Today I want to talk to you about the Department of Housing and Urban Development. I know that’s an unusual topic, it’s probably not something I’ve talked about much if at all in my previous content, but the Department of Housing and Urban Development or the HUD recently released a new rule on the standard of “disparate impact” as outlined in the Fair Housing Act. I’m sure some of you have some questions, I’m going to explain everything, so just hang on and I’ll try to outline why I thought this news was worth bringing up.
What Is Disparate Impact?
The first thing you might be wondering is what exactly the “disparate impact” standard is. This is a pretty obscure legal doctrine, so you probably don’t know much about it unless you work in a relevant field.
Basically disparate impact was first described in Title VII of the Civil Rights Act of 1964. Overall the Civil Rights Act included a ton of anti-discrimination measures in terms of voting, segregation, things like that. Title VII specifically focused on employment, and that’s where the “disparate impact” standard first appeared.
Discriminatory intent vs. discriminatory outcomes
The difference between “disparate impact” and other ways of measuring discrimination is essentially that for disparate impact you don’t necessarily have to show that your employer is personally racist or something like that. Disparate impact clarifies that an employment practice is unlawful if it disproportionately hurts people based on race, religion, sex, national origin, etc. and there’s no good reason for the employment practice to exist.
Seemingly neutral rules can still be discriminatory
So one example that comes to mind for me is when employers have rules about hair, maybe they just say they want your hair to be “professional,” and maybe that doesn’t sound racist at first, it might just sound like another aspect of your dress code.
But if it turns out that they’re only ever using this policy to fire black people, then someone might be able to sue them for discrimination even if the rule itself appears to be non-discriminatory in how it’s written. And again under the “disparate impact” standard they wouldn’t have to prove that the owner is a racist, they would just have to prove that the practice of firing people for “unprofessional” hairstyles disproportionately harms black people for no meaningful benefit to the company.
Now before I want to say anything else I want to emphasize that I’m not a legal expert, I’m sure there are whole books written about the “disparate impact” standard, but I think that’s a fair way to describe how it measures discrimination.
Disparate Impact and the Department of Housing and Urban Development
As with any other legal doctrine, there’s a lot of case law on the topic of “disparate impact” that elaborates exactly what it means, where it can be applied, things like that. And there was a really important case in 2015, it’s called Texas Department of Housing and Community Affairs vs. Inclusive Communities Project, Inc.
Texas Department of Housing and Community Affairs vs. Inclusive Communities Project, Inc.
Again I’m not a lawyer, I don’t want to get too deep into all the arguments, but basically the question at issue in this case was whether or not the “disparate impact” standard can be applied to housing—more specifically under the Fair Housing Act, which is Title VIII of the Civil Rights Act of 1968.
Disparate impact in housing
So as I mentioned earlier, the idea of “disparate impact” was first brought up in 1964 in the context of employment, and from there it was up to the courts to determine whether it could be used in other situations or if it was strictly limited to discrimination at work. In this case, the Texas Department of Housing and Community Affairs was distributing affordable housing credits, and for whatever reason those credits were predominately being approved in black neighborhoods and rejected in white neighborhoods.
Effects on the HUD
Even though there wasn’t necessarily an allegation of overt racism against white people, the Inclusive Communities Project argued that the criteria that were being used were disproportionately hurting white homeowners, and also that there wasn’t some obvious reason that would justify that disparity. This was a 5-4 decision, so obviously this is still a contentious issue, but the court found that “disparate impact” claims can be valid in the context of housing just as they would in the context of employment. And in turn that led the Department of Housing and Urban Development to revise its own standards in order to comply with this new ruling.
What’s Happening with Disparate Impact in 2020?
All right that brings us to the recent news about the Department of Housing and Urban Development. If you’re not sure what that is, it’s essentially the part of the President’s cabinet that deals with housing regulations, providing fair housing, things like that.
The Great Society
Right now the Secretary of the Department of Housing and Urban Development is Ben Carson, and to become the Secretary of a cabinet department you have to be nominated by the President and then confirmed by the Senate in a majority vote. It was originally created by Lyndon Johnson as part of the “Great Society” program, so he wanted the government to take a more active role in housing rather than leaving it up to private actors.
As Secretary of Housing and Urban Development, Ben Carson is in charge of things like community planning, sustainable development, keeping homes up to code, and providing fair housing. The department also oversees the Government National Mortgage Association, which basically means that they back mortgages with the authority of the federal government in order to help reduce risk and lower interest rates for everyone.
