Credit Unions Ask for Clearer Protection Under Anti-Discrimination Rule

Credit union trade groups made it clear to the U.S. Department of Housing and Urban Development (HUD) this week that they support a plan to reinstate a 2013 rule that prohibits discrimination in housing not just by what lenders say, but what they do.

CUNA and NAFCU also said the current law is adequate in ensuring that lawsuits against credit unions will fail if they are based on results that stem from statutory limits on credit union membership from field of membership restrictions.

However, they said they want the law to include safe harbor language that will make it clear that credit unions are protected from liability if the alleged discrimination is a byproduct of membership rules.

The groups were commenting on HUD’s move in April complying with President Joe Biden’s order that it reverse actions by the Trump administration that Biden said undermined fair housing principles. One of Biden’s requests was that HUD reinstate its 2013 rule that codified the decades-old “disparate impact” standard.

The 2013 rule was designed to make lenders, real estate agents and others in the housing industry accountable for policies and actions that disproportionately hurt minorities without justification, even if discrimination was not a stated intent.

Elizabeth LaBerge, CUNA’s senior director of advocacy and counsel, wrote in a five-page letter that HUD should explicitly mention credit union field of membership limitations as an example of a statutory limitation within the safe harbor to ward off frivolous lawsuits.

“Even if a credit union will ultimately be successful in having a case dismissed, the cost and loss of staff time directly injures the individual members of the credit union,” LaBerge wrote.

NAFCU’s four-page letter also raised the issue of protecting lenders from discrimination lawsuits based on lending results from computer algorithms they don’t control, such as those behind proprietary underwriting models used by Fannie Mae and Freddie Mac.

Andrew Morris, NAFCU’s senior counsel for research and policy, cited a 2019 proposal from HUD that proposed new defenses that “acknowledged the difficulty an individual lender might face when having to defend third-party, industry standard underwriting software that it has no power to modify.”

The 2013 rule being reinstated “offers no similar attempt to mitigate the unique evidentiary burdens and relationships that can exist in cases targeting algorithmic models, and this could chill adoption of new underwriting technology that would ultimately benefit underserved and historically disenfranchised communities.”