When Critical Race Theory Met the CFPB… at a Toyota Dealer

When Critical Race Theory Met the CFPB… at a Toyota Dealer

When Critical Race Theory Met the CFPB… at a Toyota Dealer

Like CRT, disparate impact theory is a right-wing target—and a powerful tool for fighting racism in lending.


When Rohit Chopra was still a commissioner at the Federal Trade Commission, in May of 2020, he issued a forceful public statement following an investigation into the racist lending practices his agency uncovered at a Bronx auto dealership. Chopra highlighted that the case hinged on subtly discriminatory “disparate lending” practices as he urged the FTC to ramp up its activity in that area. Chopra reminded his colleagues that in 2010, Congress passed legislation to enhance the FTC’s investigation and enforcement capacity in the auto industry—but that the agency had not leveraged the congressional activity into action. “Given the difficulty of uncovering direct evidence of discriminatory intent,” Chopra wrote, “disparate impact analysis is critical for detecting potentially unlawful discrimination.”

Disparate impact theory and critical race theory are just a couple of the “theories” targeted by the right in its quest to deny the existence of anything approaching systemic racism in this country. (The right denies the theory of evolution too—but that’s for another day.) And while critical race theory gets the headlines these days, disparate impact theory is a lesser-known but critical social justice weapon for ensuring that all Americans get an equitable shake at home ownership or a new car. Black Loans Matter.

Now Chopra has moved on to head the Consumer Financial Protection Bureau (CFPB) following a party-line vote in the Senate that saw him confirmed in late September, after his nomination was put on hold for nearly six months (the Senate Banking Committee had deadlocked on his confirmation 12-12 back in May). In bringing his nomination forward for a vote, Senate majority leader Chuck Schumer noted that the CFPB—the Elizabeth Warren brainchild born during Barack Obama’s presidency—had “languished” under Trump.

“Languished” is a diplomatic way of putting it. Chopra takes over an agency that Trump and his congressional allies—with a big assist from the Kavanaugh Supreme Court—did everything in its power to destroy. While Chopra noted that the FTC had been given “additional tools” by Congress to address those subtle forms of discrimination in the auto-loan industry, the CFPB saw one of those key tools eliminated under Trump.

Let’s take a look in the rearview mirror at recent history.

The CFPB under Obama fielded a very active Office of Fair Lending, which functioned to ensure that lenders were working within the Equal Credit Opportunity Act (ECOA) as they made their loan decisions. Indeed, the last hurrah for Obama’s CFPB was a $21.9 million settlement it reached with Toyota Motor Credit Corporation, via a CFPB and Department of Justice suit whose origins were at a California Toyota dealership. Leading up to the 2018 Toyota settlement, the agency had secured more than $200 million in settlements for consumers who were victims of lending policies that, as the CFPB gracefully observed, weren’t racist by design, but tended to have disparate negative impacts on Blacks, Latinos and Asians compared with other would-be borrowers (Toyota signed off on the settlement in 2016 while Obama was still president). Those included higher interest rates, higher markup rates, and fewer loan approvals even in cases where a minority applicant had better credit than a white person.

As Chopra put it in his May 2020 letter, “it is rare to uncover direct evidence of racist intent” in auto-loan discrimination cases. The Bronx dealership was that rarity whose owner had engaged in flagrant racism against would-be buyers who were Black or Hispanic, according to his letter. “That’s why disparate impact analysis is a critical tool to uncover hidden forms of discrimination,” he writes. “Companies are collecting an ever-growing universe of personal data, and through sophisticated machine learning tools and other forms of predictive technology, this data can produce proxies for race and other protected classes. Often this discrimination is invisible to its victims, making it especially important that regulators work proactively to root it out.”

In 2015, the Supreme Court, led by a majority opinion from Anthony Kennedy, ruled that disparate impact lawsuits were constitutionally kosher (the case turned on a housing discrimination suit brought in Texas). The decision did not sit well with the auto or home-lending industry. The decision was a boon to the CFPB, which had been providing guidance to auto lenders since 2013. While forbidden from using an applicant’s race, lenders might for example utilize other data (i.e., a would-be-borrower’s ZIP code) as part of their algorithm. No go, said the CFPB. It brought multiple suits against automakers, including Toyota, on behalf of consumers who’d been unjustly rejected for a loan. But after Trump oozed into office, the CFPB would quickly morph into what its supporters ruefully called the Corporation Financial Protection Bureau.

Trump went total “chop shop” on the agency as he set out to dismantle it. When he installed Mick Mulvaney as acting head, Mulvaney put himself in charge of the Office of Fair Lending and set out to quash any further suits involving disparate impacts in lending practices. Then Trump’s congressional allies got to work with the legislative blowtorches.

