bloomberg News reports:

The U.S. Supreme Court will decide whether people who file housing discrimination suits must show they were victims of intentional bias, accepting a case that may undercut the Obama administration’s crackdown on the lending industry.

The justices today agreed to consider an appeal by Mount Holly, New Jersey, which is fighting a U.S. Fair Housing Act lawsuit filed by residents over the demolition of a predominantly minority neighborhood. The town says the residents must prove an intent to discriminate, not just that the project has a disproportionate effect on racial minorities.

The case will test a legal theory, known as “disparate impact,” that the Obama administration has repeatedly invoked in lawsuits against banks over housing and auto loans. Bank of America Corp., Wells Fargo & Co. (WFC) and SunTrust Banks Inc. (STI) have agreed to pay at least $480 million to settle claims since December 2011.

“Defending allegations of disparate impact — even if proven to be meritless — is typically very expensive,” five lender trade groups, led by the American Financial Services Association, argued in papers urging the justices to intervene.

A decision favoring the banking industry would mark a major change in the enforcement of the 1968 fair-housing law. Eleven courts of appeals have ruled on the issue, and all have said the statute allows disparate-impact claims.


The high court’s ruling might also affect the Equal Credit Opportunity Act, which bars discrimination in all types of lending and contains similar language. The Consumer Financial Protection Bureau has relied on the disparate-impact doctrine in its enforcement of that law.

The Supreme Court under Chief Justice John Roberts already is preparing to rule in two cases that may redefine longstanding legal protections for racial minorities. The justices will rule by the end of June on university affirmative action programs and the 1965 Voting Rights Act.

The justices will hear the new case in the nine-month term that starts in October.

The housing case stems from an effort by Mount Holly to redevelop what it said was a blighted, high-crime area. Known as the Gardens, the neighborhood was originally developed to provide homes for returning World War II veterans and their growing families. In more recent years, the Gardens was the only predominantly black and Hispanic area in town, with 75 percent minority residents in 329 residential units.



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