For housing loans covered by the Fair Housing Act, a lender adds 0.5 percentage points to rates on loans below $100,000. Those smaller loans are disproportionately made to racial-minority borrowers. What analysis does this pricing pattern warrant under HUD’s discriminatory-effects framework?
Correct Answer
D) Investigate causation, the evidence for the policy’s justification and less discriminatory alternatives
D. The pattern warrants a discriminatory-effects analysis, not an automatic verdict. The claimant first must establish the challenged practice’s causal discriminatory effect. If that burden is met, the lender must establish necessity for substantial legitimate nondiscriminatory interests; the claimant may then prove a less discriminatory alternative serves those interests. Scope and exceptions: This is the cited HUD Fair Housing Act framework, not an assertion that Regulation B uses an identical effects test. No cost justification or alternative is established by the supplied facts. Source: 24 CFR 100.500(a)–(c) — https://www.ecfr.gov/current/title-24/subtitle-B/chapter-I/part-100/subpart-G/section-100.500
Why This Is the Correct Answer
D. The pattern warrants a discriminatory-effects analysis, not an automatic verdict. The claimant first must establish the challenged practice’s causal discriminatory effect. If that burden is met, the lender must establish necessity for substantial legitimate nondiscriminatory interests; the claimant may then prove a less discriminatory alternative serves those interests. Scope and exceptions: This is the cited HUD Fair Housing Act framework, not an assertion that Regulation B uses an identical effects test. No cost justification or alternative is established by the supplied facts.
Why the Other Options Are Wrong
Option A: Prohibited outright, because the 0.5% difference is discriminatory
The rate difference alone does not establish liability.
Option B: Permitted where the lender discloses the 0.5% add-on in writing
Disclosure alone does not resolve the analysis.
Option C: Permitted outright, since loan size is not a protected class
A facially neutral factor does not end the Fair Housing Act inquiry.
Exam Tip
Specify the governing law and distinguish disparity from a completed liability finding.
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