Continuing from my Part 1 post:
Not only is there scant constitutional grounding for this litigation approach, but many Supreme Court observers have speculated that recent decisions in Smith v. City of Jackson (2005) and Wal-Mart Stores, Inc. v. Dukes (2011) have undercut this strategy’s statutory justification. The DOJ likely agrees. Why else pressure the city of St. Paul as they did? These extraordinary efforts implicitly acknowledge that their partisan policy agenda has a looming expiration date.
Even if disparate-impact liability was theoretically justifiable, the DOJ’s litigation stretches the limits of statistical analysis. For example, in the DOJ’s SunTrust litigation, the DOJ considered “credit-related factors,” but it “did not appear to consider whether the disparities were a function of legitimate non-credit related factors . . . such as market conditions or meeting a competitor’s price in response to borrower negotiations.” In other words, the DOJ’s campaign might have punished SunTrust for following traditional, non-controversial market dictates.
This flawed analysis is not isolated. I’ll leave a thorough evaluation of the DOJ’s methods to statisticians, but James Scanlan, a litigation-statistics specialist, persuasively criticizes the DOJ’s methods. He explains:
Defendants can certainly challenge the DOJ’s flawed statistical analysis in court, or raise other defenses, such as a legitimate business justification. But many banks reasonably chafe at a legal adjudication of racism—think of the crippling publicity—and would not risk high litigation costs to defend themselves. Both Countrywide and Wells Fargo’s capitulation to the first and second largest settlements in history make this clear. Accordingly, businesses pay a steep price, sending profits to undeserving customers and liberal third parties.
The DOJ has pursued this robust partisan legal agenda despite significant unintended consequences. Unaffordable loans help no one, and artificially expanding lending increases foreclosures and hurts financial institutions, who might respond by “shrink[ing] their operations rather than risk litigation.” This “creates unnecessary compliance risk, limiting credit availability and driving up the cost of borrowing.” This could also require expensive statistical calculations to avoid liability.
Some would argue that lenders should consider race; historical discrimination necessitates prophylactic measures to remedy our nation’s dark past. But remember, this litigation does not involve non-controversial liability for overt racism. So how is coercing lenders to create their own obtuse affirmative-action program the solution? Of all the ideas to help the underprivileged, is the best one forcing banks to originate unaffordable loans? Did the mortgage bubble and financial crisis teach us anything?
The Supreme Court might take this up in Mount Holly v. Mt. Holly Gardens Citizens in Action, Inc., another disparate-impact housing case. Hopefully then, the Supreme Court will rein in disparate-impact liability, and remove one of the DOJ’s harmful tactics in their increasingly partisan law-enforcement strategy.