An update on the CFPB

We’ve been silent for awhile on the subject of lending discrimination and the CFPB, but that doesn’t mean the rest of the lending world stopped talking about it. Today, for example, Toyota Credit announced that it has been accused of discrimination by the CFPB and the Justice Department. Like most of the recent claims against auto lenders, the type of discrimination involved is called disparate impact.

As a reminder, disparate impact is discrimination in which there is discriminatory effect regardless of intentions. It is discrimination determined by statistical analysis. But disparate impact itself has been under attack of late. The American Financial Services Association commissioned a study of the CFPB’s disparate impact methodology and concluded that it “is conceptually flawed in its application and subject to significant bias and estimation error.” The Supreme Court of the United States recently agreed to hear a case that could help determine whether disparate impact claims by the government are legitimate.

While none of this is likely to help Toyota immediately, the likelihood of greater clarity around what constitutes discrimination has increased. That’s good for all of us.

UPDATE: Shortly after posting, the CFPB struck again.