Pub. 6 2015 Issue 3

fall 2015 13 West Virginia Banker SandraMurphy and Floyd Boone are attorneys in the Charleston office of Bowles Rice LLP. Should you require more information, please feel free to contact the authors directly. Ms.Murphy isaBowlesRicepartnerandthe leaderofthefirm’sBanking and Financial Services team. She concentrates her practice in bank- ing, commercial and financial services and securities law. She can be reached at (304) 347-1131 or by e-mail at smurphy@bowlesrice.com. Mr. Boone is a Bowles Rice partner and has extensive experience representing financial institutions in lawsuits brought by consumers and regulators. He can be reached at (304) 347-1733 or by e-mail at fboone@bowlesrice.com. Communities decision should not apply to the ECOA, federal banking regulators and plaintiffs’ lawyers will likely be embold- ened in arguing that ECOA prohibits lending practices and policies that merely have a disparate impact on members of protected groups. Moreover, if the Supreme Court ever addresses whether the violation of ECOA requires evidence of an intention to discriminate, it probably will not occur for many years. As a result, the least risky option for lenders would be to assume that the Supreme Court’s interpretation of the FHA in Inclusive Com- munities also applies to the ECOA. Because ECOA applies to “credit applicants” and “any aspect of a credit transaction,” it will apply to every aspect of a bank’s lend- ing operations. One notable example of ECOA’s wide applica- bility in the disparate impact context is the CFPB’s recent pursuit of financial institutions that finance automobiles. In recent high-profile enforcement proceedings against Ally Financial and American Honda Finance Corporation, the CFPB alleged that both entities utilized loan pricing practices and policies that dis- parately impacts members of protected groups. In particular, the CFPB argued that those entities violated ECOA by granting dis- cretion to automobile dealers to “markup” interest rates charged to individual customers. Banks should assume that ECOA may be violated without evidence of intentional discrimination against members of protected groups. Ways to Mitigate Risk Following the Inclusive Communities decision and the likelihood that regulators and plaintiffs’ lawyers will apply its interpretation to the ECOA, banks should carefully examine their lending and credit practices and policies to determine their vulnerability to a disparate-impact challenge. If a bank finds that any practice or policy has a disparate-impact upon members of a protected group, it should carefully examine whether that practice or policy is necessary to achieve or satisfy a “valid interest” and whether it can prove a sufficient link between that practice or policy and at least one valid interest. The ability of the person making a lending decision to exercise discretion is also an important area to review. At a minimum, wherever a bank provides its employ- ees or third-party business affiliates (e.g., automobile dealers, mortgage brokers, etc.) discretion in the pricing of loans, and especially where their compensation is linked to the pricing of loans, it should consider eliminating such discretion in favor of fixed pricing or some similar arrangement. n Scott N. Drake, CPA sdrake@sek.com Scot E. Orndorff, CPA sorndorff@sek.com Luke C. Martin, CPA lcmartin@sek.com Gary D. Snyder, CPA gsnyder@sek.com DoriAnn F. Hoffman, CPA dhoffman@sek.com 717.263.3910 888.272.7351 SEK.com Get a new perspective on your success. Our experience adds value beyond the numbers. Partner with an advisor you can trust.