By Paul Sperry, RealClearInvestigations
In what would be one of the Trump administrationâ€™s most far-reaching moves regarding race relations, top White House officials are planning a sharp pullback from federal efforts to correct imbalances in outcomes for minorities in everything from housing to hiring. On the table: a ban on the use of a controversial numbers-focused racial-bias theory known as â€œdisparate impact.â€
Federal regulators and lobbyists familiar with the change say the White House management and budget office is reviewing a proposed executive order, originally drafted by two conservative Washington think tanks, that would prohibit the use of â€œthe disparate-impact approach in the enforcement or application of any civil-rights law.â€
A catalyst for the move is White House budget director Mick Mulvaney, who is currently also serving as interim White House chief of staff and who, while serving in Congress, was a longtime critic of disparate impact. It is not clear whether President Trump has decided to issue the executive order, which would repudiate the underlying rationale for scores of regulations and thousands of government lawsuits alleging racial discrimination, resulting in billions of dollars in fines. Doing away with it would engender fierce opposition from Democrats.
The White House press office did not respond to a request for comment.
Championed by liberals and civil-rights activists, and aggressively enforced by the Obama administration, disparate-impact doctrine holds that policies or practices that are set forth and applied neutrally can be discriminatory if they have an unequal impact on specific groups. Aimed at rooting out subtle forms of bias, the theory asserts that statistical disparities can be proof of discrimination even when no intention is clear.
Although the Supreme Court first approved use of the approach in 1971 and reaffirmed its use most recently in 2015, conservative opponents of the doctrine believe the currently constituted high court would uphold an executive order doing away with it.
The Obama administration used disparate impact to sue hundreds of school districts for civil rights violations because they disciplined black students at higher rates than whites. It also used the theory to allege bias in consumer credit reporting, employee background checks, student loans, criminal court fines, traffic stops and arrests, and home and auto lending, among other things.
Conservative critics argue liberal politicians and bureaucrats have long misused the theory to find racial bias where it does not exist. They see it as a social-engineering weapon aimed at equalizing outcomes and extending the governmentâ€™s power over the private sector.
â€œCutting back on disparate-impact liability is an important and welcome development,â€ said University of Pennsylvania Law School professor Amy Wax. She argues that disparate effects are assumed to stem from racism when other factors better explain such racial gaps, including economic conditions, behavior and culture.
Presuming that racial disparities are signs of discrimination, as the federal government typically does, and forcing organizations to close them through policy changes â€œimposes an expensive, inefficient and often counterproductive burden on private actors in our society,â€ Wax said.
The ultimate impact of the proposed executive order is not clear, but presumably, it would require the government to meet a much higher standard of demonstrating that policies were intended to discriminate.
Disparate-impactÂ theory has long been a concern ofÂ conservatives, who were alarmed by the Obama administrationâ€™sÂ broad embrace of it.Â ConstitutionalÂ scholars, both in academia and at think tanks such asÂ the Heritage Foundation and Center for Equal Opportunity,Â co-drafters of the proposed order, have been pushing the Trump administration since its earliest days to abandon the approach.
Some of these advocates were disappointed that the DepartmentÂ of EducationÂ stopped short of invalidating disparate-impact liabilityÂ in DecemberÂ when it rescinded the Obama-era school discipline guidance that was anchored in the theory.Â The NAACP and other civil-rights advocates have long insisted disparate impact is a vital tool for ferreting out hidden racism. In aÂ statement, the ACLU asserted that â€œthe attack on disparate impact is the latest in a series of Trump administration assaults on civil rights.â€
Liberal groups and many Democrats are marshaling a fierce pushback against efforts to dismantle the race regulations, including filing lawsuits and proposing legislation. Even critics of disparate impact say it is so deeply embedded in federal policies and regulations that it will be hard to uproot.
â€œFederal agencies are honey-combed with policies that adopt the disparate-impact approach, and the Trump administration needs to root them out,â€ said Roger Clegg, a former Justice Department attorney who now serves as general counsel for the Center for Equal Opportunity in Washington.
