U.S. House of Representatives Oversight and Investigations Subcommittee Examines Disparate Impact Theory in Fair Housing and Lending

by Ballard Spahr LLP

On November 19, 2013, the Oversight and Investigations Subcommittee of the U.S. House of Representatives Committee on Financial Services conducted a hearing titled "A General Overview of Disparate Impact Theory." Under the disparate impact legal theory, the government or private litigants may file discrimination claims based solely on statistics that show that a facially neutral policy disparately impacts a protected class. Disparate impact claims do not require a litigant to show intent to discriminate.

Earlier this year, HUD issued a final rule titled, "Implementation of the Fair Housing Act's Discriminatory Effects Standard," which deems any housing policy resulting in a disparate impact on a protected a class a violation of the Fair Housing Act (FHA), even in the absence of discriminatory intent. Similarly, on April 18, 2012, the Consumer Financial Protection Bureau (CFPB) issued a bulletin affirming the applicability of disparate impact theory in the review of compliance with the Equal Credit Opportunity Act (ECOA).

During the hearing, the witnesses, Peter N. Kirsanow, Commissioner of the U.S. Commission on Civil Rights and Partner at Benesch, Friedlander, Coplan & Arnoff, and Kenneth L. Marcus, President and General Counsel of the Louis D. Brandeis Center for Human Rights Under Law, testified regarding the benefits and risks of using disparate impact in the housing and lending contexts.

The witnesses testified that the Fair Housing Act, as compared to Title VII of the Civil Rights Act of 1964, does not provide a disparate impact cause of action, nor does it contain language regarding disparate impacts. Rather, the statutory language focuses on discrimination requiring intentionality. Therefore, reliance on HUD's fair housing regulations to prosecute disparate impacts exceeds the statutory authority provided under the Fair Housing Act. If used judiciously, disparate impact theory may be helpful to identifying intentional or unconscious discrimination that is difficult to demonstrate under the doctrine of differential treatment. However, if used improperly, disparate impact may force housing providers or lenders to engage in "quota-like behavior" or "racial balancing" to avoid disparate impact liability. To save disparate impact provisions from constitutional challenges that might lead to invalidation, the witnesses suggested that Congress adopt a "good-faith" defense.

The U.S. Supreme Court has not yet ruled on the permissibility of disparate impact claims under the FHA or ECOA. Last year, it was slated to hear the question in the case of Magner v. Gallagher but the case settled. The Supreme Court was scheduled this term to hear Township of Mount Holly v. Mt. Holly Gardens Citizens, which again would have examined the legality of disparate impact as a basis under the FHA. However, after a decade of litigation, that case also recently settled. The residents claimed that a redevelopment plan for the only predominantly minority neighborhood in Mount Holly Township violated the FHA and the settlement provided relief to those residents. Additional information on the settlement can be found here.

Further, on November 13, 2013, HUD, the Department of Justice, and the City of Joliet, Illinois settled housing discrimination claims in two lawsuits that alleged that the City discriminated against African-Americans in violation of the FHA when it attempted to condemn a federally subsidized affordable housing development. Additional information on the settlement can be found here.

In light of these significant fair housing developments, Ballard Spahr will host another webinar titled "Hot Topics in Fair Housing and Accessibility" on December 5, 2013. We invite you to join us as we continue to discuss these pertinent issues. Please register here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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