> it's not enough to simply show a correlation; in enforcing disparate impact claims (under ECOA or FHA or Title VII), regulators have to show not just the correlation, but also the illegitimacy of the (facially neutral) action, or at last that some other (facially neutral) business practice would accomplish the same goals without producing the impact.
But that's the problem.
Suppose you're evaluating whether to consider zip code in loan approvals, and that doing so improves the overall prediction rate, helps hispanic applicants, but hurts black applicants.
If you choose to stop considering zip code, you've got a disparate impact against hispanics but no business justification for doing it that way, meanwhile they can show an alternative (i.e. taking zip code into account) that serves your business goals better and reduces the disparate impact against hispanics, so not considering it may get you into trouble.
But we also have people suggesting that you shouldn't consider it because it increases the disparate impact against black applicants, and you might "have a hard time" demonstrating that business justification in court. Which is perhaps not ridiculous, because the business justification is there, but it's also in complicated algorithms that are not easy to explain to a layman.
So you have two basically reasonable alternative courses of action, either of which could arguably result in liability. This is the hallmark of unworkable legislation.
> Suppose you're evaluating whether to consider zip code in loan approvals, and that doing so improves the overall prediction rate, helps hispanic applicants, but hurts black applicants.
That's not disparate impact. The legal code does not follow exact predicate logic, where if you meet conditions A, B, and C, you violate the law. It tends to follows rules of fuzzy logic instead--that's why you'll see legal opinions that involve words like "tends to", "probably", "factors" a lot. Particularly where a strict interpretation would lead you to an apparent contradictions, the court system instead tries to find a reasonable course of action. Indeed, often merely showing that you are making a good-faith effort to comply with all applicable laws and regulations is sufficient to absolve you of penalties for failure to comply.
Ultimately, the arbiter of reasonableness isn't a blackbox oracle. It's a panel of 12 members of the general public, or perhaps a panel of 3-9 judges.
But that's the problem.
Suppose you're evaluating whether to consider zip code in loan approvals, and that doing so improves the overall prediction rate, helps hispanic applicants, but hurts black applicants.
If you choose to stop considering zip code, you've got a disparate impact against hispanics but no business justification for doing it that way, meanwhile they can show an alternative (i.e. taking zip code into account) that serves your business goals better and reduces the disparate impact against hispanics, so not considering it may get you into trouble.
But we also have people suggesting that you shouldn't consider it because it increases the disparate impact against black applicants, and you might "have a hard time" demonstrating that business justification in court. Which is perhaps not ridiculous, because the business justification is there, but it's also in complicated algorithms that are not easy to explain to a layman.
So you have two basically reasonable alternative courses of action, either of which could arguably result in liability. This is the hallmark of unworkable legislation.