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Credit Discrimination: 6.4.2.1 Overview

If even a single factor in a credit scoring model correlates to race or other prohibited bases, the results of the model may be discriminatory.102 The official interpretations appear to concur, noting that an “empirically derived, demonstrably and statistically sound” credit scoring system may be flawed and thus subject to review and challenge under the Equal Credit Opportunity Act (ECOA).103 These concerns are intensified by the “black box” nature of credit scoring systems.

Credit Discrimination: 6.4.2.3 Other Factors That May Disfavor Protected Classes

A potential issue is whether credit scoring systems give more points to homeowners. According to FICO, one of the categories of factors used to derive FICO scores is the types of credit in use. A good mix may be one that includes a mortgage loan.121 The question is whether FICO’s scoring models explicitly give more points to mortgage holders, which would mean homeowners are favored over renters. Black people have lower rates of homeownership than White people.122

Credit Discrimination: 6.4.2.4 Industry’s Response

In response to these concerns, the credit scoring industry and its proponents have consistently maintained that their systems are not discriminatory.140 Moreover, they point out that credit scoring actually reduces discrimination against protected groups. They note that the human—and potentially discriminatory—element in credit evaluation has been replaced by a system that is blind to race and other prohibited bases.

Credit Discrimination: 6.4.4 Disparate Impact Litigation Challenging Credit Scoring

In the mid-2000s, there were a handful of credit discrimination cases challenging credit scoring.156 A class action challenged that Fannie Mae’s use of credit scores in its Desktop Underwriter automated underwriting system has a disparate impact on Black consumers in violation of ECOA and the FHA.157 The plaintiff’s discrimination claims under the FHA and the ECOA survived a motion to dismiss.158 However, the court did express skepticism about the

Credit Discrimination: 6.4.5.1 Overview

The prior discussion of credit scoring and potential discrimination focused on the disparate impact created by the scoring systems themselves. However, the potential for discrimination does not stop there. Even assuming a credit scoring system that does not disproportionately affect people of color, credit scoring does not immunize a lender from discrimination. Lenders have found numerous ways to disfavor applicants of color when they are using a scoring model.

Credit Discrimination: 6.4.5.3 Overrides

The Office of Comptroller of the Currency (OCC) raised a concern that because the credit scores of a large percentage of applicants fall in a gray area, lenders will continue to use subjective or “human” underwriting to review these applications. The OCC expressed concern that decisions to override the credit scores in these situations may undermine the objectivity and/or integrity of credit scoring and lead to discriminatory results.169

Credit Discrimination: § 3602. Definitions

As used in this subchapter—

(a) “Secretary” means the Secretary of Housing and Urban Development.

(b) “Dwelling” means any building, structure, or portion thereof which is occupied as, or designed or intended for occupancy as, a residence by one or more families, and any vacant land which is offered for sale or lease for the construction or location thereon of any such building, structure, or portion thereof.

Credit Discrimination: § 3603. Effective dates of certain prohibitions

(a) Application to certain described dwellings

Subject to the provisions of subsection (b) of this section and section 3607 of this title, the prohibitions against discrimination in the sale or rental of housing set forth in section 3604 of this title shall apply:

(1) Upon enactment of this subchapter, to—

(A) dwellings owned or operated by the Federal Government;

Credit Discrimination: § 3604. Discrimination in the sale or rental of housing and other prohibited practices

As made applicable by section 3603 of this title and except as exempted by sections 3603(b) and 3607 of this title, it shall be unlawful—

(a) To refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.

Credit Discrimination: § 3605. Discrimination in residential real estate-related transactions

(a) In general

It shall be unlawful for any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.

(b) “Residential real estate-related transaction” defined

Credit Discrimination: § 3606. Discrimination in provision of brokerage services

After December 31, 1968, it shall be unlawful to deny any person access to or membership or participation in any multiple-listing service, real estate brokers’ organization or other service, organization, or facility relating to the business of selling or renting dwellings, or to discriminate against him in the terms or conditions of such access, membership, or participation, on account of race, color, religion, sex, handicap, familial status, or national origin.

Credit Discrimination: § 3607. Religious organization and private club exemption

(a) Nothing in this subchapter shall prohibit a religious organization, association, or society, or any nonprofit institution or organization operated, supervised or controlled by or in conjunction with a religious organization, association, or society, from limiting the sale, rental or occupancy of dwellings which it owns or operates for other than a commercial purpose to persons of the same religion, or from giving preference to such persons, unless membership in such religion is restricted on account of race, color, or national origin.

Credit Discrimination: § 3608. Administration

(a) Authority and responsibility

The authority and responsibility for administering this Act shall be in the Secretary of Housing and Urban Development.

(b) Assistant Secretary

The Department of Housing and Urban Development shall be provided an additional Assistant Secretary.

(c) Delegation of authority; appointment of administrative law judges; location of conciliation meetings; administrative review

Credit Discrimination: § 3609. Education and conciliation; conferences and consultation; reports

Immediately after April 11, 1968, the Secretary shall commence such educational and conciliatory activities as in his judgment will further the purposes of this subchapter. He shall call conferences of persons in the housing industry and other interested parties to acquaint them with the provisions of this subchapter and his suggested means of implementing it, and shall endeavor with their advice to work out programs of voluntary compliance and of enforcement.

Credit Discrimination: § 3610. Administrative enforcement; preliminary matters

(a) Complaints and answers

(1)(A)(i) An aggrieved person may, not later than one year after an alleged discriminatory housing practice has occurred or terminated, file a complaint with the Secretary alleging such discriminatory housing practice. The Secretary, on the Secretary’s own initiative, may also file such a complaint.

(ii) Such complaints shall be in writing and shall contain such information and be in such form as the Secretary requires.

Credit Discrimination: § 3611. Subpoenas; giving of evidence

(a) In general

The Secretary may, in accordance with this subsection, issue subpoenas and order discovery in aid of investigations and hearings under this subchapter. Such subpoenas and discovery may be ordered to the same extent and subject to the same limitations as would apply if the subpoenas or discovery were ordered or served in aid of a civil action in the United States district court for the district in which the investigation is taking place.

(b) Witness fees

Credit Discrimination: § 3613. Enforcement by private persons

(a) Civil action

(1)(A) An aggrieved person may commence a civil action in an appropriate United States district court or State court not later than 2 years after the occurrence or the termination of an alleged discriminatory housing practice, or the breach of a conciliation agreement entered into under this subchapter, whichever occurs last, to obtain appropriate relief with respect to such discriminatory housing practice or breach.

Credit Discrimination: § 3614. Enforcement by the Attorney General

(a) Pattern or practice cases

Whenever the Attorney General has reasonable cause to believe that any person or group of persons is engaged in a pattern or practice of resistance to the full enjoyment of any of the rights granted by this subchapter, or that any group of persons has been denied any of the rights granted by this subchapter and such denial raises an issue of general public importance, the Attorney General may commence a civil action in any appropriate United States district court.