Ronald L. Rubin, a partner at Hunton & Williams LLP, comments in the Wall Street Journal:
The Consumer Financial Protection Bureau just got a painful lesson in the "disparate impact" theory of discrimination. American Banker magazine reported on March 6 that the CFPB's employee performance-review process is plagued by exactly the kind of disparate-impact statistics that the agency uses to prove discrimination in the industries it regulates. For example, according to confidential CFPB data obtained by the magazine, 20.7% of the agency's white employees received the highest performance rating compared with 10.5% of African-American employees and 9.1% of Hispanic employees. The reviews are taken into account for pay raises and bonuses.
Under the controversial legal doctrine of disparate impact—which ultimately may be limited or discarded by the Supreme Court—policies and practices that have a disproportionately adverse effect on protected classes (minorities, women, etc.) can be declared legally discriminatory without evidence of intentional discrimination.
It would be difficult to find a government agency less vulnerable to charges of discrimination than the CFPB. Its core culture still bears the imprint of its first leader, Elizabeth Warren, the progressive firebrand and rising star of the Democratic Party who is now a senator from Massachusetts. The law that created the bureau, the 2010 Dodd-Frank Act, explicitly requires the agency to combat discrimination in consumer finance.
While working as a CFPB enforcement attorney in 2011-12, I observed the political correctness that epitomizes the agency. Workforce diversity was a top priority in hiring some 1,000 employees. Regular meetings of the "Culture Club" provided a forum for workers to air concerns about issues like discrimination. Experts applied the latest human-resources concepts. Internal surveys and other extraordinary efforts were made to ensure that unspoken resentments did not fester.
It seems inconceivable that CFPB's management could be discriminating against its workers. But disparate-impact statistics equal discrimination. Or at least that's what the CFPB tells the businesses it regulates.
Last March, the CFPB issued Bulletin 2013-02 to provide "guidance" on indirect lending by car dealers. Indirect lending typically occurs when a car buyer seeks financing in the showroom. In most cases, the dealer (the "indirect lender") sends the buyer's financial information to the actual lender (usually a bank, or an affiliate of a bank or auto manufacturer), which then replies with the lowest rate at which it is willing to lend for that auto sale. Lenders provide incentives for dealers by paying them a "reserve" if they negotiate an interest rate "mark-up" above the lenders' lowest offered rates—the higher the interest rates that car buyers pay, the more money the dealers make.
The CFPB claims that indirect lending results in illegal discrimination based on research (the statistical validity of which is questionable) that found disparities between the rates paid by different protected classes. In other words, the CFPB's studies indicated that minorities and women paid higher interest rates on car loans arranged by dealers and concluded that the dealers must have discriminated.
The CFPB's conclusion disregards many possible nondiscriminatory causes for the interest-rate disparities—for example, different income levels among the different groups, multiple showrooms operated by dealers in different locations with different demographics, different car models purchased more often by certain groups, and different cultural attitudes and awareness regarding interest-rate negotiation.
Worse, the conclusion contradicts logic and common sense. . . .