Furthermore, they have some authority in creating guidelines for government-sponsored lenders like Fannie Mae and Freddie Mac. So overall the Department of Housing and Urban Development is one of the most important players in American housing, and it plays a really crucial role in making affordable housing accessible to as many Americans as possible.
Complying with disparate impact
Now part of the Department’s work involves interpreting Supreme Court cases and finding ways to implement them into their own regulations. So they clarify how exactly “disparate impact” integrates into their practices and what is and isn’t fair game. For example they clarify that one of the acceptable defenses to “disparate impact” claims is simply to show that the policy is necessary to carry out nondiscriminatory goals and that it couldn’t be switched out for another policy that would lead to less discrimination. And given the Department’s authority in this area, whatever guidelines they release are going to have an immediate impact on American housing.
On September 3rd, the Department of Housing and Urban Development released a statement detailing their implementation of the “disparate impact” standard. Here’s how they summarized the ruling:
“HUD has long interpreted the Fair Housing Act (“the Act”) to create liability for practices with an unjustified discriminatory effect, even if those practices were not motivated by discriminatory intent. This rule amends HUD’s 2013 disparate impact standard regulation to better reflect the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. and to provide clarification regarding the application of the standard to State laws governing the business of insurance. This rule revises the burden-shifting test for determining whether a given practice has an unjustified discriminatory effect and adds to illustrations of discriminatory housing practices found in HUD’s Fair Housing Act regulations. This Final Rule also establishes a uniform standard for determining when a housing policy or practice with a discriminatory effect violates the Fair Housing Act and provides greater clarity of the law for individuals, litigants, regulators, and industry professionals.”
Revising the burden-shifting test
OK let’s unpack that a little. To me, the most relevant section is when they say that “this rule revises the burden-shifting test for determining whether a given practice has an unjustified discriminatory effect.” So they’re basically changing what you have to prove in order to show that a certain policy is responsible for a disparate impact.
The idea behind this kind of a rule is to give people who work in this field a clearer idea of what is and isn’t allowed in terms of potentially discriminatory policies, and you can get a better sense of what they have in mind later in the statement when they cover the details of the new rule.
Defenses to disparate impact claims
Now after the Supreme Court found that “disparate impact” applied to housing in 2015, the Department of Housing and Urban Development started revising its existing regulations to make sure they complied with the new rules. So first they added a few potential responses to “disparate impact” disputes by allowing defendants to make certain claims, for example that they were using a risk-based algorithm that wasn’t inherently discriminatory.
They also clarified that plaintiffs must demonstrate that a policy is “artificial, arbitrary, and unnecessary” in its discriminatory effect order to win a disparate impact claim. That means that even if a policy really does discriminate in some way, as long as the defendant can show that it isn’t arbitrary, they won’t be on the hook with respect to the Fair Housing Act.
So essentially they acknowledged the ruling on “disparate impact,” but they also set up some new restrictions that could limit the situations in which that standard would be applied. And I’ll go through a few of those changes to give you an idea of how the current rule is different from how the Department of Housing and Urban Development has approached regulation in the past.
Analyzing the new rule
First, they added a full paragraph that reads: “The illustration of unlawful housing discrimination in this part may be established by a practice’s discriminatory effect, even if not motivated by discriminatory intent, and defenses and rebuttals to allegations of unlawful discriminatory effect may be made, consistent with the standards outlined in § 100.5.”
They also added another sentence later on prohibiting the practice of “enacting or implementing land rules, ordinances, procedures, building codes, permitting rules, policies, or requirements that restrict or deny housing opportunities or otherwise make unavailable or deny dwellings to persons because of race, color, religion, sex, handicap, familial status, or national origin.”
Now as I mentioned, these are critical guidelines, and these changes are important on their own, but the final rule also makes more substantial revisions to the rules and burdens of proof required for a plaintiff to make a successful claim under the “disparate impact” standard.
The new burden of proof
More narrowly this refers to 24 CFR § 100.500, with 24 CFR referring to the Department of Housing and Urban Development’s section of the Code of Federal Regulations and 100.500 referring to a specific part of that code. 100.500 describes the kinds of discriminatory effects that are prohibited under the Department’s interpretation of the Fair Housing Act. So up until this change, the plaintiff had the “burden of proving that a challenged practice caused or predictably will cause a discriminatory effect,” but the code didn’t make it clear what they would count as a causal relationship between the policy and the discriminatory effect.
