Banking and Finance Law Daily HUD proposes updating disparate impact rule
Monday, August 19, 2019

HUD proposes updating disparate impact rule

By Colleen M. Svelnis, J.D.

HUD has proposed revising its "disparate impact rule" to reflect a 2015 Supreme Court ruling that instituted new standards for establishing such claims.

The Department of Housing and Urban Development has proposed revising the "disparate impact" rule under the Fair Housing Act, which provides a framework for establishing legal liability for facially neutral practices that have unintended discriminatory effects on classes of persons protected under the Fair Housing Act. The proposed rule is intended to better reflect the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., which affirmed that they are permissible under the FHA but raised the bar for establishing such claims. Community groups contend that such a change would make proving discrimination more difficult.

"There is a lack of affordable housing in America today," stated HUD Secretary Ben Carson. "This proposed rule is intended to increase legal clarity and promote the production and availability of housing in all areas while making sure every person is treated fairly under the law." Carson stated that "at the end of the day, this rule not only increases Americans’ access to fair and affordable housing, but also permits businesses and local governments to make valid policy choices."

HUD’s disparate impact rule says that a lending practice can violate the FHA, even if there is no intent to discriminate, if it "actually or predictably results in a disparate impact on a group of persons" or otherwise contributes to prohibited housing discrimination (24 CFR 100.500). The rule provides a framework for demonstrating that a policy or practice, even if not intentionally discriminatory on its face, has an unjustified discriminatory effect on people protected under the FHA. The rule also sets forth a three-step process to allocate and shift the burden of proof:

  1. The person bringing the claim must prove that a lender’s practice has caused or predictably will cause a discriminatory effect.
  2. If that is shown, the lender may prove the practice "is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests."
  3. If the lender is successful in doing so, the person bringing the claim may prove that the interest advanced by the practice could be served by a different practice that would have a less discriminatory effect.

The disparate impact rule has no impact on determinations of intentional discrimination. In the 2015 decision, the Supreme Court upheld the use of a disparate impact theory to establish liability under the Fair Housing Act for business policies and local ordinances even if the policy or ordinance is neutral—in intent and application—if it disproportionately affects a protected class without a legally sufficient justification.

In the Inclusive Communities Project decision the Court also changed the standard for establishing such claims. First, the Court said a disparate impact claim that relies on a statistical analysis must show the lender has a policy or procedure that caused the disparity. Second, in order to avoid the effective imposition of racial quotas, the Court added a "robust causality requirement" (see Banking and Finance Law Daily, June 25, 2015).

HUD received 1,923 comments on its Advance Notice of Proposed Rulemaking, issued in June 2018. The proposed rule would replace the standard at §100.500 with a new standard clarifying that it includes available defenses and rebuttals to allegations of discriminatory effect. The proposed rule would also clarify, in accordance with the language in Inclusive Communities Project warning against the use of racial quotas, that neither the discriminatory effect standard, nor any other item in HUD’s part 100 regulations, requires or encourages the collection of data with respect to protected classes and that the absence of such collection will not result in any adverse inference against a party.

The proposed rule also incorporates minor amendments to §§ 100.5, 100.7, 100.70, and 100.120.

Opposition from community groups. The National Community Reinvestment Coalition (NCRC) issued a statement opposing the proposal. Jesse Van Tol, NCRC CEO stated that "HUD’s proposal makes it far more difficult for those injured by stealth discriminatory policies to prove discrimination." Van Tol called HUD’s proposal "irresponsible" and stated that it is "inconsistent with HUD’s legal obligation to affirmatively further fair housing, by creating an overly broad exemption to discriminatory practices that affect liability for the home insurance market."

Lisa Rice, President and CEO of the National Fair Housing Alliance (NFHA) condemned the proposed rule, stating that it would "effectively gut the ‘disparate impact’ tool under the Fair Housing Act." According to Rice, the proposal "is a blatant attempt to destroy hard-won protections against housing discrimination in this country, and we will stop it." An NFHA statement criticizing the proposal stated that, if finalized, the rule would make it "virtually impossible to challenge covert discriminatory practices by financial institutions, insurance companies, and housing providers, and open the floodgates for widespread discrimination against millions of people, particularly communities of color, women, immigrants, families with children, people of faith, LGBTQ people, and people with disabilities."

Companies: National Community Reinvestment Coalition; National Fair Housing Alliance

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