Consumer Law & Policy Blog

Mount Holly and the future of disparate impact: history, deference, and constitutional avoidance

by Deepak Gupta 

On April 4, 1968, Dr. Martin Luther King Jr. was assassinated as he stood on the balcony of the Lorraine Motel in Memphis. His killing sparked a fresh round of riots in cities nationwide. Nearly two dozen representatives immediately changed positions and urged passage of the Fair Housing Act. Within a week, with armed National Guardsmen still quartered in the basement of the Capitol to protect it from surrounding violence, the House passed the Act and President Johnson signed it into law. The legislators who voted for the Act sought to combat the “practical effect" of facially neutral policies (not just overt discrimination) that resulted in residential segregation in American cities.

Mount Holly, a major civil rights case now before the U.S. Supreme Court, has big implications for whether the intent of those legislators will continue to govern discrimination in housing and lending. Today, my colleague Jon Taylor and I filed a brief on behalf of current and former members of Congress, including Senator Edward Brooke—one of the two key sponsors of the Fair Housing Act of 1968. You can find the rest of the papers in the case here.

The Fair Housing Act broadly prohibits discrimination in the sale or rental of housing and in housing-related brokerage and loan services. The Equal Credit Opportunity Act provides parallel protection in the consumer credit context. The question in Mount Holly is whether the FHA prohibits policies and practices that have a discriminatory effect—i.e., a “disparate impact” on a protected class—in addition to instances of intentional bias (“disparate treatment”). For years, the federal government and private parties have used disparate-impact theory to challenge discriminatory rental, sale, and lending policies. HUD recently issued regulations embracing disparate impact. The CFPB has embraced it as well. And every federal court of appeals to consider the issue (11 out of 11) has endorsed disparate impact as a valid means of enforcing the Fair Housing Act’s promise of equal housing opportunity. At issue in Mount Holly is continued vitality of this key enforcement tool. 

Our brief focuses on history. We demonstrate that the Act, understood in its proper historical context, was intended to allow disparate-impact claims. That was true when the Act was first enacted in 1968 and it was even more apparent in 1988, when Congress revised the Act. By that point, the strong and uniform consensus in the courts of appeals was that disparate impact claims are cognizable. That was also HUD's position. The main effect of the 1988 legislation was to delegate considerably more enforcement authority to HUD. If Congress didn't want to continue allowing disparate-impact claims, it would have been very strange to give the agency far more authority without altering the scope of substantive liability. Congress also added new language that presupposed the existence of disparate-impact liability and repeatedly rejected attempts to introduce an intent requirement. 

The brief also touches on a difficult question lurking behind the case: What role, if any, should the constitutional-avoidance canon play?  And how does it intersect with ordinary principles of agency deference? The petitioner, the Township of Mount Holly, raises constititional objections based on the Equal Protection Clause and the Tenth Amendment. But those constitutional challenges aren't actually presented in the case and nobody has raised them in other cases. Should the Court nevertheless interpret the statute narrowly to "avoid" those issues? Does that mean that Chevron deference goes out the window?  

Here's our take in the brief: Constitutional avoidance is supposed to show judicial restraint and respect for Congress. But applying the constitutional-avoidance canon in Mount Holly—where no constitutional claims have been presented, no similar claims have ever been asserted, and Congress has expressly stated that the Act’s remedial scope fully extends to constitutional limits—would show disrespect for Congress. The upshot of doing so (no disparate-impact claims ever) would be the same as reaching the potential constitutional issues not presented and prematurely resolving them against disparate impact in all cases. That's the opposite of judicial restraint.

A different view of the Fourth Circuit's recent decision in class action against Family Dollar

Earlier this month, we noted a significant Fourth Circuit class action decision (Scott v. Family Dollar) permitting the plaintiffs to amend their complaint with allegations that could qualify them for class action treatment within the rules set forth by the Supreme Court in Wal-Mart v. Dukes.

Here's a different take: the U.S. Chamber of Commerce quotes the Wall Street Journal characterizing the decision as one more round in a "war of attrition" between federal appellate courts and the Supreme Court over class standards. Apparently, according to the Chamber, whenever a court distinguishes a case from Dukes on the facts and finds class certification possible, it is at "war" with the Supreme Court.

Does the Dodd-Frank financial reform legislation hurt community banks and, in turn, consumers?

