Consumer Law & Policy Blog

Mt. Holly Disparate Impact Case Settles

So reports Carter Dougherty of Bloomberg. No link available yet. The case, which the Supreme Court would have heard arguments in next month, presented the issue of whether the disparate impact test can be used in FHA cases .

WSJ Article on the CFPB Complaint Databases

by Jeff Sovern

Last week, the Wall Street Journal published a piece about the CFPB's public database of consumer complaints. This excerpt particularly caught my eye:

The agency's approach rankles some in the financial industry who say the publication of complaints leads to an unfair and overly negative view of companies. They fault the CFPB for failing to verify the facts behind complaints--apart from ensuring the gripe is coming from an actual customer.

"You're throwing allegations up on the wall and hoping something sticks," said Richard Hunt, chief executive of the Consumer Bankers Association.

Of course, it would be ideal for the Bureau verify complaints before posting them.  But that would take significant resources, and there are already complaints about the Bureau spending too much.  So such a demand is really a catch-22, because it amounts to saying that the Bureau should spend more, thereby giving critics more ammunition against it, or else that it should eliminate the lists altogether, which is probably what the critics really want.

The argument that the Bureau should verify complaints before disclosing them applies with equal force to credit reporting agencies.  Credit bureaus do not typically verify the information in their databases before making them available to lenders. And yet, I cannot recall industry advocates calling for such verification. 

Town Council to Meet on Settlement in Mount Holly Tonight

by Deepak Gupta

We've blogged before about Mount Holly--the Supreme Court case about the future of disparate impact in housing and lending discrimination. (My firm represents current and former Members of Congress in the case). All along, it's seemed possible that Mount Holly would settle before the December oral arguments. 

This morning, that's looking even more likely: Bloomberg reports that the Mount Holly town council will meet tonight to consider, and possibly vote, on a proposed settlement that will end the case and deprive the Supreme Court -- for the second time in two years -- of the opportunity to decide the fate of disparate impact. (Relatedly, Adam Serwer of MSNBC has an-depth piece today that summarizes the relevant history and includes interviews of photographs of Mount Holly Gardens residents and their homes.)

A settlement will shift attention to a previously little-known case before the U.S. District Court for the District of Columbia. Two insurance trade groups are challenging HUD's new disparate-impact rule. They claim not only that the rule is contrary to the FHA but that it is reverse-preempted under the McCarran-Ferguson Act because (as applied to insurance companies) it impermissibly regulates the "business of insurance," a province of state regulation. If the court adopts the far narrower McCarran-Ferguson reverse-preemption theory, the case could cease to be a vehicle for a broader challenge to disparate impact. 

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.

Bloomberg: Banks Pushed by Regulators Send ‘Nastygrams’ to Car Dealers

Remember how car dealers fought to avoid being subject to the Consumer Financial Protection Bureau's jurisdiction, and won?  It turns out that the dealers are still experiencing pressure to comply with the Bureau's edicts. From Carter Dougherty's story:

Under pressure from the agency, large banks that routinely buy auto loans have been reviewing records to ensure the dealers they work with aren’t discriminating against customers on the basis of race or gender. When firms including Bank of America Corp. find evidence of possible unfair treatment, they are sending warning letters to the dealers.

* * *

Dealers are learning a “painful lesson,” said Richard Hunt, head of the Consumer Bankers Association, which represents large institutions. “If you provide a financial product to consumers, you will be under the oversight of the CFPB -- one way or another.”

 

Should consumers be allowed to sue creditors directly (without first notifying the credit bureau) when they refuse to provide accurate information?

Jeffrey Bils, a UCLA law student, has published Fighting Unfair Credit Reports: A Proposal to Give Consumers More Power to Enforce the Fair Credit Reporting Act, in the latest UCLA Law Review Discourse. Here's a summary:

Credit reports play a central role in some of our most important transactions, such as buying a house or car, or even getting a job. Yet an alarming number of credit reports contain damaging inaccuracies. The primary purpose of the Fair Credit Reporting Act (FCRA) is to protect consumers against these inaccuracies, but the FCRA also makes it very difficult for consumers to force creditors to fix errors. In particular, there is no private right of action to enforce the creditor’s duty of accuracy unless a consumer first notifies a third party—a consumer reporting agency such as Experian, TransUnion, or Equifax—and unless that agency in turn notifies the creditor. This structure raises significant procedural hurdles for a consumer and can make it extremely difficult to sufficiently plead a cause of action against a creditor. This Essay argues that Congress should change the law to give consumers the private right of action they now lack.

