HUD Seeks Comment on Possible Amendments to Disparate Impact Rule

HUD recently released an advance notice of proposed rulemaking in the Federal Register. It seeks public comment on possible amendments to HUD’s 2013 final rule implementing the Fair Housing Act’s disparate impact standard. The amendments would help ensure the rule is consistent with the U.S. Supreme Court decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project (ICP). In that case, the U.S. Supreme Court ruled 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 did not intend to discriminate.

In the ICP opinion, the Supreme Court held that a case of disparate impact liability under the Fair Housing Act requires plaintiffs to demonstrate, using statistics, that the defendant’s policy or practice actually causes a discriminatory disparity. The Court stated that this “robust causality requirement” was to protect “defendants from being held liable for racial disparities they did not create.” Under this standard, a policy or practice must constitute “artificial, arbitrary, and unnecessary barriers” to give rise to a disparate impact liability.

For many years HUD interpreted the Fair Housing Act to prohibit housing practices that have a discriminatory effect, even if there was no intent to discriminate. However, there were minor variations in how the courts and HUD applied the discriminatory effects concept. So, the Feb. 15, 2013, regulation was issued to establish uniform standards for determining when a housing practice with a discriminatory effect violates the Fair Housing Act. The final rule standardized a three-step “burden-shifting” approach that HUD has used and that a majority of appeals courts have applied.

First, the party complaining that there is a discriminatory effect has the burden of proving that a practice caused, or predictably will cause, a discriminatory effect. Second, if the complaining party makes a convincing argument, then the burden of proof shifts to the defending party, which must show that the practice has a “legally sufficient justification,” meaning that it’s necessary to achieve a substantial, legitimate, nondiscriminatory interest that cannot be served by another practice that has a less discriminatory effect. And finally, if the defending party is successful, the complaining party can still succeed by demonstrating that the defending party’s substantial, legitimate, nondiscriminatory interest could be served by another practice that has a less discriminatory effect.

As HUD conducts its review, it is soliciting public comment on the disparate impact standard set forth in the final rule and supplement, the burden-shifting approach, the relevant definitions, the causation standard, and whether changes to these or other provisions of the rule would be appropriate. Interested persons may submit comments electronically through the Federal eRulemaking Portal at http://www.regulations.gov by Aug. 20, 2018.