Skip to main content

Disparate Treatment

Jonathan Foxx
May 21, 2015

Question: We have been cited by our regulator for disparate treatment. The matter is with our attorneys. However, in our discussions with staff it seems that we do not know the difference between overt discrimination, disparate treatment, and disparate impact. From a regulatory perspective, what is overt discrimination, disparate treatment, and disparate impact?

Answer: Courts have held that there are primarily three classes of discrimination, each with its own proof requirements, under the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act. Going back to 1994, there was an Interagency issuance published in the Federal Register that affirmed this observation. The issuance was called Policy Statement on Discrimination in Lending (“Policy Statement”). [Federal Register, Vol. 59, No. 73, April 15, 1994, Notices, 18266-18274]

These three methods of discrimination are:

1. Overt evidence of discrimination, which occurs when a lender blatantly discriminates on a prohibited basis;
2. Disparate treatment, which occurs when there is evidence that a lender treats applicants differently based on one of the prohibited facts; and
3. Disparate impact, occurring when there is evidence that a lender applies a practice uniformly to all applicants but the practice has a discriminatory effect on a prohibited basis and is not justified by business necessity. [Supra, 18266, 18268] 

With respect to disparate treatment, the Policy Statement provides that disparate treatment ranges from overt discrimination to more subtle disparities in treatment and, importantly, does not require any showing that treatment was motivated by prejudice or a conscious intention to discriminate against a person beyond the difference in treatment itself.



Jonathan Foxx is president and managing director of Lenders Compliance Group and Brokers Compliance Group, mortgage risk management firms devoted to providing regulatory compliance advice and counsel to the mortgage industry. He may be contacted at (516) 442-3456 or e-mail at [email protected].  


 

Published
May 21, 2015
CFPB Names 4 To Key Senior Positions

The appointees include two who helped create the bureau and two who served on the CFPB staff during the Obama administration.

Regulation and Compliance
Oct 14, 2021
FHFA Raises Enterprises' Multifamily Loan Purchase Caps

The Federal Housing Finance Agency (FHFA) said the 2022 multifamily loan purchase caps will be $78 billion for each Enterprise, for a combined total of $156 billion to support the multifamily market.

Regulation and Compliance
Oct 13, 2021
CFPB Hits AAG With Complaint For Deceptive Marketing Of Reverse Mortgages

The Consumer Financial Protection Bureau filed a complaint and proposed consent order, which alleges that American Advisors Group (AAG) used inflated and deceptive home estimates to attract reverse mortgage consumers.

Regulation and Compliance
Oct 12, 2021
Waterstone Mortgage Names VP Of Compliance

Waterstone Mortgage Corporation named Kris Barros as the company's vice president of compliance.

Community
Oct 08, 2021
Battling The ‘Giant Purple Snorklewacker’

The confirmation of Rohit Chopra as CFPB director has the mortgage industry anxious, but former MBA CEO David Stevens offers some advice: follow the rules.

Regulation and Compliance
Oct 08, 2021
The Compliance Contradiction

Staunch compliance stances often lead to contradictory actions.

Regulation and Compliance
Oct 06, 2021