This memo was written to address the status of disparate impact discrimination analysis under the Fair Housing Act (“FHA”), following the Trump Administration’s 2020 rule and the Biden Administration’s response. The 2020 HUD rule, which would have gutted disparate impact as a means of establishing unlawful discrimination under the FHA, was enjoined in October 2020 and was not permitted to go into effect. As of March 2021, HUD continues to operate pursuant to the status quo, which is governed by the Obama Administration’s 2013 rule on disparate impact analysis under the FHA.
THE 2013 DISPARATE IMPACT RULE
In 2013, the U.S. Department of Housing and Urban Development (“HUD”) issued a disparate impact rule, “Prohibiting Discriminatory Effects.”[1] This discriminatory effects standard equipped HUD and fair housing advocates to expose and combat the effects of racism, poverty, disability discrimination and accessibility, and adverse environmental conditions disproportionately affecting the health of marginalized groups.[2]
The 2013 rule codified the department’s existing practice of recognizing disparate impact claims under Title VIII of the Civil Rights Act of 1968 known as the Fair Housing Act. The 2013 rule adopted a burden-shifting framework typical of disparate impact analysis in other contexts such as employment discrimination.
The burdens of proof “shift” as follows: 1) the plaintiff(s) may challenge a facially neutral practice that “actually” or “predictably results” in a “disparate impact” on protected classes of individuals, or that “creates, increases, reinforces, or perpetuates segregated housing patterns;” 2) the defendant may show a business justification for the challenged practice, and must prove that the practice is “necessary to achieve one or more substantial, legitimate, nondiscriminatory interests;” and finally, 3) the plaintiff can overcome the business justification by showing that the defendant could achieve its interests via some less discriminatory alternative.
Disparate impact analysis by its very definition does not require plaintiffs to show that the defendant(s) had any intent to discriminate—just that a facially neutral policy would or did have a discriminatory effect on marginalized groups.
Examples of seemingly neutral policies with discriminatory effects include requiring tenants to complete a criminal background check, prohibiting construction of multifamily housing, and artificial intelligence programs used to determine creditworthiness for lending purposes.[3]
The 2013 rule further required the defendant to prove that the challenged practice is “necessary” to achieve a legitimate, nondiscriminatory interest, protecting plaintiffs who often lack access to relevant information that lies solely with the defendant. Before this rule was promulgated, many court decisions under the FHA simply required a defendant to show some legitimate business justification, an extremely low bar.[4]
The rule survived a Supreme Court challenge in the 2015 case Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project.[5] Inclusive Communities Project (“ICP”) is a nonprofit organization that works to advance racial and economic integration and equity in housing for low-income communities in Texas.
In its lawsuit, ICP claimed that the Texas Department of Housing and Community Affairs disproportionately granted Low Income Housing Tax Credits to minority neighborhoods and denied them in majority white neighborhoods. ICP asserted that this led to a concentration of low-income housing in communities of color, thus perpetuating racial segregation in violation of the FHA.[6]
ICP won under a burden-shifting framework, and survived on appeal to the Fifth Circuit. The Supreme Court affirmed, holding that disparate impact liability is consistent with the FHA’s purpose in preventing discriminatory effects in housing practices because it gives plaintiffs a tool to counteract unconscious prejudices and more covert discrimination.
The Court further held that to establish a prima facie case for disparate impact liability under the FHA, the plaintiff must meet a robust causality requirement, showing something more than racial disparity alone.[7]
THE 2020 RULE
Under then-Secretary Ben Carson’s leadership in September 2020, however, HUD finalized a new rule to make it harder for plaintiffs to prove disparate impact claims, with the stated purpose of conforming to the Supreme Court’s ruling in Inclusive Communities.[8]
The new rule required plaintiffs to meet a substantially higher threshold when bringing disparate impact claims by revising the burden-shifting framework. Whereas the 2013 rule required the defendant to bring forth a legitimate business justification for a challenged policy with a discriminatory effect, the new rule required plaintiffs to affirmatively show the policy serves no valid purpose.
Further, the new rule armed defendants with broader defenses to discriminatory policies, including the ability to show a valid objective in turning a profit—effectively, if a discriminatory policy was enacted because it is profitable, the policy’s profitability alone would be sufficient to protect it from disparate impact liability.[9]
Under this rule, if a plaintiff wished to challenge a profitable but discriminatory policy, they would be required to proffer a less discriminatory alternative that would produce substantially similar profits.[10] HUD also removed “perpetuation of segregation” as one of the definitions of discriminatory effect, ostensibly for “streamlining” purposes only.[11] The new rule was set to take effect on October 26, 2020.
