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Racial Preferences and Red Tape Grow Under Federal Dodd-Frank Act

Last Friday on National Review's The Corner, Roger Clegg wrote about the 2010 law governing the financial sector, the Dodd-Frank Act, and the racial "diversity quotas" that may come into being under a proposed regulation to implement that legislation:

Today a number of Obama administration agencies with financial-sector regulatory responsibilities have jointly published in the Federal Register a proposed “Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies.”  The statement comes as a result of Section 342 of the Dodd-Frank legislation, which requires these agencies each to “establish an Office of Minority and Women Inclusion” that, in turn, is to develop diversity and inclusion standards for workplaces and contracting.

The proposed statement is even worse than the bill itself, since it aggressively applies not only to the agencies themselves but also to all those regulated by it, and repeatedly insists on the use of “metrics” and “percentage[s]“ (i.e., numerical quotas) to ensure compliance. And while the statute at least cautions that diversity efforts are to be undertaken “in a manner consistent with the applicable law” . . . there is no such nod in the proposed statement, nor is there any mention of stopping or preventing discrimination – the only possible [constitutional] justification for consideration of race, ethnicity, and sex in hiring, promotion, and contracting.

As Clegg notes, the statutory provision that led to these proposed racial preferences was "criticized by the Wall Street Journal, four members of the U.S. Commission on Civil Rights, Diana Furchtgott-Roth," and other lawyers and economists. Clegg wrote a "short summary of Section 342 here, and Christopher Byrnes wrote a much more comprehensive analysis of the statute, here). Comments on the proposed statement are due by Christmas Eve."

Racial preferences don't have to rise to the level of racial quotas to violate the Constitution; milder racial preferences can be illegal as well, as is illustrated by the D.C. Circuit Court of Appeals' decision in Lutheran Church—Missouri Synod v. FCC (1998), which struck down the FCC's attempt to pressure broadcasters to hire more minorities to promote "diversity."  While the courts have countenanced the use of race to promote "diversity" in the college setting, they have often refused to allow the use of race to promote "diversity" in the employment setting (see court rulings such as Messer v. Meno, 130 F.3d 130 (5th Cir. 1997); Taxman v. Board of Education, 91 F.3d 1547 (3rd Cir. 1996); Lutheran Church v. FCC, 141 F.3d 344 (D.C. Cir. 1998)).  Similarly, the D.C. Circuit declared unconstitutional the FCC's use of gender in awarding broadcast licenses in order to promote "diversity," in Lamprecht v. FCC, 958 F.2d 382 (D.C. Cir. 1992).

Since a desire for "diversity" is not sufficient reason to use race or gender in hiring, it is unconstitutional for this proposed Dodd-Frank regulation to require banks to use such "diversity . . . considerations in both employment and contracting," including "hiring, recruiting, retention and promotion."  Such a requirement runs afoul of the Constitution even when it does not require a bank to hire a specified percentage of minority employees.

This racial "diversity" requirement is the brainchild of Los Angeles Congresswoman Maxine Waters, the Castro-loving, left-wing ideologue who earlier praised the Los Angeles race riots that destroyed scores of Korean-owned businesses as an “uprising” against injustice. Waters once told a CEO in a public Congressional hearing, “This liberal will be all about socializing . . . .uh, uh . . . would be about, basically, taking over and the government running all of your companies.”

While it is unclear how much this "diversity" requirement will actually increase minority representation, it is clear that from the length and complexity of the proposed rule that it will impose substantial compliance costs on banks (you can find the proposed regulation implementing the diversity requirement at this link).

The proposed rule also requires the use of "diversity" considerations in contracting. Contracts can cost far more when they are assigned based on race, rather than awarded to the lowest bidder. Even fairly mild racial preferences impose substantial costs on businesses and taxpayers.

For example, in the Domar Electric case, Los Angeles accepted a bid for almost $4 million to complete a contract rather than the lowest bid of approximately $3.3 million, at a cost to taxpayers of more than $650,000. The lowest bidder was rejected solely because it failed to engage in affirmative action in subcontracting. California’s Proposition 209 later limited this sort of racial favoritism by banning racial preferences in state government programs, saving taxpayers money. A number of state affirmative-action programs have since been struck down under Prop. 209, saving taxpayers millions of dollars. (I cite the Domar case because it involved an affirmative-action program that has been depicted by supporters as unobjectionable and unburdensome because it did not mandate racial quotas or fixed percentages. Racial quotas can lead to even larger disparities between the lowest bid and the bid accepted by the government, resulting in much higher costs to taxpayers).

I wrote earlier about how provisions of the Dodd-Frank Act violate equal protection guarantees and property rights at this link.