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Mitigating COVID-19’s Additional Disparate Impacts - Fair Housing and Lending Obligations Under the CARES Act

By: Kali N. Bracey and Damon Y. Smith

COVID19As data began pouring in from cities and states hit hard by COVID-19 it became clear that, even though the virus is color blind, certain racial and ethnic communities were suffering a disproportionate impact from the disease.  See, e.g.https://www.npr.org/2020/04/09/831174878/racial-disparities-in-covid-19-impact-emerge-as-data-is-slowly-released, last visited on May 5, 2020.  In particular, African Americans who contract COVID-19 have higher death rates, caused by underlying conditions and lack of access to health care.  Id.  Similarly, women- and minority-owned businesses may be disproportionately impacted by this crisis due to preexisting economic conditions such as lack of access to credit.  See, e.g., https://www.mbda.gov/page/executive-summary-disparities-capital-access-between-minority-and-non-minority-businesses, last visited on May 5, 2020.

When Congress passed the CARES Act to provide desperately needed funds to impacted industries, they waived statutory and regulatory requirements that could delay the delivery of that aid.  However, in recognition of the disparate conditions described above, Congress did not provide waivers of the Fair Housing Act, 42 U.S.C. § 3602 et. seq. and the Equal Credit Opportunity Act, 15 U.S.C. § 1691 et. seq.

The Fair Housing Act (FHA) prohibits discrimination in the sale or rental of housing because of race, color, national origin, religion, sex, familial status and disability.  With very few exceptions, homebuyers, homeowners, renters and prospective renters are protected from discrimination based on these classifications in all aspects of the financing and provision of housing.  The FHA prohibits both intentional discrimination and policies and decisions that are not intentionally discriminatory, but have a disproportionate and adverse impact against a protected class.  If a plaintiff is able to show that the disproportionate adverse impact exists, the burden shifts to the defendant to prove that there is a legitimate, non-discriminatory business need for the policy or decision.

For example, the CARES Act requires single-family loan servicers and multifamily property owners that have federally-backed mortgages, to permit forbearance agreements and stay evictions for borrowers and renters that have a COVID-19 related loss of income.  The applicable FHA provisions prohibit such servicers and owners from refusing to negotiate or setting different terms, conditions or privileges based on protected classifications in order to qualify for and receive those forbearances and eviction protections.  As a result, any communications, policies, requirements or considerations regarding forbearances and evictions should be carefully vetted to protect against any disparate impact, even if they are not facially discriminatory.

Also, the Paycheck Protection Program (PPP) loans provided under the CARES Act are subject to Equal Credit Opportunity Act’s (ECOA) fair lending requirements, which prohibit credit discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or receipt of public assistance.  Lenders are required to provide PPP loan applicants with ECOA-compliant disclosures and notices for any credit-related decisions.  Decisions that restrict access to credit for protected classes can result in liability if they are intentional or result in disparate impact.

A number of news outlets have reported that minority businesses are being all but shut out of the PPP program.  See, e.g., https://www.cbsnews.com/news/women-minority-business-owners-paycheck-protection-program-loans, last visited on May 5, 2020; https://www.nbcnews.com/business/business-news/why-are-so-many-black-owned-small-businesses-shut-out-n1195291, last visited on May 5, 2020.  Moreover, the Consumer Financial Protection Bureau (CFPB) published a reminder of discrimination warning signs for minority and women owned businesses applying for PPP lending including: “[r]efusal of available loan or workout option[s] even though you qualify . . . ;” offers of credit at a higher rate although the business qualifies at a lower rate; discouragement from applying for credit because of a protected class status; “[d]enial of credit, but not given a reason why or told how to find out why”; or “[n]egative comments about race, national origin, sex, or other protected statuses.” See https://www.consumerfinance.gov/about-us/blog/fair-equitable-access-credit-minority-women-owned-businesses, last visited on May 6, 2020.  At the end of the warning signs publication is the link to file a complaint with the CFPB if the small business owner believes they have been discriminated against.

Although it is not yet clear what role discrimination plays, if any, in the lack of PPP funds going to women and minority-owned businesses, as a result of this potential liability, lenders should have all of their CARES Act-related documents, notices, training materials, and offers reviewed by an attorney for Fair Lending compliance.