Banks rarely object when the government wants to ease the rules. But current events have them asking regulators to at least tap the brakes on weakening a regulation meant to curb racial injustice.
Executives from the country’s four biggest banks — Bank of America, Citigroup, JPMorgan Chase and Wells Fargo — have asked the Department of Housing and Urban Development not to rewrite requirements to ensure they’re not accidentally discriminating against Black and Latino customers in their mortgage businesses.
“HUD should acknowledge that Americans’ attention to racial discrimination is more pronounced and expansive,” Michael DeVito, Wells Fargo’s executive vice president for home lending, said in a letter to HUD Secretary Ben Carson on Tuesday.
“People across the country have considered more closely that centuries of discrimination, segregation and economic disenfranchisement have lasting impacts today, including discriminatory effects in housing,” Mr. DeVito wrote.
Although the banks stopped short of saying no policy change should ever be made, the request for a delay was unusual in the world of finance, where firms regularly seek fewer regulations.
“This is a huge deal,” said John Relman, a lawyer who has represented people unfairly shut out of housing and mortgage opportunities. “This is unprecedented. This is revolutionary.”
The proposed change would spare the banks from fines and legal fees by effectively reducing the number of lawsuits and government enforcement actions against them. It would also make it easier for banks to use algorithms and artificial intelligence to market, underwrite and price home loans without worrying whether those calculations accidentally discriminated against disadvantaged groups.
But the banks may be realizing there’s more to the issue than the regulatory and legal considerations.
Championing a change proposed by the Trump administration that could make it harder for Black Americans to get housing would be deeply unpopular. And there’s a chance they’d be backing a regulatory rollback that could be quickly reversed if President Trump loses his re-election bid in November.
The proposed rule governs the concept of “disparate impact,” in which a practice by a lender or housing provider creates an unequal playing field, even if unintentionally. Policies that have a disparate impact on disadvantaged groups are illegal under the Fair Housing Act of 1968.
“There has never been a case, in my 35 years of practice in working in fair housing and fair lending, where I have seen one of the big banks — let alone four — stand up and advocate for stronger enforcement of the disparate impact rule,” Mr. Relman said.
Civil rights activists have been battling the HUD proposal since an early version was released two years ago, saying it would be nearly impossible for victims of discrimination to sue. They said plaintiffs would have to prove that there was no legitimate commercial reason for a lender or landlord to have adopted a particular policy, without having any access to the lender’s or landlord’s internal documents.
The banks’ opposition is far more recent. While none weighed in on the proposal individually during the period when HUD asked for public feedback, their biggest trade group, the American Bankers Association, and two others wrote in support of it. The groups argued that the proposed changes simply aligned the rule with a Supreme Court decision that had bearing on disparate impact cases, providing “much-needed guidance and clarity regarding the practical application of the law.”
Now, though, the individual banks are acknowledging that the rule might do more than that.
“We have all heard the legitimate concerns that have been raised that the proposed rule could make it more difficult to ensure that the Fair Housing Act’s protections and avenues of redress against unlawful discrimination are available to all Americans,” a Bank of America vice chairwoman, Anne Finucane, wrote to a HUD official on June 29. “This is not a time for actions, however well intentioned, that some will interpret as diminishing hard-fought protections.”
So far, HUD officials are unmoved.
In response to a request for comment, the agency released the letter that Brian Montgomery, HUD’s deputy secretary, sent to Ms. Finucane on Tuesday.
In it, Mr. Montgomery pointed out that Bank of America had not offered its input during the public comment period last fall. He also noted that the bank had cut back on making home loans to low-income borrowers under a particular government program and suggested that Bank of America increase its efforts in that area if it really wanted to help disadvantaged people get housing. Mr. Montgomery’s letter gave no indication that HUD would agree to halt its plans to make the rule final.
Nor does HUD appear to be considering JPMorgan’s suggestion that it start over on the rule-making process. JPMorgan’s chief executive of home lending, Mark W. O’Donovan, asked Mr. Carson in a letter on Tuesday to consider “re-engaging with mortgage lenders, realtors, homebuilders, consumer advocates and the civil rights community to assess the most appropriate regulatory actions to address all forms of housing-related discrimination in furtherance of the goals of the Fair Housing Act.”
Mr. Carson has not responded to the letter.