He and other conservatives say the president can banish disparate impactâ€™s use by regulators since it is not overtly written in underlying civil-rights statutes; he can order that regulators police discrimination instead by using the higher bar of disparate â€œtreatment,â€ which the U.S. Supreme Court has made clear means actions undertaken with racially discriminatory intent. Trump would be emboldened in making such a move by the recent addition of more conservative justices on the high bench, including Brett Kavanaugh, who is said to frown on the heavy-handed application of disparate-impact theory.Â
President Obama argued that African-Americans are particularly harmed by traditional practices in housing, banking, employment and education. He ordered agencies to collect personal information by race and turn the data over for analysis. The administration used the statistical disparities to accuse bankers, educators, police, landlords and employers of racism, and ordered them to shrink gaps between blacks and Latinos and whites and Asians to achieve â€œracial equity.â€
To satisfy disparate-impact claims involving minorities, police departments and courts across the country have curtailed traffic stops and arrests, forgiven court fines and fees, and eliminated cash bail requirements for arrestees. Employers have eased policies requiring clean criminal records for new hires, out of concern that arrests and convictions disproportionately disqualify minorities from employment.
Landlords have also backed off similar background checks â€“ which theyâ€™ve done for decades as standard rental policy, without regard for race â€“ because such inquiries could result in higher refusal rates for black applicants.
â€œTo call this [tenant background check] policy discriminatory, let alone racist, is quite a stretch,â€ said Clegg, who is actively lobbying the White House to write disparate impact out of federal rules and regulations.
A number of mortgage lenders have returned to making risky, subprime-quality loans in inner cities to help settle federal disparate-impact lawsuits that claimed uniform underwriting standards adversely impacted blacks and Latinos with weak credit.
Critics say government pressure to close racial gaps has led to the erosion of safety and other important standards, spawning unintended harm to minorities and non-minorities alike.
Violence in urban school districts, for instance, spiked as administrators pulled back on punishments under â€œdisparate impactâ€ mandates issued in 2014 by the Obama administration to reduce racial disparities in suspensions and school-related arrests and to inoculate themselves from federal threats of investigation and defunding.
Recent school surveys show violence, including student-on-teacher assaults, exploded after districts adopted the new discipline reforms, including in cities such as New York, Buffalo, Syracuse, Baltimore, Chicago, Oklahoma City, Milwaukee, and Minneapolis. In Parkland, Florida, confessed shooter Nikolas Cruz was able to legally purchase firearms because Broward County arrest-diversion programs designed to close discipline disparities meant that his name never showed up in government data bases despite repeated run-ins with law enforcement.
In December, the Trump administration rescinded the Obama discipline rule, but stopped short of removing the disparate-impact liability undergirding the directive, leaving schools uncertain about their exposure to investigation if they return to suspending violent or unruly students or referring them to law enforcement.
Critics of disparate impact argue that in most cases, socioeconomic factors largely explain racial disparities, not discrimination.
One example they point to is the oft-cited Obama administration statistic that black students are suspended at three times the rate of their white peers. From this raw data, the former administration concluded that prejudiced teachers and principals single out black kids for punishment while letting white kids off the hook for the same infractions.
But a comprehensive 2014Â studyÂ on school discipline published in the Journal of Criminal Justice found that â€œthe racial gap in suspensions was completely accounted for by a measure of the prior problem behavior of the [minority] student.â€ It concluded that the use of suspensions by teachers and administrators was usually not racially biased.
A nationalÂ surveyÂ of students conducted in 2017 by the federal Centers for Disease Control found that African-American students are more than twice as likely to get into fights â€œon school propertyâ€ than white students â€“ according to black kids themselves. In a separate study, CDC attributed problem behavior among minority students to adverse childhood experiences, including single parenting, domestic abuse, and poverty.
â€œMore blacks being suspended than whites just reflected the fact that more blacks misbehaved,â€ said civil-rights attorney Hans Bader, who recently left the Education Department, where he worked in both its Office for Civil Rights and its Office of General Counsel.
