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Disparate Impact Rule Assesses Fair Housing Liability Despite Lack of Discriminatory Intent

by Published On: Feb 25, 2013

The U.S. Department of Housing and Urban Development (HUD) has issued a final rule on disparate impact 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.  

Specifically, it allows a finding of liability without proof of any actual intent to discriminate.
On Feb. 15, HUD issued a 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. 

As a result, LeadingAge members could be found liable for discrimination under the Fair Housing Act "regardless of whether there was an intent to discriminate."

3-Part Burden-Shifting Test

The final rule, which goes into effect March 18, 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:  

  1. The charging party or plaintiff first bears the burden of proving that a certain policy or practice results in, or would predictably result in, a discriminatory effect on persons of a particular race, color, religion, sex, disability, familial status, and/or national origin. 

  2. If the charging party or plaintiff proves this, then the burden of proof shifts to the respondent or defendant to provide a "legally sufficient justification" proving that the challenged practice is necessary to achieve one or more of its substantial, legitimate, nondiscriminatory interests. 
  3. If the respondent or defendant satisfies this burden, then the charging party or plaintiff may still establish liability by proving that the substantial, legitimate, nondiscriminatory interest could be served by a practice that has a less discriminatory effect.

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.

Disparate Impact: Business Practices to Watch Out For

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 admissions 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, in prohibiting persons of all criminal backgrounds, instead of being more targeted toward violent offenders, etc.
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.


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