The U.S. Department of Housing and Urban Development (HUD) proposed a rule that will make it harder for low-income renters to make housing discrimination claims.
The rule changes how plaintiffs prove that policies or practices cause discriminatory effects in housing, even if that was not the intent of the policy. This “unintended discrimination” is called disparate impact. HUD’s proposal will hold plaintiffs to a higher burden of proof, and it will allow companies many more defenses against disparate impact claims.
Disparate impact is different than overt, intentional discrimination. A disparate impact is when a policy or practice has a discriminatory effect on a protected group, even though it was meant for another purpose. One example is loan underwriting software. The software is designed to evaluate an applicant’s credit risk objectively, but if it rejects large numbers of minority or female applicants, this would be a disparate impact. Another example is restrictive zoning that makes it harder to build affordable rental housing. This often has a disparate impact on minorities and low-income families with children looking for apartments they can afford.
The Fair Housing Act allows people to bring claims against businesses and public agencies whose policies or practices have a disproportionate effect on protected classes. Protected classes include race, color, national origin, sex, religion and familial status (households with children).
The current system for resolving disparate impact claims dates to 2013 under the Obama administration. The rules reflected years of federal court rulings and public input. Plaintiffs must first prove that the policy or practice has caused, or will predictably cause, a discriminatory effect. The defendant then has the burden of proving the practice is necessary to achieve a legitimate interest. If the defendant satisfies the burden of proof, the plaintiff may still prevail if they can prove that the defendant’s interests could be served by a different practice with less discriminatory effect.
The Trump administration cited a 2015 Supreme Court ruling to justify changing the way disparate impact claims are resolved by HUD. In this decision, the Supreme Court upheld the legitimacy of disparate impact claims under the Fair Housing Act, but it also placed some limitations on making those claims. The Court said that it is not enough just to prove a racial disparity. Plaintiffs must also show a robust causal connection between the practice and the disproportionate impact on a protected class.
In addition, the Court said that defendant justifications for their practices are valid unless “artificial, arbitrary, and unnecessary.” Finally, remedial court orders must use “race-neutral means” to address the discriminatory practice. This means that quotas cannot be used to address the discriminatory effects of the policy.
Under the HUD proposal, plaintiffs will now have to prove discriminatory effect along five elements. These elements are:
- Plaintiffs must prove that the policy or practice is artificial, arbitrary and unnecessary to pursuing the defendant’s valid interests. Only after the plaintiff has met this burden of proof does the defendant have to identify the legitimate interests they are pursuing with the policy or practice.
- The plaintiffs must prove that there is a robust causal connection between the policy or practice and the disparate impact. Claims that rely on showing statistical disparities need to explain how their analysis proves the policy is creating the discriminatory effect.
- The plaintiff must explain how the policy or practice has a harmful impact on a protected class. In other words, they have to show how it would harm the group as a whole.
- The plaintiff must show that the disparity caused by the policy or practice is significant in its impact.
- The plaintiff must prove that the alleged harm is directly caused by the challenged policy or practice.
This will set an incredibly high bar for proving a disparate impact. Few low-income renters can afford to mount this kind of challenge. In addition, the proposed rule gives defendants many more options. Diane Yentel, CEO of the National Low-Income Housing Coalition (NLIHC), points out that profitable policies and practices are almost immune from challenge under the rule. Victims of discrimination who challenge these policies must prove that a company can make at least as much money without discriminating.
Plaintiffs will also find it harder to challenge the discriminatory effects of software algorithms. These algorithms are at the heart of credit rating and loan underwriting software, among other things. Under the Trump Administration proposal, businesses can continue using algorithms that are considered an “industry standard” even if they have a discriminatory effect. Lenders can also avoid liability for discriminatory effects by having their software vendors be solely liable.
This move to weaken the Fair Housing Act comes on the heels of other steps taken by HUD Secretary Ben Carson. Under his leadership, HUD delayed requiring the Assessment of Fair Housing (AFH) report for local governments. This document requires communities to identify patterns of segregation and take proactive steps to promote integration and create more housing opportunities. The AFH is supposed to be submitted before a local jurisdiction can qualify for HUD community development funds, such as Community Development Block Grants (CDBG). HUD has also moved to roll back fair housing protections for homeless LGBTQ persons, and the Trump administration has proposed punishing legal immigrants who use affordable housing programs.