Bank on Wipfli - Blog and Podcast


Are you prepared for change?

Feb 24, 2021
By: Kristen L. Eustis
Financial Institutions

The regulatory oversight of the banking industry has been relatively quiet for the past couple of years.  There have been a few things here and there but nothing new that has consumed our attention. That will probably change. In fact, it might have already started.

As you know, we not only started 2021 with a new president, but the elections in Georgia flipped the Senate, so now one party has majority control in both chambers — not to mention the final say in the White House. 

I am not here to debate politics, but historically Democrats have been more in favor of regulation than Republicans. With that in mind, I can sit here and proffer my opinion on what I think may change, but truly only time will tell.

One thing that is already getting another look is HUD’s September 2020 disparate impact rule. This rule resulted from the 2015 Supreme Court decision in Texas Department of Housing and Community Affairs v. Inclusive Communities. It took HUD five years to write the rule after the Supreme Court ruling, and now it appears it may change again. In an executive order issued January 27, 2021, President Biden directed HUD to review the effects of the September 2020 rule that revised the standard for bringing disparate impact claims under the Fair Housing Act.

Let’s refresh our memories on this case. The federal government provides tax credits to developers who build low-income housing. The credits are administered by the states, and preference is given to developing housing in low-income areas. The Inclusive Communities Project is a nonprofit that helps low-income families obtain affordable housing.

In 2008, Inclusive Communities filed suit against the Texas Department of Housing and Community Affairs, the agency responsible for issuing the credits, claiming it disproportionally allocated too many tax credits in predominantly black inner-city areas and too few in predominantly white suburban areas.

They won in the District Court and the Appeals Court. The courts ruled that disparate impact claims are cognizable under the Fair Housing Act. The Texas agency appealed to the Supreme Court, which narrowly held that Congress specifically intended to include disparate impact claims in the Fair Housing Act but that such claims would require the plaintiff to prove it was the defendant’s policies that caused the disparity.

Released in September, the rule addressed the legal requirements for disparate impact cases brought under the Fair Housing Act. The Final Rule placed much of the burden on the plaintiff to show that a specific identifiable policy or practice of the defendant has a discriminatory effect and that the challenged policy or practice was “arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective.”

In addition, the plaintiff must show a challenged policy or practice has a disproportionally adverse effect on members of a protected class, the policy or practice is a direct cause of the discriminatory effect, the disparity is significant, and there is a direct relation between the injury asserted and the injurious conduct alleged. The rule was slated to be effective on October 26, 2020. At the eleventh hour, two fair housing organizations filed a motion for a stay of the effective date, and in November a Massachusetts federal judge granted the request.

Fast forward to January and the Executive Order, which directs HUD to “take any necessary steps, as appropriate and consistent with applicable law, to implement the Fair Housing Act’s requirements that HUD administer its programs in a manner that affirmatively furthers fair housing and HUD’s overall duty to administer the act …including by preventing practices with an unjustified discriminatory effect.” 

It is safe to say we have likely seen just the beginning of an increase in banking regulations. Is your change management system ready to take on this challenge, or has it been collecting dust and needs an update? An effective change management process should be designed to detect new or amended rules and regulations, evaluate them to understand how the changes will affect your financial institution’s processes, and make updates or revisions as necessary. 

If you need an accountability partner to make sure you stay on track with regulatory changes or ensure you are prepared for what may lie ahead, the regulatory compliance specialists at Wipfli can help.


Kristen L. Eustis, CRCM
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