HUD Proposes Restoring ‘Disparate Impact’ Rule

HUD on Friday proposed to restore its 2013 Discriminatory Effects Standard—known in the industry as the “Disparate Impact” rule.

Published Friday in the Federal Register, the Notice of Proposed Rulemaking would largely restore the Discriminatory Effects Standard. The rule was written during the Obama Administration, but modified during the Trump Administration before a court in 2020 blocked those modifications. HUD, under then-Secretary Ben Carson, filed an appeal; but this past February, after the change in Administrations, HUD withdrew the appeal.

In its NPRM, HUD states it believes the 2013 rule is more consistent with decades of case law and better effectuates the Act’s broad remedial purpose of eradicating unnecessary discriminatory practices from the housing market.

“We must acknowledge that discrimination in housing continues today and that individuals, including people of color and those with disabilities, continue to be denied equal access to rental housing and homeownership,” said HUD Secretary Marcia  Fudge. “It is a new day at HUD—and our Department is working to lift barriers to housing and promote diverse, inclusive communities across the country. Today’s publication of the proposed discriminatory effects rule is the latest step HUD is taking to fulfill its duty to ensure more fair and equitable housing.”

“Every American deserved the right to be treated fairly and equitably is the process of securing safe and affordable housing,” said Pete Mills, Senior Vice President of Residential Policy and Member Engagement with the Mortgage Bankers Association. “We look forward to reviewing the proposed rule and working with HUD to ensure a final rule that is consistent with case law, provides robust protections for borrowers and renters and clarity for lenders.”

The Fair Housing Act prohibits discrimination in housing and housing-related services because of race, color, religion, national origin, sex, familial status and disability. HUD said the discriminatory effects (also referred to as disparate impact) doctrine is a tool for addressing policies that cause systemic inequality in housing. It has long been used to challenge policies that unnecessarily exclude people from housing opportunities, including zoning requirements, lending and property insurance policies, and criminal records policies.

Accordingly, Fudge said, having a workable discriminatory effects standard is vital for the accomplishment of the Biden-Harris Administration’s policy goal of a housing market that is free from both intentional discrimination and policies and practices that have unjustified discriminatory effects.

HUD’s 2013 discriminatory effects rule codified long-standing case law for adjudication of Fair Housing Act cases under the discriminatory effects doctrine, for cases filed administratively with HUD and for federal court actions brought by private plaintiffs. “Under the 2013 rule, the discriminatory effects framework was straightforward: a policy that had a discriminatory effect on a protected class was unlawful if it did not serve a substantial, legitimate, nondiscriminatory interest or if a less discriminatory alternative could also serve that interest,” HUD said. “The 2020 rule complicated that analysis by adding new pleading requirements, new proof requirements and new defenses, all of which made it harder to establish that a policy violates the Fair Housing Act. HUD now proposes to return to the 2013 rule’s straightforward analysis.”

The public will have 60 days to file comments on the NPRM, through Aug. 24; MBA is expected to submit comments. HUD will review comments, develop responses and publish a final rule.