The federal government has also assumed that racism is behind racial â€œdisparitiesâ€ in police activities. Following the shooting of an unarmed black man by a white cop in Ferguson, Missouri, the Justice Department forced that townâ€™s police department to reform its policies after finding black motorists were â€œoverrepresentedâ€ in traffic stops and citations. â€œThese disparities are unexplainable on grounds other than race and evidence that racial bias has shaped law enforcement conduct,â€ the departmentâ€™s Civil Rights DivisionÂ declaredÂ in a 2015 report.
YetÂ dataÂ from Justiceâ€™s own research arm, the National Institute of Justice, show that African-Americans, on average, violate speeding and other traffic laws at much greater rates than whites. It attributes differences in traffic stops by race to â€œdifferences in offending.â€ Most blacks donâ€™t doubt this. NIJÂ notesÂ that three out of four black drivers say â€œpolice had a legitimate reason for stopping them.â€
Another federal agency, the National Highway Traffic Safety Administration,Â foundÂ that black motorists violate traffic laws at higher rates than whites in every offense category, including driving with an invalid license.
Damned if They Do, Damned if They Donâ€™t
Federal regulators are now using the theory of disparate impact to accuse employers of racism in the normal vetting process of workers.
Through an Obama-era compliance directive and the threat of lawsuits, the Equal Employment Opportunity Commission discourages employers from looking up the criminal records of job applicants, because they have a â€œdisparate impactâ€ on black men. But the imprisonment rate for black men is nearly seven times higher than that of white men. And, as a federal judge ruled in throwing out one of EEOCâ€™s cases against a private business, such checks are a â€œrationalâ€ part of hiring processes designed to screen out people of all races who could steal from companies or commit fraud â€” or even workplace violence. In court documents, U.S. District Judge Roger Titus scolded the agency for trying to â€œpump upâ€ statistics and engaging in â€œscientific dishonestyâ€ to make it look like employers were biased.
In granting almost $1 million in attorneysâ€™ fees to defendant The Freeman Companies, Titus also pointed out the hypocrisy of claiming private employers are racist for doing exactly what the EEOC and all other federal agencies do: conduct criminal, as well as credit, background checks on more than 90 percent of their own employees.
Other defendants have been pressured into settling cases with the EEOC, includingÂ BMW Manufacturing in Spartanburg, S.C., which agreed to change its screening policies after denying jobs to contractors with serious drug convictions and other felonies. â€œBMWâ€™s policy had a significant disparate impact on black employees and applicants,â€ the EEOC asserted in its complaint. In addition to paying $1.6 million in relief to 56 African-Americans with criminal records it turned down for jobs, BMW wasÂ forcedÂ by the government to no longer decline to hire any job applicant because of criminal arrests or charges â€œof any type,â€ including violent felonies, according to the consent decree.
EEOCâ€™s policy, still supported by the commissionâ€™s acting chair, Victoria Lipnic, is a Catch-22 for employers: If they hire criminals, they risk litigation for their work-related misconduct; but if they deny them jobs, they could face a federal lawsuit. This double-bind of liability is especially severe for the banking industry, which has to satisfy regulators working at cross purposes.
â€œFinancial institutions are definitely between a rock and a hard place,â€ a senior executive at Bank of America headquarters in Charlotte, N.C., told RealClearInvestigations. â€œWe have banking regulators from the FDIC and OCC [Office of the Comptroller of the Currency] insisting that we do background checks, while the employment regulators at EEOC are arguing against background checks.â€
The disparate-impact policy has led financial regulators to claim that bank credit checks on loan applicants are also now discriminatory, because they, too, have a â€œdisparate impactâ€ on African-Americans and Latinos, who tend to have more credit problems than other groups.
Using the same stat-based disparate-impact analysis, industry experts say, the Consumer Financial Protection Bureau has charged dozens of auto lenders with violations of fair-lending laws, claiming that racial disparities in loan approval rates and finance charges amount to discrimination. Ally Financial, the industryâ€™s largest lender, wasÂ finedÂ a record $98 million after it refused to admit bias in lending and change its underwriting and financing policies.
