HUD Proposes Revised ‘Disparate Impact’ Rule

HUD on Friday published a proposed rule to amend the HUD interpretation of the Fair Housing Act’s disparate impact standard.

HUD said the proposed rule, as amended (https://s3.amazonaws.com/public-inspection.federalregister.gov/2019-17542.pdf), would provide more appropriate guidance on what constitutes unlawful disparate impact to better reflect the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project Inc.

The proposed rule largely supports recommendations by the Mortgage Bankers Association and other industry trade groups, which had urged HUD to align its 2013 final rule on disparate impact (a practice or standard that is neutral and non-discriminatory in its intention but disproportionately affects individuals having a disability or belonging to a particular group based on their age, ethnicity, race or sex) with the Inclusive Communities ruling, in which the Supreme Court held that disparate impact claims are cognizable under the Fair Housing Act.

“There is a lack of affordable housing in America today,” said 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. As we have shown time and again, we will challenge any practice that discriminates against people that the law protects. 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.”

The proposed rule 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. HUD said the rule has no impact on determinations of intentional discrimination.

In the Inclusive Communities 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 that case, the Inclusive Communities Project, a Texas-based non-profit organization that assists low-income families in obtaining affordable housing, filed suit against TDHCA, saying it disproportionately allocated too many tax credits in predominantly black inner-city areas and too few in predominantly white suburban neighborhoods. Lower courts supported the Inclusive Communities Project claim, ruling that disparate impact claims are cognizable under the Fair Housing Act.

TDHCA appealed to the Supreme Court, which in 2015 upheld the lower courts’ rulings. Writing for the majority, Justice Anthony Kennedy wrote that Congress specifically intended to include disparate impact claims in the Fair Housing Act, but that such claims require a plaintiff to prove it is the defendant’s policies that cause a disparity.

HUD proposed an ANPR in response to that ruling; Friday’s proposed rule builds on that ANPR.

In an August 2018 letter (https://www.mba.org/mba-newslinks/2018/august/mba-newslink-wednesday-8-22-18/mba-trade-groups-urge-hud-to-amend-fair-housing-act-disparate-impact-standard?_zs=WqkwB1&_zl=7WHd4), MBA urged HUD to amend its Fair Housing Act standard on disparate impact. The letter supported HUD’s 2018 Advance Notice of Proposed Rulemaking. Specifically, MBA said any rule must require that disparate impact plaintiffs “establish robust causality between an impermissible disparity and a specific policy that is artificial, arbitrary and unnecessary.”

“The Rule must focus on removing ‘artificial barriers to housing’ and not be used to second guess valid business decisions,” MBA said. “By failing to incorporate these standards, the HUD Rule ignores the fundamental principle underpinning Inclusive Communities: that ‘[d]isparate-impact liability must be limited so employers and other regulated entities are able to make the practical business choices and profit-related decisions that sustain a vibrant and dynamic free-enterprise system.'”

“The mortgage industry expends substantial resources to meet the credit needs of all populations, developing new products and strategies to reach all markets, including underserved markets,” MBA added. “Our members also take very seriously the responsibility of understanding the law and conforming services and product offerings accordingly.”