Compliance Center: Supreme Court Rules Disparate Impact Claims Allowed Under Fair Housing Act

The United States Supreme Court has issued a decision on the use of disparate impact for lawsuits filed under the United States Fair Housing Act.

The 5-4 decision ruled that disparate impact claims can be brought under the Fair Housing Act.

Under the concept of disparate impact, a policy of practice, while neutral on its face and applied equally to all, may still, on a prohibited basis, disproportionately and adversely affect a protected group.

This would then lead to the “effects test” being used in any disparate impact challenge.

The “effects test” is a judicial doctrine used to determine whether there is a prima facie case of disparate treatment and/or impact. Generally, there are three steps utilized in this doctrine:

  1. The applicant/plaintiff must first offer proof that would support a finding that the challenged evaluation criteria or practice has a disproportionate adverse impact upon the plaintiff, who is a member of a class protected under the ECOA. An example would be the setting of a high standard such as $75,000 as the minimal mortgage loan the credit union would make. This would exclude low?income members and probably have a greater effect on blacks than on whites.
  2. Then, the credit union/defendant must offer proof that would support a finding that the challenged criteria or practice has demonstrable relationship to its business needs, and that it is a necessary and valid predictor of an applicant’s actual performance.
  3. The applicant/plaintiff must then respond with evidence that would support a finding that there are other criteria or practices that could have been employed that would have achieved its business needs equally as well, and that would have been less disparate in their impact upon the applicants.

Compliance Question of the Week

We received a garnishment for a member that receives “protected benefits” (we are an OR credit union), but the benefits come in the form of a check. The member is telling us that we have to give him his money back. What do we do?

Federal law does require you to conduct an account review to determine if there are protected funds in the account. The funds must be directly deposited to the account and should be coded as a protected payment. Some of the protected funds include social security payments, veterans pay, and retired railroad workers pay. 

Washington State Law does not require you to determine which funds are exempt from garnishment, regardless of how they are posted to the account. However, you must still follow the federal guidelines for federal benefit payment exemptions and look back periods. 

Oregon law not only requires you to exempt the federal benefit payments, but they also have a list of payments that are exempt from garnishment if they are deposited via direct deposit or electronic deposit. Some of these funds include any type of state assistance, unemployment compensation, workers compensation, and retirement plans. However, if funds are deposited by method of a check, the funds are not exempt from garnishments.

In Idaho, there are some very specific exemptions that the member may be entitled to. However, Idaho law requires that the defendant file a claim of exemption in order to exempt the funds from garnishment.

In any circumstance, the individual can challenge the garnishment by contacting the issuer of the garnishment and completing the challenge form required under state law. 

Related Links

Legal Briefs

National Credit Union Administration (NCUA)

The NCUA released its 2014 Annual Report. The report covers the agency’s activities, policy initiatives, and accomplishments for 2014.

NCUA Chairman Debbie Matz delivered a statement on the NCUA’s regulatory relief efforts. Among the items the NCUA is looking at for regulatory relief, Matz discussed the recently proposed MBL rule as well as the changes to the field of membership rules for federally chartered credit unions.

Consumer Financial Protection Bureau (CFPB)

The CFPB announced that has gone live with its enhanced public-facing consumer complaint database which includes over 7,700 consumer complaints.

The CFPB has updated its TILA/RESPA Integrated Disclosures Guide to reflect miscellaneous administrative changes. The changes do not incorporate the proposed delay of the rule’s effective date.

The CFPB issued a proposal to delay the effective date of the TILA/RESPA Integrated Disclosures Rule. The rule is currently scheduled to take effect on August 1, 2015. The proposed rule would push the effective date back to October 3, 2015. Comments are due by July 7, 2015.

The CFPB released its Summer 2015 Supervisory Highlights Report. The report covers examination findings relating to mortgage origination, fair lending, mortgage servicing, deposits, payday lending, and debt collection.

U.S. Government Accountability Office (GAO)

The GAO issued a report entitled Bank Regulation: Lessons Learned and a Framework for Monitoring Emerging Risks and Regulatory Response.  The report covers some of the past financial crises and found that regulators did not always provide robust supervisory attention to troubled institutions. The GAO report also discusses the framework that it created that addresses two objectives: monitoring risks for safety and soundness and monitoring regulatory responses to those risks.

Federal Reserve Board (FRB)

The FDIC issued revisions to Operating Circular 3 (Collection of Cash Items and Returned Checks) and Operating Circular 4 (ACH Items). The revisions are effective on July 23, 2015.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of June 24, 2015. The last update prior to this was June 11, 2015.


Questions? Contact the Compliance Hotline: 1.800.546.4465,

Posted in Compliance News, Federal.