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How to Troll Your Regulator

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of “The Up Side of Down: Why Failing Well Is the Key to Success.”
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The Consumer Financial Protection Bureau has been running into resistance for its use of a disparate impact standard to evaluate loan records. Which is to say, if you make too few loans to underrepresented minorities, you'd better be prepared for review, even if there's no direct evidence you're racist.

It's not clear to me how much difference this has made in actual cases, but bankers don't like it. And in response, American Banker, an industry trade publication, has done a little disparate impact evaluation of its own:

In an ironic twist, it turns out that the CFPB's own managers have shown distinctly different patterns in how they rate employees of different races, according to confidential agency data obtained by American Banker.

Specifically, CFPB managers show a pattern of ranking white employees distinctly better than minorities in performance reviews used to grant raises and issue bonuses. Overall, whites were twice as likely in 2013 to receive the agency's top grade than were African-American or Hispanic employees, the data shows.

What's more, those disparities are only one of many serious personnel problems plaguing the CFPB. Inside the agency, morale is poor and management has been accused in several cases of favoring Caucasian men and of creating a hostile work environment. That's according to interviews with a dozen current and former staffers across six departments, all of whom requested anonymity over concerns about retaliation.

There are all sorts of reasons that the CFPB might show this pattern. It's a statistical fallacy to think that proportions in the general population should be the same in smaller groups; if 3 percent of the population gets some form of cancer, that doesn't mean that 3 percent of your company's employees will also get that form of cancer. The real world exhibits all sorts of random variance, and even if there is evidence of societywide discrimination, at any individual institution, evidence of "disparate impact" could simply have occurred by happenstance.

Of course, the bankers might well make the same argument about their loans.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

Megan McArdle writes about economics, business and public policy for Bloomberg View. Follow her on Twitter at @asymmetricinfo.

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