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More on Dodd-Frank Quotas

Wednesday, 14 July 2010

With the looming Senate vote on the Dodd-Frank financial regulation bill, there is heightened interest in some parts of the bill that had earlier gotten little attention – like its requirements for preferential treatment based on race, ethnicity, and sex. Of course, you knew all about that, since it was discussed in our email to you last month. But it bears repeating, and perhaps a little more detail, especially since such provisions are far from uncommon (you recall that the Center for Equal Opportunity was one of the first to point out their presence in the healthcare bill – see this column by Linda Chavez). So here are some highlights from Section 342 of the bill, which is devoted to “diversity” issues – although, I hasten to add, there are discriminatory requirements in other parts of the bill as well. Subsection (a) requires “each agency” involved to “establish an Office of Minority and Women Inclusion.” Subsection (b) requires the director of each such office to “develop standards” for “equal employment opportunity and the racial, ethnic, and gender diversity” (emphasis added) of the agency’s employees and management, as well as “increased participation of minority-owned and women-owned businesses in the programs and contracts of the agency.” The director is also to “assess[] the diversity policies and practices of entities regulated by the agency.” Subsection (c) further provides that each director “develop and implement standards and procedures to ensure, to the maximum extent possible, the fair inclusion and utilization of minorities, women, and minority-owned and women-owned businesses in all business and activities of the agency at all levels.” For “contract proposals” and “hiring service providers,” this includes “giv[ing] consideration to the diversity of the applicant,” and a “written statement” that “a contractor shall ensure, to the maximum extent possible, the fair inclusion of women and minorities in the workforce of the contractor and, as applicable, subcontractors.” Further, the director must “make a determination” whether agency contractors and subcontractors have “failed to make a good faith effort to include minorities and women in their workforce”; if they have, the director “shall make a recommendation to the agency administrator that the contract be terminated.” Subsection (d) says that Section 342 applies to “all contracts of an agency for services of any kind” (followed by a list of examples that includes financial institutions, investment and mortgage banking firms, brokers, underwriters, accountants, and “providers of legal services”) and that those contracts “include all contracts for all business and activities of an agency, at all levels” (followed by another list that ends with “the implementation by the agency of programs to address economic recovery”). Subsection (e) requires annual reports to Congress by each office, to include inter alia “the successes achieved and challenges faced by the agency in operating minority and women outreach programs.” Subsection (f) requires each agency to “take affirmative steps to seek diversity in the workforce of the agency at all levels of the agency in a manner consistent with applicable law,” including inter alia: recruiting at colleges with high percentages of women or minorities; advertising “in newspapers and magazines oriented toward minorities and women”; partnering with organizations that focus on the placement of minorities and women; and partnering with girls’ high schools and high schools that have high percentages of minorities “to establish or enhance financial literacy programs and provide mentoring.” Finally, subsection (g) provides definitions. Among them is “minority,” which references 12 U.S.C. 1811 note, where the definition is “Black American, Native American, Hispanic American, or Asian American”; and “minority-owned business,” which references 12 U.S.C. 1441a(r)(4)(A), where the definition is “a business – (i) more than 50 percent of the ownership or control of which is held by 1 or more minority individuals; and(ii) more than 50 percent of the net profit or loss of which accrues to 1 or more minority individuals”; and “women-owned business,” which references 12 U.S.C. 1441a(r)(4)(B), where the definition is “a business – (i) more than 50 percent of the ownership or control of which is held by 1 or more women;(ii) more than 50 percent of the net profit or loss of which accrues to 1 or more women; and (iii) a significant percentage of senior management positions of which are held by women.” (For some reason, “Women” is not defined.) Serious constitutional issues are raised whenever the government uses classifications or preferences based on race, ethnicity, or sex. And, constitutional or not, such classifications and preferences are divisive and unfair, and choosing employees or contractors in part because of these characteristics rather than simply on merit has inevitable economic costs as well – rather ironic for a bill that’s supposed to be about “economic” reform, wouldn’t you say? And – since there is strong evidence that the mortgage crisis was precipitated by government pressure on lenders to increase “diversity” among homeowners by making loans to those who were really not creditworthy – it is even more ironic that this “reform” legislation should embody similar discriminatory requirements. Roger Clegg is president and general counsel of the Center for Equal Opportunity.