WASHINGTON – In a fundamental change from their previous stance on "different effects," the big banks are asking the Trump administration to rethink plans to weaken the rules on fair lending. However, the banking industry is by no means in agreement with this view, and the authority responsible for enforcing fair lending laws, the Ministry of Housing and Urban Development, has so far shown no willingness to abandon the proposal.
Major lenders, including Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo, urged the Department of Housing and Urban Development to withdraw a plan that made borrowers more responsible for proving discrimination when they made redlining claims against lenders. They argue that the proposal, first presented a year ago, would weaken efforts to curb discrimination in a time of intense national focus on racial justice.
But small banks continue to support the proposal, saying it will reduce frivolous claims and help focus fair credit enforcement on uncovering the really bad actors.
"We don't want the proposal to be withdrawn," said Lilly Thomas, executive vice president and senior regulatory counsel at the Independent Community Bankers of America.
The Obama administration's ruling on different impacts is "so broad and so broad" that "only permanent lawyers are foreseen," said HUD Secretary Ben Carson.
A 2015 Supreme Court decision confirmed different effects that would allow plaintiffs to claim discrimination even if a lender did not show discriminatory intent. The ruling also suggested that the HUD should restrict the application of legal teaching.
The HUD proposal would set a five-step process for a consumer to demonstrate discrimination. Consumer lawyers have argued that the plan would effectively overburden the burden of proof.
The industry initially largely supported the plan.
In a October 2019 comment letter, the Mortgage Bankers Association, of which the country's largest banks are a member, stated that it "supports HUD's decision to change its different impact standard to" in line with the Supreme Court ruling stand ".
Major lenders and their trading groups have changed course after nationwide protests against systemic racism after the murder of George Floyd.
"At a time when we, as a nation, are having important and too long ignored discussions about racial inequality, we think it is wise to hold back the publication of the final rule for different effects," wrote Robert Broeksmit, President and CEO of MBA, on March 16. July letter. “Instead, we are asking the HUD to bring the housing, lending and civil rights communities together to discuss again how the stubbornly large gaps in housing and prosperity that existing color communities are facing – and through some measures have gotten worse. more than 50 years after the law on fair living was passed. "
BofA, Citi, JP Morgan Chase, Quicken Loans and Wells expressed similar feelings in their own letters. They cited recent events – including the strong impact of the coronavirus pandemic on low-income and low-income communities – and the nationwide discussion of systemic racism as justification for a break in regulation.
"Now is the time to go back to the principle that everyone should have full protection of equal and fair justice under the law," wrote Mark O'Donovan, CEO of JPMorgan Chase's Housing Department. “We look forward to continuing to work with HUD on a different policy that maintains the ability to effectively fight unintentional discrimination. These joint efforts are crucial for ensuring economic fairness and equal access to housing. "
Groups of housing representatives have welcomed the sudden change of heart of the big banks.
"It really is a turning point in the industry. It is the first time that this has ever happened," said Lisa Rice, President and CEO of the National Fair Housing Alliance. "So far, we have never been able to get the industry to rethink their position in terms of different impacts. "
Rice said the HUD proposal had already made some in the industry uncomfortable because it was seen as an obstacle to different claims for damages. The protests after George Floyd's murder were "the straw that broke the camel's back," she said.
"The rule is so bad that it even shocked some people in the industry," said Rice. "There were many disputes about this trump card [rule]. There were a lot of people in credit institutions who said, "We can't go that far, people."
It is unclear whether HUD is considering changing the plans, but the department management's first response seemed to maintain support for the plan's justification.
After the Wall Street Journal reported on Quicken and BofA's letters, HUD Secretary Ben Carson said concerns remain that the Obama administration's current framework is too broad for different impacts.
"What people need to understand is that it is so wide and wide that the way it is written is only permanent for lawyers," he said in an appearance on Yahoo Finance.
In a letter to BofA on July 14, HUD Deputy Secretary Brian Montgomery wrote: "HUD executives and professionals work every day to live up to the spirit of the Fair Housing Act."
"Although the Supreme Court decision did not directly address the HUD rules, the Court tried to be careful in applying the theory of differential effects in a way that could undermine the fair living mission and contribute to the development of communities under Lack of investment, ”said Montgomery, adding later that the department will review all the comments that it has received before issuing a final rule later this year. "
Some observers suggested that the major banks' recent stance would not affect management plans.
"If I had to guess … it's just a guess, but I can imagine they'll go on with it," said Stephen Ornstein, a partner of Alston & Bird.
Thomas from the ICBA admitted that the industry is divided between large and small banks on this issue.
"Supporting a proposal that is compatible with the decision of the United States Supreme Court does not imply or intend to suggest that we support illegal discrimination at all, or that Community banks do," she said. "These are very separate topics."
She said the current uneven impact regime uses "a huge network to catch a minnow".
"Of course, we want to identify bad actors and hold them accountable for illegal discrimination," said Thomas. "What we don't want to see are a lot of frivolous and false positive results that go through the system, bind the system together, and cost a lot of money. These costs would inevitably flow to consumers. What we want to see are targeted, high-quality effects on bad actors . "
Ornstein said the big banks calling for the plan to submit could calculate that any rule the Trump administration writes could be overturned quickly if suspected democratic candidate Joe Biden wins in November.
"If the rule in a biden administration were implemented at the end of the Trump administration, it would probably be withdrawn. It may not have the full shelf life as it is, ”said Ornstein. "I think you will see a fundamental change in the way these laws are enforced in another administration."