‘Disparate impact’ opposition sees hope

Jim Henry is a special correspondent for Automotive News.

Hope remains among opposers of the “disparate impact” theory that the U.S. Supreme Court could ultimately rule against the theory in court, maybe in 2015.

Law firm Ballard Spahr even described the disparate impact theory as “on the ropes” in a online article not long ago because a federal district court recently ruled against the theory in a case involving the U.S. Department of Housing and Urban Development.

The notion is that if the case were to make it to the U.S. Supreme Court, the favorable precedent in housing from the lender point of view would also apply to auto loans because regulators’ use of the disparate impact theory is pretty much identical between the housing and auto loan sectors.

Earlier cases in which disparate impact has been at issue have been settled before they could reach the U.S. Supreme Court, attorneys said.

The Consumer Financial Protection Bureau uses the disparate impact theory as a way to prove discrimination in auto finance. The CFPB says auto lenders shouldn’t let auto dealers set their own level of dealer reserve. Dealer reserve, also called dealer markup, is the profit dealerships make off finance contracts negotiated at the dealership by tacking on a small additional amount of interest.

The CFPB says dealer discretion in setting the customer’s final interest rate can lead to a disparate impact on legally protected classes, such as minorities. That is, the legally protected groups pay more. It doesn’t matter to the CFPB whether the alleged discrimination is unintentional.

A U.S. Supreme Court ruling could eventually force the CFPB to find a new way to curb what it sees as discrimination in auto loans. The possibility is something auto lenders are keeping an eye on for 2015.

You can reach Jim Henry at autonews@crain.com

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