Appeals Court Dismisses Discrimination Case Against Treasury and OCC

The Fifth Circuit Court of Appeals recently dismissed a discrimination lawsuit against the U.S. Department of Treasury and the Office of Comptroller of the Currency (OCC). This long-running lawsuit was brought by the Inclusive Communities Project (ICP), the same organization that pursued a similar lawsuit against Texas’ LIHTC allocating agency.

In that particular lawsuit, housing advocates were worried the Supreme Court would overturn or severely limit 50 years of precedent with regard to racial discrimination laws. In that ruling, the Supreme Court affirmed that “disparate impact” is recognizable as a category of racial discrimination under the law. Under a disparate impact theory of liability, a person or entity may be held liable for discriminatory conduct under the Fair Housing Act (FHA) without a showing of intentional discrimination. To make out a basic case, all that’s necessary is statistical evidence that a policy or practice had a harsher effect–a “disparate impact”–on a class protected by the FHA.

In this case, ICP argued that the manner in which the Treasury regulates the LIHTC program and the OCC regulates national banks that invest in such projects violates the FHA. ICP wanted Treasury to issue “affirmatively furthering fair housing” (AFFH) rules governing qualified action plans and wanted the OCC to evaluate whether equity investments made by financial institutions comply with fair housing law.

Although the LIHTC program is regulated by the Treasury, it’s administered by state and local housing credit agencies, which have broad latitude to establish methods for allocating tax credits. The OCC regulates national banks and has advised them that LIHTC projects are eligible public welfare investments that may generate attractive returns, spur additional commercial lending opportunities, and result in positive Community Reinvestment Act consideration for community development activities when the investment benefits the bank’s assessment area or a broader statewide or regional area that includes the bank’s assessment area.

ICP alleged that the Treasury and the OCC have condoned continued racial segregation through their LIHTC program administration. As a result, according to the lawsuit, LIHTC non-elderly units are disproportionately located in minority census tracts plagued by problems that include high rates of crime, poverty, and unemployment, as well as adverse environmental conditions.

In dismissing the case, the appeals court ruled that the changes ICP sought were not sufficiently related to the harm it asserted had occurred. Even if the Treasury and OCC imposed new AFFH rules, the court said there’s no way to assess whether such actions would cause the desired changes to LIHTC allocation. At this time, ICP hasn’t announced whether it will appeal to the Supreme Court.