HUD Releases Proposal to Overhaul Disparate Impact Rule

By Esq.

In the latest twist in its ongoing attempt to codify the law concerning disparate impact claims under the Fair Housing Act (“FHAct”), HUD released an overhaul of its current disparate impact rule on August 19, 2019.  84 Fed. Reg. 42854 (Aug. 19, 2019)(the “Proposal”).  In a “disparate impact” claim, a public agency or private firm may be held liable for violating the FHAct based solely on the impact a challenged policy or practice has on one of the FHAct’s protected classes, even if the policy is neutral on its face and in the absence of any evidence of discriminatory intent.  To recap, HUD issued its current disparate impact rule (24 CFR §100.500) in 2013, likely as an attempt to establish a precedent for federal courts to follow in deciding a series of then-pending cases challenging the existence of disparate impact liability under the FHAct.  In 2015, the U.S. Supreme Court confirmed that disparate impact liability exists under the FHAct, but mandated a series of “safeguards” intended to prevent “abusive” disparate impact cases.  Texas Dept. of Hous. and Comm. Dev. v. The Inclusive Communities Project, Inc., 135 S.Ct. 2507 (2015).  Among other things, then-Justice Kennedy asserted that disparate impact should not be used to second-guess otherwise legitimate decisions of public agencies and private firms, should only be used to attack “arbitrary, artificial and unnecessary” barriers to housing, and requires a showing of “robust causality” between the challenged policy and the alleged discriminatory impact.


Initially, HUD contended there was no daylight between its disparate impact regulation and the holding in Inclusive Communities.  Last year, however, HUD issued a notice soliciting comments on whether the existing regulation was in fact consistent with the Inclusive Communities.  The Proposal reflects HUD’s attempt to conform its disparate impact regulation to the Inclusive Communities decision.


In many respects, the Proposal meets that goal, reflecting comments made by several national housing organizations.  Among other things, it incorporates many of the safeguards identified by the Supreme Court, including the “robust causality” and “arbitrary, artificial and unnecessary” standards.  In doing so, the Proposal shifts away from the original “burden-shifting” approach incorporated into the 2013 regulation, where the plaintiff had the initial duty to demonstrate a disparate impact on a protected class and then the burden would shift to the defendant to show that there was a “legally sufficient justification” for the rule.  Instead, the Proposal attempts to formalize the elements of a disparate impact claim that a plaintiff must establish, but retains some aspects of a burden-shifting approach, where at least some issues are assigned to the defendant.  The resulting hybrid is awkward in some respects and raises questions, such as whether it may create conflicts with the Federal Rules of Civil Procedure and if so, whether those conflicts may discourage Federal courts from adopting the revised rule as a uniform basis for deciding disparate impact cases, which is one of the chief advantages of a nation-wide Federal disparate impact rule in the first place. 


HUD should be complemented for the concepts incorporated in the Proposal, as a first step towards harmonizing its disparate impact rule to the Inclusive Communities holding.  Additional modifications to the proposed rule and clarification of critical terms are still needed.  Comments are due no later than October 18, 2019.