Shortly after the publication of the new rule, three separate groups of housing advocates filed federal lawsuits in California, Connecticut, and Massachusetts, respectively, to enjoin HUD from enacting the new rule.[12]
On October 25, 2020, U.S. District Court Judge Mark Mastroianni of the District of Massachusetts issued a stay and nationwide preliminary injunction against HUD and then-Secretary Carson regarding the new rule, finding that the rule’s “significant alterations, which run the risk of effectively neutering disparate impact liability under the Fair Housing Act, appear inadequately justified.”[13] HUD filed an untimely appeal that was later withdrawn, and the injunction remains in effect.[14]
THE CURRENT LANDSCAPE
On January 26, 2021, President Biden issued a memorandum directing the HUD Secretary to examine the effects of the 2020 rule and implement changes as necessary to ensure fair housing.[15]
On March 10, 2021, Representative Marcia L. Fudge (D-Ohio) was confirmed by the Senate as the new HUD Secretary, and is the first Black woman to lead the department in over four decades.[16] She is expected to officially reinstate the 2013 disparate impact rule, among other moves intended to strengthen fair housing protections.[17]
The National Fair Housing Alliance, a Washington, D.C.-based nonprofit focused on equal housing opportunity that filed the California lawsuit covered by the injunction, continues to work closely with HUD and Secretary Fudge on reinstating the disparate impact rule and advancing other fair housing issues.[18]
May 2021 update: In response to the President’s directive, HUD submitted draft rules in April 2021, including a proposed rule to reinstate the 2013 standard for disparate impact discrimination claims. The rule is currently in a 90 day review period and is expected to be made public by July 2021.
[1] The rule is codified at 24 C.F.R. 100 (2013), available at http://portal.hud.gov/hudportal/documents/huddoc?id=discriminatoryeffectrule.pdf.
[2] 24 C.F.R. 100 (2013).
[3] Tracy Jan, New federal rule will make it harder to challenge discrimination in the housing industry, lawsuits allege, The Wash. Post, Oct. 22, 2020, https://www.washingtonpost.com/business/2020/10/22/housing-discrimination-lawsuit-hud/ (last visited Mar 25, 2021).
[4] Michael J. Agoglia, et al., “HUD Issues Aggressive New Fair Housing Rule,” Morrison & Foerster LLP (2013), https://media2.mofo.com/documents/130212-hud-issues-aggressive-new-fair-housing-rule.pdf (last visited Mar 25, 2021).
[5] Texas Dep’t of Hous. & Cmty. Affs. v. Inclusive Communities Project, Inc., 576 U.S. 519, 135 S. Ct. 2507, 192 L. Ed. 2d 514 (2015).
[6] Id.
[7] Id.
[8] 24 C.F.R. 100 (2020), available at https://www.federalregister.gov/documents/2020/09/24/2020-19887/huds-implementation-of-the-fair-housing-acts-disparate-impact-standard.
[9] Id.
[10] Id.
[11] Id.
[12] On October 22, 2020, the National Fair Housing Alliance, NAACP Legal Defense Fund, Fair Housing Advocates of Northern California, and BLDS, LLC filed a federal lawsuit in California seeking an injunction against the new HUD rule. Connecticut civil rights groups, Open Communities Alliance and South Coast Fair Housing of Massachusetts and Rhode Island, filed a similar lawsuit the same day. And in Massachusetts, civil rights groups Massachusetts Fair Housing Center and Housing Works, Inc. also filed a similar lawsuit, from which the nationwide injunctive order was issued.
[13] Mass. Fair Hous. Ctr., et al. v. Dept. of Hous. and Urban Dev., No. 20-11765-MGM, 2020 WL 8572854 (accessed at http://lawyersforcivilrights.org/wp-content/uploads/2020/10/Nationwide-PI-Against-HUD.pdf).
[14] This information was shared with me by phone conversation with Morgan Williams, General Counsel for the National Fair Housing Alliance.
[15] Joseph R. Biden, “Memorandum on Redressing Our Nation’s and the Federal Government’s History of Discriminatory Housing Practices and Policies,” The White House (Jan. 26, 2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/26/memorandum-on-redressing-our-nations-and-the-federal-governments-history-of-discriminatory-housing-practices-and-policies/ (last visited Mar 25, 2021).
[16] HUD, Marcia Fudge Sworn in As Secretary of Housing and Urban Development (2021), https://www.hud.gov/press/press_releases_media_advisories/HUD_No_21_038 (last visited Mar 25, 2021).
[17] Tracy Jan, HUD nominee Marcia Fudge to push for rental assistance, affordable housing amid coronavirus crisis, The Wash. Post, Jan. 28, 2021, https://www.washingtonpost.com/business/2021/01/28/hud-fudge-confirmation-hearing/?eType=EmailBlastContent&eId=6689a50c-a38e-4215-b5b5-37402e8ed2d8 (last visited Mar 25, 2021).
[18] National Fair Housing Alliance, “National Fair Housing Alliance Applauds Confirmation of Marcia L. Fudge to Head U.S. Department of Housing and Urban Development” (2021), https://nationalfairhousing.org/2021/03/10/national-fair-housing-alliance-applauds-confirmation-of-marcia-l-fudge-to-head-u-s-department-of-housing-and-urban-development/.