The Department of Housing and Urban Development has published a proposed a rule that would amend its “disparate impact” standard to effectively make it more difficult for consumers to allege discrimination under the Fair Housing Act.
Under HUD’s proposal, released Friday, a consumer would have to follow a five-step framework to demonstrate discrimination, and would have to show that a policy or practice is “arbitrary, artificial and unnecessary,” to move forward with a claim.
The proposed rule is part of a broader effort by the Trump administration to roll back regulations and reduce liability for businesses. It first
HUD’s General Counsel Paul Compton said the proposal is designed to better reflect the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project Inc. That ruling upheld the use of a disparate impact theory if it disproportionately affects a protected class without a legally sufficient justification.
“The broad policy rationale is to bring our rule in alignment with what the Supreme Court said the law is,” Compton said on a conference call with reporters. “The court noted that it is important to put guardrails up on where disparate impact is applied.”
Consumer groups criticized the plan, saying regulators should be increasing, not relaxing, oversight because fintech firms are using algorithms and machine learning to target consumers for a wide range of lending products that could be unintentionally discriminatory.
“HUD’s proposal makes it far more difficult for those injured by stealth discriminatory policies to prove discrimination,” Jesse Van Tol, CEO of the National Community Reinvestment Coalition, said in a press release. “The bar was already set high and HUD‘s proposal would put it in the stratosphere. It really strains credulity."
He noted that more housing and credit decisions are moving into “black boxes” and “outside of any real oversight or the ability of consumers to effectively challenge the underlying information.”
Philip Tegeler, executive director of the Poverty & Race Research Action Council, called the plan "a deeply cynical proposal that would put most types of modern housing discrimination beyond the reach of the courts."
HUD had long interpreted the Fair Housing Act as creating liability for practices that had an unjustified or disparate impact — even if those practices were not motivated by discriminatory intent.
Under the proposed rule consumers must identify the particular policy or practice that causes the disparate impact.
Consumers will likely not meet the standard — and HUD will not bring a disparate impact claim — simply by alleging that a single event is the cause of a disparate impact. The proposal offered several examples, such as a local government’s zoning decision or a developer’s decision to construct a new building in one location instead of another, claiming that is not enough “unless the plaintiff can show that the single decision is the equivalent of a policy or practice.”
“In unusual cases, a plaintiff may still be able to succeed at identifying a one-time decision, if the plaintiff can establish that the one-time decision is in fact a policy or practice,” the proposal states.
HUD Secretary Ben Carson said the agency "will challenge any practice that discriminates against people that the law protects." He said in a press release that the proposal was "intended to increase legal clarity and promote the production and availability of housing in all areas while making sure every person is treated fairly under the law."
The proposal redefining the disparate impact standard follows an advance notice of proposed rulemaking HUD released in June 2018. After soliciting and reviewing comments from that bulletin, HUD also decided to describe more clearly how disparate impact can apply in algorithms used by digital lenders that employ artificial intelligence, which is part of the current plan.
Comments on HUD's plan are due 60 days after the proposal is published in the Federal Register.
The Fair Housing Act of 1968 prohibits discrimination in the sale, rental or financing of dwellings and in other housing-related activities on the basis of race, color, religion, sex, disability, familial status or national origin.