Over two years ago, we posted a link to an opinion piece by former Senator Christopher Dodd, which responded to common criticisms of the Dodd-Frank financial reform legislation, including the criticism that the law's allegedly excessive regulation will harm small, "community" banks. Now, law professor Tanya Marsh and Joseph Norman have written The Impact of Dodd-Frank on Community Banks, which concludes that the law will,  in fact, harm community banks and, in turn, consumers. Here is the abstract:

The regulatory framework for financial institutions in the United States, including many provisions of The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), impose significant costs on community banks without providing benefits to consumers or the economy that justify those costs. The stated purpose of Dodd-Frank was to prevent another financial crisis by enhancing consumer protection and ending the era of "too big to fail." However, the application of Dodd-Frank to community banks is misplaced. Community banks did not cause the financial crisis. The relationship-banking business model and market forces protect the customers of community banks without the need for additional regulation. Dodd-Frank builds on decades of "one size fits all" regulation of financial institutions, an ill-conceived regulatory framework that puts community banks at a competitive disadvantage to their larger, more complex competitors. The imposition of regulatory burdens on community banks without attendant benefits ultimately harms both consumers and the economy by: (1) forcing community banks to consolidate or go out of business, furthering the concentration of assets in a small number of mega-financial institutions; and (2) encouraging standardization of financial products, leaving millions of vulnerable borrowers without meaningful access to credit. Neither of these outcomes will protect consumers, the financial system, or the recovery of the American economy.

CBO: Raising Medicare eligibility age by two years would save very little

For years now, some people wanting the U.S. to trim "entitlement" costs have, among other things, proposed raising the age at which non-disabled people become eligible for Medicare. The current eligibility age is 65. (Disabled people generally are eligible for Medicare two years after they become eligible for federal disability benefits.) Early last year, the Congressional Budget Office (CBO) estimated that raising the Medicare eligibility age from 65 to 67 would save the Treasury $113 billion over 10 years. That savings wouldn't close the deficit on its own, of course, but $113 billion is not pocket change either.

Politicians must consider whether upping the eligibility age is a good idea even if it saves money. And then there's the large amount of political capital politicians of all stripes would have to expend to raise the entitlement age (assuming they think it is the right thing to do). So, politicians are sure not going to spend that capital if the savings are small.

And that may be the case. In an analysis done with the Joint Committee on Taxation, CBO has greatly revised downward the savings from raising the eligibility age by two years. It now estimates that the savings would be only $19 billion from 2016-2023. In today's world, saving a little more than $2 billion a year on a program as large as Medicare is close to saving nothing at all. A synposis of why CBO's estimate has changed appears after the jump.

Delaying Affordable Care Act start dates not so simple

This article by Jennifer Haberkorn says that delaying implementation of the Affordable Care Act is

not as easy as bumping things back a few days on the calendar. Insurance companies would raise a ruckus because they set their prices based on customers enrolling before April. The Obama administration doesn’t want to push the successful enrollment stories until any later than they have to. And neither want to give procrastinators another reason to wait to sign up. “Here’s the irony of ironies: The insurance industry is ready for Obamacare on Jan. 1. Obamacare is not ready for Obamacare on Jan. 1,” said Robert Laszewski, an insurance industry consultant with Health Policy and Strategy Associates. In fact, insurance companies have a lot to lose from a delay. They need to start racking up paying customers as early as possible in 2014 so they can set rates for 2015.

Barnes on Social Media and Consumer Bargaining Power

Wayne Barnes of Texas A&M has wrtiten Social Media and the Rise in Consumer Bargaining Power,14 U. Pa. J. Bus. L. 661 (2012). Here's the abstract:

Consumers are constantly entering into form contracts, both offline and online.  They do not read most of the terms, but the duty to read says the contracts are nevertheless fully enforceable.  Moreover, consumers lack any real bargaining power when assenting to such contracts with merchants.  Not only that, but if the products malfunctions, or they are somehow damaged by it, they will likely face the prospect of being limited in their available remedies because of boilerplate terms which are favorable to the merchant.  In the “old days,” the consumer had no real recourse but to call a 1-800 number, and hope to catch a customer service representative on a good day.  Otherwise, the company would likely stand behind its contract term and deny any relief.   Recently, however, several notable consumers have taken their complaints to the web 2.0 world of social media, either through Facebook  or Twitter, or YouTube videos.  Some of these consumers’ postings have gone “viral,” generated lots of attention, and thereby caused their merchants to reconsider dealing with their problems.  As such, an interesting shift in bargaining power has arguably occurred, giving such consumers a greater voice in negotiating favorable contractual outcomes with their much more well-capitalized merchant contracting partners.  This article describes this phenomenon, and discusses some of the favorable implications for consumers and contract law.

