CLEVELAND -

Time is dwindling in the current Supreme Court session, and the justices have yet to offer their opinion on a case connected with the use of disparate impact, one of the sharpest tools the Consumer Financial Protection Bureau uses to regulate the auto finance industry. No matter which way the court goes, analysts from KeyBanc Capital Markets remain “bullish” on the profit prospects for dealers in their finance offices.

To recap, the court is expected to offer its opinion in the coming days regarding the case of the Texas Department of Housing and Community Affairs versus the Inclusive Communities Project. KeyBanc analysts explained the case focuses on the use of low income housing tax credits, which are federal tax credits distributed to low-income housing developers by state housing authorities.

In 2009, the Inclusive Communities Project (ICP) sued the Texas Department of Housing and Community Affairs (TDHCA) claiming that TDHCA disproportionately granted tax credits to minority neighborhoods and away from affluent neighborhoods, a practice attorneys said perpetuated segregation in violation of the Fair Housing Act. At trial, ICP attempted to show discrimination by disparate impact, and the court ruled against TDHCA, which later appealed claiming that the district court used the wrong standard to evaluate disparate impact claims.

The two sides eventually faced off in front of the Supreme Court back in January. KeyBanc indicated the Supreme Court will decide whether the disparate impact standard will remain available to those complaining of housing discrimination under the Fair Housing Act.

Disparate Impact is a policy or practice that can be deemed discriminatory and illegal if it has a disproportionate adverse effect on minorities or other protected classes, even if unintentional.

“The Equal Credit Opportunity Act (ECOA) has very similar language in the law, and the CFPB has used disparate impact to attempt to prove illegal discrimination in auto finance,” KeyBanc analysts said.

“A ruling that bars disparate impact could propel a similar change in the ECOA in the future, which would undercut the CFPB’s argument that it can use disparate impact under the Act,” they continued.

The CFPB used disparate impact to hand out an $80 million penalty against Ally Financial at the end of 2013.

If the court approves the use of disparate impact, KeyBanc said the decision “would not alter the CFPB’s current view that dealers should be compensated for loan originations, which we believe would have little impact on auto retailer profitability.

“Automotive paper is in high demand given its strong performance through the downturn,” analysts continued. “In the worst-case scenario, the CFPB could enforce a flat-fee compensation.

“We would expect lending institutions to bid competitively for the business, setting a fee similar to current compensation,” KeyBanc went on to say.

BB&T Dealer Services already announced a decision to switch from a dealer mark-up model to a flat-fee structure. The bank will implement the change on July 1.