HUD taking a closer look at 'disparate impact' rule

WASHINGTON — The Department of Housing and Urban Development has launched a process to amend its use of the "disparate impact" standard in fair lending rules.

The legal standard, which can be used to punish lenders for discriminatory effects even if none were intended, has long been unpopular with banks. In 2015, the U.S. Supreme Court decided that such a standard does apply under the Fair Housing Act, but left it to HUD to determine if changes to its disparate impact rule were necessary.

HUD released six questions for public comment in an advance notice of proposed rulemaking. Among the queries were whether the prior rule, which was written in 2013 and revised in 2016 under the Obama administration, could be changed "that could add to the clarity, reduce uncertainty, decrease regulatory burden, or otherwise assist the regulated entities and other members of the public in determining what is lawful?"

Victor J. Blue/Bloomberg

While the court ruling was seen as a victory for supporters of disparate impact, it placed the burden of proof in disparate impact cases on the plaintiffs. HUD's disparate impact rule is currently independent of the Fair Housing Act, and the department is reviewing the rule to decide if any changes are necessary in light of the court’s ruling.

“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,” HUD said in the ANPR.

In October, the Treasury Department released a report calling for HUD to reexamine its use of the disparate impact rule, questioning whether it is consistent with state law and the McCarran-Ferguson Act, which gave states freedom to regulate the business of insurance without federal interference.

“HUD should also reconsider whether such a rule would have a disruptive effect on the availability of homeowners insurance and whether the rule is reconcilable with actuarially sound principles,” the report stated.

In its notice, released Tuesday, HUD asked the public to weigh in on the clarity of the rule, components of the burden-shifting framework, the definition of “discriminatory effect” and whether the rule should provide defenses or safe harbors to claims of disparate impact liability. The public will have 60 days to comment.

Before he was the current HUD secretary, Ben Carson wrote an op-ed in 2015 noting "unintended consequences" from disparate impact policies.

"These government-engineered attempts to legislate racial equality create consequences that often make matters worse," he wrote in an op-ed in the Washington Times. "There are reasonable ways to use housing policy to enhance the opportunities available to lower-income citizens, but based on the history of failed socialist experiments in this country, entrusting the government to get it right can prove downright dangerous."