Still More from Hockett on Underwater Mortgages and Eminent Domain

Robert C. Hockett of Cornell and John Vlahoplus of Mortgage Resolution Partners have written A Federalist Blessing in Disguise: From National Inaction to Local Action on Underwater Mortgages, 7 Harvard Law & Policy Review (2013). Here is the abstract:

While it is widely recognized that the mortgage debt overhang left by the housing price bubble and bust continues to operate as the principal drag upon U.S. macroeconomic recovery, few seem to appreciate just how locally concentrated the problem is.  This paper takes the measure of the national mortgage debt overhang problem as a cluster of local problems warranting local action.  It then elaborates on one form of such action that the localized nature of the ongoing mortgage crisis justifies - use of municipal eminent domain authority to purchase underwater loans, then modify them in a manner that benefits debtors, creditors, and their communities alike.

The Nation: The Scholars Who Shill for Wall Street

by Jeff Sovern

I frequently post links to scholars' articles on consumer law issues, including pieces by George Mason's Todd J. Zywicki, like this one.  The Nation recently published a piece reporting on professors who also work for Wall Street-funded operations without disclosing that in, as The Nation put it, their "university profile, CV, byline or congressional testimony." Zywicki was the first academic discussed in the article.  My own view is that scholars who receive money from the financial industry and write on matters that deal with that industry should disclose that, but I'm not aware of any ethical rules requiring such disclosure, though there should be. I should also note that I don't know Zywicki and certainly have no reason to think his views are affected by the money he receives from financial firms. Still, if you read the articles I link to, bear in mind that other authors may also have an undisclosed interest.  And in the interest of disclosure, I should report that two of my relatives work for banks and a third works for an internet company. 

The Nation article is very much worth reading. Academics may find the following quote of particular interest: "Jim Overdahl, an economic consultant formerly with National Economic Research Associates, told The Nation that professors can fetch $5,000 per letter submitted to a regulator." Alas, not all of us get paid for our communications with regulators.

New study on self-driving cars

We have covered the question whether self-driving cars would benefit consumers by making driving easier and reducing injuries and deaths from crashes. California has enacted legislation setting up a framework for the regulation of self-driving cars in that state. At the federal level, the National Highway Transportation Safety Administration announced a new policy in late May of this year for researching and regulating self-driving vehicles. That policy covers

• An explanation of the many areas of vehicle innovation and types of automation that offer significant potential for enormous reductions in highway crashes and deaths;
• A summary of the research NHTSA has planned or has begun to help ensure that all safety issues related to vehicle automation are explored and addressed; and
• Recommendations to states that have authorized operation of self-driving vehicles, for test purposes, on how best to ensure safe operation as these new concepts are being tested on the highway.

Now, the Eno Center on Transportation has released Preparing a Nation for Autonomous Vehicles, which discusses in some depth the potential benefits and costs of self-driving vehicles and their regulation. AP reporter Joan Lowry has this story on the Eno report. Here is an excerpt:

In some ways, computers make ideal drivers: They don't drink and then climb behind the wheel. They don't do drugs, get distracted, fall asleep, run red lights or tailgate. And their reaction times are quicker. They do such a good job, in fact, that a new study says self-driving cars and trucks hold the potential to transform driving by eliminating the majority of traffic deaths, significantly reducing congestion and providing tens of billions of dollars in economic benefits. But significant hurdles to widespread use of self-driving cars remain, the most important of which is likely to be cost. Added sensors, software, engineering and power and computing requirements currently tally over $100,000 per vehicle, clearly unaffordable for most people, the study said. But large-scale production “promises greater affordability over time,” it concluded. Questions also remain about public acceptance, liability in event of an accident, and the ability of automakers to prevent car computers from being hacked.

Interesting court-access decision

We blog frequently here about access-to-the-courts issues, such as standing, class-action status, pre-dispute mandatory arbitration, and so forth. So, I thought our readers might be interested in this decision issued today by Judge James Boasberg of the U.S. District Court for the District of Columbia holding that an advocacy group (Scenic America) has standing to challenge a guidance document of the Federal Highway Administration authorizing use of digital billboards on interstate highways. The court found standing, among other reasons, because fighting the agency's policy would divert the advocacy group's resources away from other priorities. The court also held that the agency's policy constituted challengeable "final agency action" under the federal Administrative Procedure Act. (The case was handled by lawyers and law students at the Institute for Public Representation at Georgetown Law (where I work), led by staff lawyer and graduate fellow Thomas Gremillion.)