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
President & Managing Director
Lenders Compliance Group