The bank asserted that differences in creditworthiness explained differences in loan outcomes. CFPBÂ later admittedÂ under congressional grilling that it did not even factor the credit scores of denied minority applicants into its investigation of Ally â€” even though Federal Reserve and other studies show credit scores are the most reliable predictor of a borrowerâ€™s risk of defaulting on a loan.
American Honda Finance Corp., an auto lender, did not fight similar charges, while still admitting no wrongdoing, and was ordered to pay a relatively smaller $24 million in relief to African-American and Hispanic borrowers who the CFPB claimed were overcharged. However, as part of the settlementÂ terms, Honda had to agree to drastically change its financing policies by capping interest rates on loans.
After industry complaints of harassment reached a fever pitch, Trump signed a joint congressional resolution last year overriding CFPBâ€™s policy cracking down on racial car-loan disparities under disparate impact.
The CFPB itself, meanwhile, is the target of a pending class-action lawsuit filed by black former employees who claim they were victims of pay and promotion â€œdisparitiesâ€ at the agency. The allegations in their complaint stretch back to 2011, when the agency first opened.
Together with prosecutors at Justice and the Department of Housing and Urban Development, CFPB has also used the stick of disparate-impact lawsuits to extract billions of dollars in fines and minority loan set-asides from mortgage lenders, including Bank of America and Wells Fargo, claiming their underwriting policies also have a â€œdisparate impactâ€ on blacks and Hispanics. In the wake of the subprime mortgage crisis, Obama administration civil-rights lawyers compared bankers to Klansmen,Â claimingÂ that disparities in outcomes for black loan applicants are â€œevery bit as destructive as the cross burned in a neighborhood.â€
Warnings of Mistakes Repeated
In response, banking industry officials warn that the federal government is exerting exactly the kind of political pressure on financial institutions that helped cause the 2007-2008 financial crisis. Bankers argue that income and credit concerns accounted for the statistical gaps in loan approvals and loan costs for minorities that federal regulators cite as discriminatory. Nonetheless, many prefer settling their cases with the government, rather than contesting them, to avoid what industry lawyers call the â€œreputational injuryâ€ that inevitably comes with a protracted battle over the combustible allegation of â€œracism.â€
As with the auto-finance industry, applicantsâ€™ credit scores were largely ignored by federal investigators alleging racial bias in home lending, even though federal studies show that slightly more than half of African-Americans have bad credit. And the credit problem is not limited to lower-income blacks: Studies show even wealthier blacks are more likely than whites to miss payments or default on loans.
The Federal ReserveÂ has foundÂ that the â€œ[d]ifferences in credit scores among racial or ethnic groups â€¦ are particularly large,â€ with 53 percent of African-Americans scoring at the bottom tier of creditworthiness compared with 16 percent of whites.
Under current rules and regulations, â€œdifferentials observed in data may prompt disparate-impact lawsuits or investigations â€” even though socioeconomic differences among different groups most often explain the disparities in outcome,â€ American Bankers Association counsel Paul Hancock argued in a recentÂ documentÂ lobbying HUD to revise a 2013 rule using disparate impact to enforce the Fair Housing Act. The rule, he added, gave the government and civil-rights groups more authority to sue lenders based on â€œmere differences in denial rates in public loan data.â€
Some worry that the credit industryâ€™s gold standard for predicting repayment performance â€” FICO credit-scoring models â€” could itself be viewed as discriminatory next.
â€œDisparate-impact theory could be used to attack scoring models that approve members of protected classes proportionately less,â€ said Christopher Willis of Ballard Spahr LLP, a Washington-based law firm representing the banking industry.
â€œVirtually every lender in the United States could be sued for using non-discriminatory credit standards simply because variations in economic and credit characteristics produce different credit outcomes among racial and ethnic groups,â€ the Mortgage Bankers Association and Independent Community Bankers of AmericaÂ complainedÂ in a joint statement.
Under disparate impact, â€œall decisions are subject to second-guessing by the EEOC,â€ including basic job qualifications, since â€œall job qualifications have a disparate impact on some race, color, religion, sex or national origin group,â€ said University of San Diego law professor Gail Heriot, a member of the U.S. Commission on Civil Rights.
