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Disparate Impact theory allows a finding of liability without proof of any actual intent to discriminate.
Recent documents issued by the U.S. Department of Housing and Urban Development (HUD) include a Feb. 15, 2013 regulation entitled "Implementation of the Fair Housing Act’s Discriminatory Effects Standard" that codifies the standard for assessing “disparate impact” liability for practices in sales, rentals, or financing of dwellings and in other housing-related activities.This final rule on disparate impact provides a 3-step analysis that scrutinizes rules and practices that, while neutral on their face, have a harsher impact on members of a class of people protected under the Fair Housing Act.
On April 4, 2016, HUD's Office of General Counsel (OGC) issued a 10-page memo outlining how the 3-step process would be applied to criminal history policies used by housing providers to determine whether their criminal screening history reviews sufficiently consider such factors as type of crime and length of time since conviction, and whether any discriminatory effect caused by the practice is justified.
In effect since March 18, 2013, the final rule lays out a formalized 3-part burden-shifting test for determining when policies or practices resulting in a discriminatory effect violate the Fair Housing Act:
Though disparate impact doctrine is focused primarily on harmful outcomes, the final rule points out that it can also help root out intentional discrimination, which is often more difficult to prove. The final rule also explicitly bans practices that create or perpetuate racially segregated housing. As a result of this rule, defendants (which include housing providers, city governments, lenders, and others) may find themselves attacked due to a policy that appears to be reasonable and nondiscriminatory on its face but that, as applied, may have an inadvertently or even accidentally harsher impact on a protected class.
According to the memo, “[b]ecause of widespread racial and ethnic disparities in the U.S. criminal justice system, criminal history-based restrictions on access to housing are likely disproportionately to burden African Americans and Hispanics. While the [Fair Housing] Act does not prohibit housing providers from appropriately considering criminal history information when making housing decisions, arbitrary and overboard criminal history-related bans are likely to lack a legally sufficient justification. Thus , a discriminatory effect resulting from a policy or practice that denies housing to anyone with a prior arrest or any kind of criminal conviction cannot be justified, and therefore such practices would violate the Fair Housing Act.”
The take-away from this document is that policies that exclude persons based on criminal history must be tailored to address such factors as the type of the crime and the length of time since conviction.
So, what kinds of common, and until-now, seemingly justified business practices may have an inadvertent effect or disproportionate adverse impact on persons in a protected class?
HUD’s recent guidance urging federally subsidized housing providers to be more flexible in their tenant-selection policies with regard to keeping ex-convicts out of housing is one example -- as convictions and arrests tend to happen with greater frequency among persons of a particular race than others.
Efforts to set motorized cart or other policies that are intended to be reasonably protective of the safety of residents could potentially be turned against an owner because their policies are too broad, impacting persons with disabilities more severely. The same goes with marketing to certain zip codes and areas within a specific geographic distance, yet have a demographic profile that would tend to be short on persons of particular racial, ethnic or religious backgrounds. For upscale communities, marketing to persons of a higher economic profile could easily run afoul of the disparate impact theory.
Failure to attempt to compensate for the demographic disparity might be used against a rationale explaining the business case.Harry Kelly, Esq of Nixon Peabody offers additional insights into the implications of the rule in his analysis, included here by express permission of the author.