May 14, 2013

Trying to avoid disparate impact causes a disparate impact

By Joshua P. Thompson Senior Attorney

You can’t make this stuff up.  Banks have been under intense scrutiny from Obama Administration for lending practices that result in a disparate impact against racial minorities.  To avoid such threatening lawsuits, a small bank in Maryland put in place a practice that capped the amount that could be recouped from loans to minorities and women.  Unsurprisingly, that caused a disparate impact against whites.  The bank was ordered to pay back millions of dollars for causing a disparate impact.

Sadly, this type of result is exactly what should be expected when run-of-the-mill statistical disparities can subject firms to catastrophic lawsuits.  The only thing that firms can do to avoid disparate impact liability is overtly racially balance their workforce, which, of course, would be unconstitutional.  Rock meets hard place.

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