A lender's policy requires all self-employed borrowers to provide 3 years of tax returns instead of the standard 2 years. Data shows this affects 35% of Hispanic borrowers compared to 12% of white borrowers, as Hispanic borrowers are more likely to be self-employed in the lender's market area. The lender can document higher default rates among self-employed borrowers with only 2 years of documentation. This scenario represents:
Correct Answer
B) Lawful disparate impact because the policy is justified by legitimate business necessity
While this policy creates disparate impact on Hispanic borrowers, it may be lawful under the Fair Housing Act if the lender can demonstrate it serves a legitimate business necessity (reducing default risk) and that no less discriminatory alternative exists to achieve the same goal. The key is that the lender has documented evidence supporting the business justification for the 3-year requirement.
Why This Is the Correct Answer
While this policy creates disparate impact on Hispanic borrowers, it may be lawful under the Fair Housing Act if the lender can demonstrate it serves a legitimate business necessity (reducing default risk) and that no less discriminatory alternative exists to achieve the same goal. The key is that the lender has documented evidence supporting the business justification for the 3-year requirement.
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