9th Circuit appeal on background-screening companies & fair credit reporting

by Deepak Gupta

I thought readers might be interested in a new appeal that my firm is handling in the Ninth Circuit, Moran v. The Screening Pros, concerning the state and federal regulation of background-check companies. You can read our opening brief here. The Consumer Financial Protection Bureau and the Federal Trade Commission have weighed in with an amicus brief, discussing a relatively narrow question of federal law. An amicus brief by the East Bay Community Law Center -- on behalf of a coalition of 18 public-interest organizations including the National Consumer Law Center and the ACLU -- discusses the broader policy implications.

Landlords and employers have increasingly come to rely on background-check companies to provide them with criminal history and other sensitive information about prospective tenants and employees. But the industry is more fragmented and less visible that the traditional credit bureaus and advocates are concerned that it routinely skirts state and federal fair-credit-reporting laws, with grave consequences for those who seek jobs and housing. NCLC put out a great report on this topic last year: Broken Records: How Errors by Criminal Background Checking Companies Harm Workers and Businesses.

At issue on appeal is the constitutionality of California's Investigative Consumer Reporting Agencies Act, one of the nation's strongest protections against background-screening company abuses. The district court held the Act unconstitutionally vague because it overlaps with another state fair-credit-reporting law and the court couldn't figure out which one applied. But, as the Eleventh Circuit explained in a 2009 case that also happened to arise in the fair-credit-reporting context (Harris v. Mexican Specialty Foods), it's well established that there's no vagueness when a statute "clearly defines what conduct is prohibited and the potential range of fine that accompanies noncompliance.”

The appeal also presents a question of federal statutory interpretation: How long, under the Fair Credit Reporting Act, can a consumer-reporting agency report negative criminal-history information? The FCRA prohibits the reporting of adverse information for more than seven years. The CFPB's and FTC's brief argues that for a dismissed criminal charge, the seven-year period begins on the date of the charge, not the date of the dismissal. The district court's conclusion to the contrary relied on out-of-date FTC commentary that preceded relevant amendments to the statute. 

CFPB Issues Bulletin on Responsibilities of Furnishers of Information to Credit Reporting Agencies

by Jeff Sovern

One of the things Ira Rheingold and I wrote about in our Times op-ed earlier this summer was the need to require lenders that furnish information to conduct better investigations when they receive complaints about inaccurate information supplied to credit bureaus.  Today, the CFPB issued a bulletin about the duties of furnishers.  The Bureau cautioned that furnishers have to review all relevant information they receive about the disputes, including "documents that the CRA includes with the notice of dispute or transmits during the investigation, and the furnisher’s own information with respect to the dispute."  In an accompanying statement, the Bureau noted that "The “e-OSCAR” system [used by credit reporting agencies to tell lenders about disputes] has been upgraded so that the three [credit bureaus] can now send furnishers any relevant dispute documents mailed in by consumers." Up until that upgrade, credit bureaus often boiled down consumer complaints to a two-digit code.

So what does the Bulletin mean? In the past, the investigation process was reportedly so automated that creditor computers would verify that the disputed entry matched the entries in their databases and report the item as verified without a human being reviewing the information. The Bureau Bulletin doesn't say in so many words that a living person must read the documents, but it is hard to see how a computer could do so in a meaningful way.  I interpret the Bulletin as saying that a person must review the documents and must make a judgment about whether the entry is erroneous.  It will be interesting to see how furnishers respond to the Bulletin, and how the Bureau itself interprets it in its enforcement and supervisory actions.

Times Report: Credit Bureaus Willing to Tolerate Errors, Experts Say

by Jeff Sovern

Here.  The article reports on the case on which we previously blogged in which a woman won an $18.6 million verdict under the Fair Credit Reporting Act.  And it provides more support for the reforms Ira Rheingold and I argued for in our recent Times op-ed: requiring credit bureaus to be more careful in matching files; granting consumers the power to seek injunctions; requiring greater accuracy in credit reporting; and requiring better investigations when errors are reported. 

Times Report: Over a Million Are Denied Bank Accounts for Past Errors

Here.  The story is about consumer reports maintained on consumers' banking practices originally intended to bar fraud but that often result in banks denying accounts to low-income consumers because of bounced checks and similar blemishes.