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Mr. GARRETT. Mr. Chair, I rise today to offer an amendment that attempts to restore some sanity, fairness, and certainty to mortgage and insurance companies. My amendment would undo harmful economic actions taken by the administration that will, if carried out, continue to weaken credit availability and job creation.
You see, earlier this year, the Department of Housing and Urban Development proposed a rule to establish regulatory standards regarding the use of the legal theory known as ``disparate impact.'' Disparate impact liability allows for plaintiffs and government agencies to bring suit charging discriminatory practices based solely on statistics. If statistics indicate, for instance, that disparity exists between the number of loans made in a specific area to a certain preferred minority class versus the number of preferred minorities that live in that area, a lender could be charged with discriminatory practices, even if there was no intent whatsoever.
Now, we all agree that discrimination is terrible and that when there is intent, we must prosecute to the fullest extent of the law. But under the example I laid out, the lender could even have specific anti-discriminatory practices in his company in place, but still be found liable under this legal theory. You see, accurate risk identification and classification is essential to the lending and insurance business, but the HUD rule ignores that.
Risk-based lending and insurance underwriting and pricing that unintentionally results in a statistically disparate outcome, that is not discrimination.
The proposed HUD rule would create a presumption of discriminatory disparate impact that could basically undermine the basic purposes of risk-based pricing, which ensures persons with different risk characteristics have to make payments commensurate with the risk they pose. So protected-class characteristics, including race, are actually prohibited from consideration in this assessment. State law already prohibits insurers from recording race, for example. But this HUD rule requiring race consideration would be impossible, then, under State law.
Looking specifically at homeowners insurance, commonly considered factors--including applicant's claim history, construction materials, the presence or absence of a security system, and the distance from a firehouse--could be barred if they were found to result in creating a statistical disparity for a class defined by race, ethnicity, or gender.
You see, all 50 States have anti-discrimination provisions in their housing insurance regulations already, and there is no claim that these regulations have been insufficient. So the process that HUD proposes for the disparate impact rule is, therefore, unworkable and economically impractical.
The process HUD proposes for defending against a charge of unlawful discrimination based upon disparate impact would then require a defendant to prove a ridiculously high standard, that the challenged practice is necessary to its very survival, and that its business would basically collapse if it didn't do it.
You see, the process HUD proposes would find the defendant company liable if a court could find another practice that is simply less discriminatory, not, instead, a reasonable, economical, practical, workable, state-authorized, or known practice. Simply, all they have to come up with is another practice.
Extending disparate impact analysis to facially-neutral practices exceeds HUD's authority under the FHA and it is contrary to law. Extending disparate impact analysis to facially-neutral practices therefore is arbitrary and it is capricious. Therefore, the application of this HUD rule on the insurance industry should be precluded, and it should preclude it also because of McCarran-Ferguson. Recognizing disparate impact analysis under the FHA exceeds HUD's authority under the FHA and therefore is contrary to law.
The Supreme Court recently agreed to hear a challenge on this. I think it was just last year. Unfortunately, you may know that that case was withdrawn. Why? Because of pressure from this administration. The administration rightly, I believe, was concerned that the Court would strike down the whole theory as being unconstitutional.
Now recently a new case had been submitted to the Supreme Court for consideration on the very same issue. I hope the Court takes that case up soon. The Justice Department knows it has a weak case, and I do not believe that this administration should try to front-run the Supreme Court and attempt to push through this failed legal theory.
My amendment would prohibit HUD from finalizing this rule that harms credit availability and job creation. It is supported by the Mortgage Bankers Association, the National Association of Mutual Insurance Companies, along with a couple other institutions as well--the American Insurance Association and the Property Casualty Insurance Association of America.
I yield back the balance of my time.
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Mr. GARRETT. And that's just my point. I'm not trying to stop any process. What I'm trying to do is prevent this administration from doing an end-run on the process.
You set up the record almost completely straight. There were court cases on this. It was going to the Supreme Court. It was about to go to the Supreme Court and be heard, and then this administration put pressure on the city that was involved in it to stop it, and they withdrew the case. We would have had the decision by the Supreme Court in that matter, but the administration basically said no, because they wanted to go ahead with their actions here without interference of the Supreme Court.
Fortunately, though, there is now another case that's been filed, and it's from my home State of New Jersey. This will give us all exactly what we need, just what you were saying: lower court, and now it's being appealed up to the Supreme Court.
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