A controversial legal theory on discrimination threatens to disrupt consumer lending and poses a potential liability for anyone securitizing these loans.

Called “disparate impact,” it is being used by the Department of Housing and Urban Development (HUD) to cite lenders for unintentional discrimination against minorities and others under the Fair Housing Act. The Consumer Finance Protection Bureau (CFPB) has also used disparate impact to cite finance companies under the Equal Credit Opportunity Act, or ECOA.

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