The DOJ’s Partisan Disparate-Impact Litigation Agenda, Part 2

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:

  • Disparate-impact litigation typically pressures lenders to relax their lending criteria to decrease the relative differences between whites and minorities among accepted applicants. However, accepting more applicants for a prime loan necessarily increases the racial disparity of those rejected for prime loans, the DOJ’s typical focus, because there are even fewer white applicants who fail to meet the lower criteria than under the original regime.

  • The DOJ’s statistical analysis omits possible explanatory factors. Beyond their omissions in SunTrust, they don’t consider applications rejected altogether rather than those just rejected for a prime loan, and those who declined to accept a prime or subprime loan.

  • Despite controlling for explanatory criteria such as income and credit score, racial disparity still exists within those categories; minorities, who have historically lower credit scores, are “disproportionately represented within the lower reaches of each . . . category.” So, if the DOJ grouped together all applicants with credit scores from 650–700 points, statistical “discrimination” would still exist because of the racial disparity that existed within the distribution of those scores.

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.  

Most Popular

Politics & Policy

Students’ Anti-Gun Views

Are children innocents or are they leaders? Are teenagers fully autonomous decision-makers, or are they lumps of mental clay, still being molded by unfolding brain development? The Left seems to have a particularly hard time deciding these days. Take, for example, the high-school students from Parkland, ... Read More
PC Culture

Kill Chic

We live in a society in which gratuitous violence is the trademark of video games, movies, and popular music. Kill this, shoot that in repugnant detail becomes a race to the visual and spoken bottom. We have gone from Sam Peckinpah’s realistic portrayal of violent death to a gory ritual of metal ripping ... Read More

Romney Is a Misfit for America

Mitt’s back. The former governor of Massachusetts and occasional native son of Michigan has a new persona: Mr. Utah. He’s going to bring Utah conservatism to the whole Republican party and to the country at large. Wholesome, efficient, industrious, faithful. “Utah has a lot to teach the politicians in ... Read More
Law & the Courts

What the Second Amendment Means Today

The horrifying school massacre in Parkland, Fla., has prompted another national debate about guns. Unfortunately, it seems that these conversations are never terribly constructive — they are too often dominated by screeching extremists on both sides of the aisle and armchair pundits who offer sweeping opinions ... Read More

Fire the FBI Chief

American government is supposed to look and sound like George Washington. What it actually looks and sounds like is Henry Hill from Goodfellas: bad suit, hand out, intoning the eternal mantra: “F*** you, pay me.” American government mostly works by interposition, standing between us, the free people at ... Read More
Film & TV

Black Panther’s Circle of Hype

The Marvel Cinematic Universe (MCU) first infantilizes its audience, then banalizes it, and, finally, controls it through marketing. This commercial strategy, geared toward adolescents of all ages, resembles the Democratic party’s political manipulation of black Americans, targeting that audience through its ... Read More