Raising the Bar: HUD Issues New Rule Imposing More Demanding Standard for Defending Against Discrimination Claims Under the Fair Housing Act

The Department of Housing and Urban Development (HUD) recently issued a new rule to formalize a national standard for determining whether a housing practice violates the Fair Housing Act (FHA) as the result of a discriminatory effect (the “Discriminatory Effects Rule”), which will likely have a wide impact on banks, lenders and others operating in the housing market. The FHA, as amended, prohibits discrimination in the sale, rental and financing of housing. The new rule establishes a three-part burden-shifting test to demonstrate liability for discriminatory effects under the FHA. Significantly, it allows a finding of liability without proof of any actual intent to discriminate. Accordingly, defendants (which include developers, banks, lenders and others) may find themselves subject to liability for lending practices that, as applied, may have an inadvertent or unintended impact on a protected class. The Discriminatory Effects Rule goes into effect on March 18, 2013.

Background -

Courts have long recognized a public and private cause of action for “discriminatory effects” under the FHA, but varied in their analysis of the evidence. For example, the Seventh Circuit applied a multi-factor balancing test to assess discriminatory effects, whereas the Fourth Circuit applied a four-factor balancing test for public defendants and a burden-shifting test for private defendants. In private actions or actions brought by the government, the plaintiff may be awarded injunctive relief, actual and punitive damages (in private actions) or civil penalties (in an action by the government).

Please see full alert below for more information.

LOADING PDF: If there are any problems, click here to download the file.