HUD Proposes Revisions to Final Disparate Impact Rule
HUD recently released a proposed rule that would revise the 2013 disparate impact rule, which set the standard for determining when a practice with a discriminatory effect violates the Fair Housing Act. Disparate impact is a legal doctrine under the Fair Housing Act which states that a policy may be considered discriminatory if it has a disproportionate “adverse impact” against any group based on race, national origin, color, religion, sex, familial status, or disability when there is no legitimate, nondiscriminatory business need for the policy.
To standardize how HUD and the courts applied the disparate impact theory, HUD published a final disparate impact rule in 2013. The rule established uniform standards for determining when a housing practice with a discriminatory effect violates the Fair Housing Act. And in a June 2015 decision, the Supreme Court upheld disparate impact claims under the Fair Housing Act in its decision on Inclusive Communities Project v. Texas Department of Housing and Community Affairs. According to HUD, this latest proposed rule will bring its disparate impact standard in line with the 2015 Supreme Court ruling.
Supreme Court Ruling
In Inclusive Communities Project v. Texas Department of Housing and Community Affairs the U.S. Supreme Court held that a state’s qualified allocation plan (QAP) implemented by an allocating agency violates the Fair Housing Act if it “disparately impacts” a protected minority even though the allocating agency didn’t intend to discriminate.
The lawsuit began in 2008 when the Inclusive Communities Project Inc. (ICP) lodged its disparate impact claim under the FHA, accusing the Texas Department of Housing and Community Affairs (TDHCA) of disproportionately allocating tax credits to sites or “qualified census tracts” (QCTs) that qualified for an increased level of credit and which were often predominantly minority neighborhoods. ICP demanded an injunction requiring the department to allocate low-income housing tax credits in the Dallas metropolitan area in a manner that creates as many tax credit-assisted units in nonminority census tracts as there are in minority census tracts.
ICP’s theory was that the construction of a disproportionate number of LIHTC units in minority neighborhoods at best maintained current levels of segregation and didn’t further integration as required by the FHA. In its view, integration would be furthered by constructing more units in higher opportunity neighborhoods with good schools and responsive governments, and avoiding allocations to areas with high crime rates.
In upholding the concept of “disparate impact,” the Court’s majority opinion also tried to reign in a broad application of disparate impact liability with the following safeguards.
“Robust causality requirement.” The opinion is clear that disparate impact claims can’t be based solely on statistical disparities. The opinion states, “A statistical disparity must fail if the plaintiff cannot point to defendant’s policy or policies causing that disparity.” The opinion also points out that causation isn’t easy to prove “because of the multiple factors that go into investment decisions about where to construct or renovate housing units.”
Adoption of policies that address legitimate goals. The opinion affirmed that government agencies and housing providers can defeat a disparate impact claim by demonstrating a legitimate, nondiscriminatory purpose. The opinion stated that the Fair Housing Act “does not put housing authorities in a double bind of liability, subject to suit whether they choose to rejuvenate a city core or to promote new low-income housing in suburban communities.”
Arbitrary, artificial, and unnecessary barriers. A prior Supreme Court decision in Griggs v. Duke Power Co. stated that “governmental or private policies are not contrary to the disparate-impact requirement unless they are ‘artificial, arbitrary, and unnecessary barriers.’” The majority opinion repeated this concept that had been included in disparate impact analysis in the courts for many years. To demonstrate disparate impact, a plaintiff should be required to show affirmatively not only that a practice has a discriminatory effect, but also that it raises “artificial, arbitrary, and unnecessary barriers.”
2019 Proposed Disparate Impact Rule
The proposed rule would change the current disparate impact process from a three-part, burden-shifting process to a five-step threshold for plaintiffs to bring a disparate impact claim. It requires plaintiffs to identify a specific policy or practice that has a discriminatory effect, as opposed to a single event, unless the plaintiff can show that the single decision is the equivalent of a policy or practice. The five steps include:
1. Plead that the challenged policy or practice is arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective;
2. Allege a robust causal link between the challenged policy or practice and a disparate impact on members of a protected class;
3. Allege that the challenged policy or practice has an adverse effect on members of a protected class;
4. Allege that the disparity caused by the policy or practice is significant; and
5. Allege that the complaining party’s alleged injury is directly caused by the challenged policy or practice.
On the second point, claims relying on statistical disparities must articulate how the statistical analysis used supports a claim of disparate impact by providing an appropriate comparison, which shows that the policy is the actual cause of the disparity.
On the third point, plaintiffs must show that the policy or practice adversely affects members of a protected class as a group, not just an individual who happens to be a member of a protected class.
If implemented, the proposed rule would raise the burden of proof to bring a disparate impact claim, making it harder to pursue housing discrimination cases. Under the proposed rule, the burden of proof shifts to the plaintiff; defendants would only have the burden of proving that the policy or program is not discriminatory if the plaintiff could meet the five-part test. Furthermore, plaintiffs would need to be prepared to satisfy the five-part test at the motion-to-dismiss phase of any case, which is an early stage in litigation.
Legal advocates argue that it will be very difficult for plaintiffs to collect the necessary information to pass the five-part test at that stage without getting information from defendants through a discovery process. The proposed rule would therefore make it very challenging for disparate impact cases to advance.
Response from Civil Rights Groups
As a result of the proposed changes, seven civil rights organizations, led by the National Fair Housing Alliance, have quickly acted to form the Defend Civil Rights campaign and website to mobilize against HUD’s proposed changes. Separately, the National Housing Law Project (NHLP), the Western Center on Law and Poverty, and the Shriver Center on Poverty and Law launched a similar website called the Fight for Housing Justice website.
The websites offer Frequently Asked Questions (FAQs), fact sheets, links to media reports about the proposed rule, and portals for easily submitting comments to the Federal Register. The Defend Civil Rights campaign website is at www.defendcivilrights.org. And the Fight for Housing Justice campaign website is at www.fightforhousingjustice.org.
Comments on the proposed rule are due to HUD 60 days from the rule’s publication in the Federal Register. The anticipated due date for comments is Oct. 18.