The auto finance industry is dissecting last week’s U.S. Supreme Court decision in a housing discrimination case last week, in which the sharply divided court ruled 5-4 in support of the “disparate impact” theory.
Disparate impact is the main tool that the Consumer Financial Protection Bureau employs to accuse auto lenders and dealers of discriminating against legally protected borrowers, such as minorities. After the decision, the debate in the auto finance industry is how the latest decision affects auto finance, or even whether it has any impact at all outside housing.
The following are three relevant quotes from each side. Associate Justice Anthony M. Kennedy wrote the majority opinion. Associate Justice Samuel Anthony Alito Jr., and Associate Justice Clarence Thomas wrote dissents. The edited quotes are followed by some context provided by Senior Editor Jim Henry.
Also, here’s a link to the entire text of the decision: SupremeCourtDecision
MAJORITY:
Held: Disparate-impact claims are cognizable under the Fair Housing Act.
AFN comment: This decision was closely watched in the auto finance industry because earlier disparate impact cases were settled before they reached the U.S. Supreme Court. Auto finance cases in the late 1990’s and early 2000’s citing disparate impact resulted in auto lenders adopting “voluntary” caps on dealer reserve, or dealer markup, of 2 or 3 percentage points, depending on the term. Today, the Consumer Financial Protection Bureau is trying to eliminate dealer markup entirely, at least to the extent that dealerships have the discretion to charge “similarly situated” customers different rates.
Kennedy: Applied here, the logic of Griggs and Smith provides strong support for the conclusion that the FHA encompasses disparate-impact claims. Congress’ use of the phrase “otherwise make unavailable” refers to the consequences of an action rather than the actor’s intent.
AFN comment: “Griggs and Smith” refers to an earlier case. For Supreme Court watchers in the auto finance industry, this passage could cut both ways, experts said. On one hand, this passage supports the notion, central to the disparate impact theory, that only the end result matters, even if discrimination is unintentional. That’s bad, from the auto finance industry point of view. On the other hand, the Equal Credit Opportunity Act, which governs auto finance, does not contain similar language to the Fair Housing Act on this point. Some experts take that as a positive for auto finance, because theoretically the same logic from the FHA would not apply directly to ECOA.
Kennedy: Much progress remains to be made in our Nation’s continuing struggle against racial isolation. In striving to achieve our “historic commitment to creating an integrated society,” … we must remain wary of policies that reduce homeowners to nothing more than their race. But since the passage of the Fair Housing Act in 1968 and against the backdrop of disparate-impact liability in nearly every jurisdiction, many cities have become more diverse. The FHA must play an important part in avoiding the Kerner Commission’s grim prophecy that “[o]ur Nation is moving toward two societies, one black, one white—separate and unequal.” … The Court acknowledges the Fair Housing Act’s continuing role in moving the Nation toward a more integrated society.
AFN comment: The Kerner Commission, formally known as the National Advisory Commission on Civil Disorders, issued a report after the 1967 race riots. The fact that Kennedy invoked historical references and the original context in which anti-discrimination laws were passed could mean the auto finance industry is in for a tough time if and when the court gets a case that applies more directly to auto finance.
DISSENT:
Alito: The Fair Housing Act does not create disparate-impact liability, nor do this Court’s precedents. And today’s decision will have unfortunate consequences for local government, private enterprise, and those living in poverty. Something has gone badly awry when a city can’t even make slumlords kill rats without fear of a lawsuit. Because Congress did not authorize any of this, I respectfully dissent.
AFN comment: Alito was referring to an earlier case in which a court found that compelling a landlord to spend money on improvements, including rat control, had a disparate impact on poor residents, assuming the landlord would raise rents to cover the cost.
Alito: The text of the FHA simply cannot be twisted to authorize disparate-impact claims. It is hard to imagine how Congress could have more clearly stated that the FHA prohibits only intentional discrimination than by forbidding acts done “because of race, color, religion, sex, familial status, or national origin.”
AFN comment: Again, it’s central to the definition of disparate impact that only the end result matters, but in Alito’s view “because of” can only mean intentional discrimination.
Thomas: I join Justice Alito’s dissent in full. I write separately to point out that the foundation on which the Court builds its latest disparate-impact regime … is made of sand. That decision … represents the triumph of an agency’s preferences over Congress’ enactment and of assumption over fact.
AFN comment: Thomas also writes at length that in his view, “because of” can only mean intentional discrimination.