Five points for plaintiffs to prove
And essentially this new change emphasizes the need for a really strong connection between the policy and some clear discrimination. In fact, a plaintiff now needs to prove an entire set of five claims just to qualify for a “disparate impact” claim.
So first they have to show that the policy itself is “arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective such as a practical business, profit, policy consideration, or requirement of law.” And basically what that means is that the policy that’s causing the discrimination has to have no real benefit or value, and it’s up to the plaintiff to prove that in order to advance their claim.
From there it also has to have a “disproportionately adverse effect on members of a protected class,” which is really just another way to say “disparate impact.” The third thing is that there must be a quote “robust causal link between the challenged policy or practice and the adverse effect on members of a protected class,” which they specify requires that quote “the specific policy or practice is the direct cause of the discriminatory effect.”
And finally the last two points stipulate that there is a quote “significant” disparity and a quote “direct relation between the injury asserted and the injurious conduct alleged,” which to me just restates what they said before about a “robust causal link.”
Understanding the changes
OK that’s a lot to cover, already that’s five different things that a plaintiff has to prove, but if you compare that to the original language I think there are some obvious differences. Instead of just generally describing what disparate impact means, they actually use very clear language to explain some surprisingly tough restrictions.
So for example you have to show a “robust causal link” between the harm and a specific policy. That means it isn’t enough to point out a disparity and where it may have come from, instead you need to have very strong evidence that this particular policy is what’s responsible for the disparity.
I’ve seen some work on this topic by people who know a lot more about it than I do. For example, the Brookings Institution published an article on the new HUD rule, how it could impact housing practices throughout the United States, and specifically how it could make things even more difficult for people who want to challenge algorithm-based housing discrimination.
And they point out that the new rules will be “particularly hard to satisfy when algorithms are involved.” Now the problem here is that you’re required to demonstrate a clear causal connection between a particular policy and some discriminatory effect, but in many cases you won’t even have access to the algorithm that might be responsible for whatever discrimination you’re facing.
So ultimately it’s going to be almost impossible to conclusively demonstrate what the algorithm is doing, let alone how it could be changed in order to mitigate the discriminatory effect. And in the same way it’s hard to imagine how you could prove that an algorithm is “arbitrary, artificial, and unnecessary” if you can’t even see how it works. To me what they’re pointing out is that these claims are already difficult to make under the current framework, and adding such a strong burden of proof will only make it more challenging, especially in situations where plaintiffs often have very little information about the policies they’re trying to challenge.
Public reactions to the new rule
Now the Brookings Institution is very well-respected, obviously it’s a left-leaning organization at least most of the time, but it’s far from the only organization that has spoken out on this issue. In fact some of the largest banks in the United States called on the Department of Housing and Urban Development to avoid adopting the new rule, largely because they’re worried about the potential for racist policies and practices to go unchallenged. So in October of last year the Mortgage Bankers Association came out in favor of the proposed rule, but following the death of George Floyd they backtracked and claimed that they supported a quote “disparate impact rule that preserves the ability to effectively address unintentional discrimination.”
The National Community Reinvestment Coalition, another major interest group that focuses on fairness in lending, housing, and banking, also denounced the rule as unnecessarily damaging to “disparate impact” claims. They claimed that the new rule is a quote “free pass to business policies that have discriminatory effects,” and they went on to say that it “puts an impossible burden on plaintiffs in disparate impact cases before the discovery process has even begun. If the rule was written honestly, it would simply state that HUD is no longer recognizing disparate impact at all.”
So there has been a pretty significant backlash to this decision, I’ve mentioned a few of the biggest organizations that have challenged it, but as with anything in government only time will tell how the rule change will actually impact Americans. As you know I’m not a lawyer, I don’t work in this field, so it would be great to get some additional perspectives in the comments from those of you who might have more experience than I do.
And of course with the election coming up it’s entirely possible that Biden will win, put someone else at the head of the Department of Housing and Urban Development instead of Ben Carson, and maybe the Department treats “disparate impact” claims totally differently next year. But right now this is a concerning situation, especially with evictions coming up at the beginning of 2021, there’s a real possibility that we’ll see a housing crisis and that people will be essentially unable to fight back against policies that discriminate against them. All right again thanks so much for reading, as always I really appreciate it, and I hope to see you next time.