â€œThis is a profound change in the American workplace â€” and indeed in American culture,â€ she added. â€œThere is nothing more contrary to the American spirit than the notion that everything is presumptively illegal.â€
She said the approach also fuels federal power: â€œGiven that everything has a disparate impact, it gives any agency administering broad liability for disparate impact unlimited discretion in a way that is inconsistent with the concept of limited government.â€
Heriot proposes the U.S. attorney general take inventory of every regulation and policy in the federal government imposing liability for disparate impact, in order to justify their legality and constitutionality. â€œThe truth is that disparate-impact liability is an unbelievable mess,â€ she said. â€œThe administration needs to get a handle on this issue.â€
President Trump has asked several federal agencies, including the CFPB, to reexamine disparate-impact policies, but department heads have moved in fits and starts, partly due to red tape and partly due to skittishness over being viewed as racist by civil-rights activists and the media.
â€œIf you donâ€™t favor using the disparate-impact approach in civil-rights enforcement to the nth degree, then you are a â€˜racist,â€™ and the mainstream media can be counted on to accept this narrative uncritically,â€ said Clegg.
The slow unwinding of disparate-impact regulations has frustrated conservative lobbyists and many Trump appointees in regulatory positions. Although businesses, schools and other organizations are not operating under the constant threat of disparate-impact enforcement as they were under Obama, many of the rules are still on the books and being enforced by civil-rights examiners and prosecutors left over from the previous administration.
The Trump administrationâ€™s efforts to root out disparate impact from racial-bias laws has alarmed civil-rights activists and Democrats, who have launched a resistance campaign. They fear minorities would lose a key legal tool for protecting themselves from discrimination, noting that civil-rights lawyers would have a much harder time bringing discrimination cases to court if disparate-impact liability is no longer available to them. They plan to fight back to preserve full use of the tool on two fronts: the courts and Congress.
Activists have already filed lawsuits against Housing Secretary Ben Carson, as well as Education Secretary Betsy DeVos, to block their efforts to defang disparate impact-based regulations and policies.
Democratic Rep. Bobby Scott of Virginia, the new chairman of the House Education Committee, seeks to expand the Title VI statute to include disparate impact and authorize the filing of lawsuits over it. And he has the backing of Speaker of the House Nancy Pelosi, who recently vowed to â€œtake decisive actionâ€ to â€œkeep schools free from discrimination.â€ By discrimination, she means differences in racial suspension rates under race-neutral disciplinary codes.
â€œWith or without the discipline guidance, the administration is legally responsible for ensuring school discipline policies do not have a disparate impact on historically disadvantaged students,â€ Scott asserted in a recent statement.
Likewise, new House Banking Committee Chairwoman Maxine Waters has said she will bring â€œdishonest and criminalâ€ banking officials before her panel to grill them about not lending enough money in low-income urban areas. The California congresswoman says she wants bankers, along with their regulators, to make stronger commitments to â€œincreasing homeownership rates among African-Americans.â€
Waters also plans to create a new House subcommittee focusing on â€œdiversityâ€ in banking and â€œfinancial inclusion.â€ She says she intends to â€œexpose and eliminateâ€ disparate-impact discrimination in financial services.
Democratic Rep. Sheila Jackson Lee of the House Judiciary Committee has said she intends to put disparate impact front and center in the formation of a new panel sheâ€™s proposing to help compensate African-Americans for slavery: The Commission to Consider Reparations Proposals for African-Americans.
Although such legislation wonâ€™t get much traction as long as Republicans control the Senate and Trump is in the White House, rolling back disparate impact will be harder with Democrats controlling the House.
William Perry Pendley, who recently stepped down as president of the conservative Mountain States Legal Foundation, said he is â€œthrilledâ€ at the prospect of an executive order banning disparate impact, which he describes as a â€œdormant virusâ€ that, if not written out of regulations, could â€œspread into every industry and segment of society where there are racial imbalances.â€
Used with permission perÂ RealClearInvestigations.com.
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