Galvanized by the assassination of Dr. Martin Luther King in 1968, the U.S. Congress adopted the Fair Housing Act (FHA) to outlaw discriminatory practices in the sale, rental, and financing of housing. From the outset, lower courts and the Department of Housing and Urban Development (HUD), the executive-branch regulatory agency charged with implementing the statute, concurred that the FHA covered not only intentional discrimination, often difficult to detect and prove, but also practices and policies that discriminate through their unjustified disparate effects. This more expansive view of the FHA’s reach made it a significant legal tool for challenging unequal access to housing.
In 2013, HUD issued a rule formalizing its interpretation that the FHA bars disparate-impact discrimination based on race, as well as color, sex, religion, disability, familial status, or nationality, and adopted a three-part burden-shifting framework for assessing it. Two years later, a 5/4 opinion of the U.S. Supreme Court confirmed that disparate-impact discrimination was actionable under the FHA. In Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc. (ICP), Justice Anthony Kennedy invoked the context of racial segregation in housing when the FHA was enacted and the continuing importance of addressing “racial isolation.” The ICP opinion was applauded for enshrining disparate-impact liability; however, while embracing the FHA’s broader goals, the Court also cautioned against using racial quotas to avoid “difficult constitutional questions,” called for a “robust causality requirement” for demonstrating disparate-impact discrimination beyond “statistical disparity,” and concluded that housing agencies and private developers should be afforded “leeway” to achieve “legitimate objectives.”
The opinion otherwise was short on explicit guidance, and referred only briefly to HUD’s 2013 disparate-impact rule, which has remained in effect. However, the Trump administration has signaled its intent to replace the 2013 rule with a version that, according to a HUD statement, more closely comports with the Court’s 2015 opinion and enables “valid policy choices” by businesses and local governments.
HUD recently published a formal notice of the proposed rule for a 60-day comment period ending October 18. While retaining the existing rule’s burden-shifting structure, the proposed rule creates significant new hurdles for plaintiffs by requiring a five-part prima facie factual showing before plaintiffs have access to pretrial discovery from a defendant, the best source of the underlying facts. Lacking that needed information, plaintiffs must “plausibly” allege facts that a disputed policy or practice is “arbitrary, artificial, and unnecessary” for achieving a legitimate business or policy outcome; that a “robust causal link” connects the policy to a disparate effect on individuals protected by the statute; that the effect on covered group members is “adverse” and also “significant”; and that the disparity is the proximate cause of the complainant’s damages.
The rule gives defendants such as lenders, insurers, and property owners new avenues for defeating disparate-impact claims. Among other things, they may show that their discretion is “materially limited” by an existing legal requirement, or, if a plaintiff links the discrimination to defendant’s use of an algorithm, e.g., for assessing credit risk, that the algorithm follows third-party industry standards or otherwise does not rely on prohibited factors. However, allowing industry practices to control without rigorously evaluating the algorithms produced would leave a broad swath of claimants unprotected. If a plaintiff survives this difficult preliminary showing, it must then prove each of these elements by a preponderance of non-speculative evidence, including that a less discriminatory approach exists that does not require “materially greater” expenses for a defendant demonstrating a valid objective. The rule does not define robust causality, materiality, algorithm, or other key terms comprising the new evidentiary standards, compounding the obstacles for potential plaintiffs.
Civil rights advocates have launched a national campaign in response, arguing that adding onerous requirements and unprecedented defenses eviscerates the protections the ICP ruling was thought to ensure. This initiative urges widespread submission of oppositional comments to the rule during HUD’s required review period. Whether that strategy, or a later court challenge, will succeed is questionable. Tension at the core of the ICP ruling has opened the door to HUD’s approach of tying the rule to that opinion’s specific language. What seems clear is that attending to a range of defendants’ interests shifts the focus of protection away from the FHA’s intended beneficiaries and undermines the ICP opinion’s other animating idea: enforcing disparate-impact liability is integral to achieving the statute’s broad remedial purpose.