Nicole F. Munro and Laura J. Bacon provided the backstory in an August 2021 article posted on the Hudson Cook LLC website. Since the initial guidance didn’t go through the rulemaking process, they noted, a Congressional Review Act canceled it based on a Government Accountability Office review that said it was a “rule in disguise.” The CRA nixed the guidance, they wrote, and told the CFPB “that it could not recreate a substantially similar rule without specific congressional authorization.”

Instead of authorizing the guidance, Congress killed it via a 2018 bill shepherded by Kansas GOP Senator Jerry Moran that put an end to the guidance provided to corporations through the lens of disparate impact theory.

“Understandably, dealers and finance sources celebrated the end of the guidance,” Munro and Bacon observed, “even as the CFPB stated that it would continue to vigorously enforce fair lending laws.”

But the coup de grâce to the CFPB itself may be a recent 5-4 Supreme Court decision in TransUnion v. Ramirez that could make it more difficult to bring the sorts of class-action suits that animated the Toyota decision. Slate’s Mark Joseph Stern produced a brutally clear-eyed explainer on the Transunion decision, declaring it even “too extreme for Clarence Thomas.”

While the court’s 2015 decision upheld disparate impact theory, the Kavanaugh opinion in Transunion effectively negates the 2015 ruling in a broad-based salvo against Congress’s ability to establish new rights (consumer rights, for example) leaving it to the court, and the court alone, to do that. The CFPB was created in 2010 via the Dodd-Frank Wall Street and Consumer Protection Act. The court also said lawsuits against the likes of Transunion must demonstrate “concrete harm,” thereby eliminating the ability of fair-lending nonprofits or federal agencies to investigate charges of discrimination using test borrowers. All three of Trump’s nominees voted with the majority in the Transunion case, with Brett Kavanaugh producing the majority opinion. The decision was so mind-blowing in its overreach and potential implications that even Clarence Thomas was moved to vote with the minority.

Stern laid bare the implications: “The decision will have an especially outsize impact on class action lawsuits, which allow multiple victims to band together and pursue violations of federal law collectively. It could also undermine civil rights enforcement. Many groups hire ‘testers’ who (for example) apply to rent a home to test compliance with fair housing laws; if they experience discrimination, is that still concrete harm even if they didn’t intend to rent the property?”

Now enter the current (and currently effective) right-wing blitzkrieg targeting “critical race theory” and watch what happens when that backlash encounters the CFPB under Rohit Chopra—not in the classroom but on the showroom floor at your local auto dealership. The auto industry and its lawyers and lobbyists are certainly keeping a close watch. What becomes of auto-lending guidance in the Biden administration? Does the CFPB become a political lightning rod around automobiles and the broader economy, given the big Covid-era disruptions in the industry’s supply chain? And of course: What will Joe Manchin have to say about all this? He was, after all, the only Democratic senator to support both the Kavanaugh confirmation and the Moran bill.

With new leadership in place at CFPB, at least one representative has taken another swing at protecting borrowers from discriminatory algorithms. HR 3611, introduced in May by California Democrat Doris Matsui, titled the “Algorithmic Justice and Online Platform Transparency Act,” contains language that appears pegged at reestablishing a disparate-impact standard when it comes to discriminatory algorithms and would-be borrowers: Her bill would forbid online platforms from utilizing algorithmic processes, or an applicant’s personal information, “in a manner that discriminates against or otherwise makes the opportunity unavailable on the basis of an individual’s or class of individuals’ actual or perceived race, color, ethnicity, religion, national origin, sex, gender, gender identity, sexual orientation, familial status, biometric information, or disability status.”

Matsui’s bill has been stalled in the House Committee on Energy and Commerce since she introduced it.

All of this wheeling and dealing around Disparate Impact Theory and the auto industry’s lending policies throws some light into the dark cloud surrounding Toyota’s outsized campaign contributions to numerous members of the “Sedition Caucus” earlier this year, first reported by Citizens for Responsibility and Ethics in Washington. The contributions were called out by progressives and other reasonable people and, facing a boycott campaign, Toyota promised it wouldn’t support seditionists anymore. But by then the big automaker already got what it wanted. While it is true that correlation is not necessarily causation, it’s also true that when you hit the gas, the car tends to go. Those contributions can now be seen as a payoff for services rendered to date in Congress and at the Supreme Court—and a down payment against any effort to kick the CFPB’s Office of Fair Lending into gear again. Members of congress, start your engines.

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Katrina vanden Heuvel
Editorial Director and Publisher, The Nation

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