HUD to Propose Changes to Disparate Impact Regs

The Office of Information and Regulatory Affairs (OIRA) at the Office of Management and Budget (OMB) recently cleared HUD’s proposed changes to the disparate impact regulations. The update to HUD’s 2013 disparate impact rule would require plaintiffs to meet a five-step threshold to prove unintentional discrimination, replacing the current three-step “burden-shifting” approach.

Disparate impact is the legal theory that holds businesses and governments accountable for practices that disproportionately affect minorities even if no discrimination was intended. Disparate impact occurs when policies, practices, rules, or other systems that appear to be neutral result in a disproportionate impact on a protected group.

Under the proposed rewrite, plaintiffs would have to establish that the challenged practice or policy is “arbitrary, artificial and unnecessary” and allege a “robust causal link” between the practice and the disparate impact. “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,” the proposal states.

Plaintiffs would also have to show that the 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.

The fourth step would require the plaintiffs to show the disparity is “significant,” and the fifth would call on them to show that the “complaining party’s alleged injury is directly caused” by the challenged practice.

In cases where an algorithm is alleged to be the cause of the discriminatory effect, a defendant can rebut the claim by providing the inputs to the model and showing that “these factors do not rely in any material part on factors which are substitutes or close proxies for protected classes … and that the model is predictive of credit risk or other similar valid objective.”

HUD says its proposal brings its interpretation of the disparate impact standard in line with a 2015 Supreme Court ruling. The high court held that disparate impact claims can be brought under the Fair Housing Act but said “disparate 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.”

HUD submitted the proposal to Congress on July 29 for a 15-day review period. The public will have 60 days to comment once it’s published in the Federal Register.