August 19, 2019

Enterprise Strongly Opposes Proposed Revision to Final Disparate Impact Rule


On August 16, HUD released a proposed rule that would revise the 2013 disparate impact rule. The disparate impact rule sets the standard for determining when a practice with a discriminatory effect violates the Fair Housing Act. Enterprise strongly opposes the proposed changes that would substantially alter the disparate impact rule and would make it far more difficult to bring disparate impact claims under the Fair Housing Act. 

What is Disparate Impact?  

Disparate Impact is a legal doctrine under the Fair Housing Act which states that a policy may be considered discriminatory if it has a disproportionate “adverse impact” against any group based on race, national origin, color, religion, sex, familial status, or disability when there is no legitimate, non-discriminatory business need for the policy.

In order to standardize how HUD and the courts applied the disparate impact theory, HUD published a final disparate impact rule, in 2013. The rule establishes uniform standards for determining when a housing practice with a discriminatory effect violates the Fair Housing Act, using a three-step “burden-shifting” process between the plaintiff and the defendant. 

In June 2015, the Supreme Court upheld disparate impact claims under the Fair Housing Act in its decision on Inclusive Communities Project v. Texas Department of Housing and Community Affairs. This was an important victory for civil rights groups, as disparate impact is a critical tool used to protect against discrimination. 

Why is Disparate Impact an Important Rule?

Though explicit discrimination is now largely outlawed, more than 4 million instances of housing discrimination are still reported to HUD each year.1 Full enforcement of the Fair Housing Act increasingly relies on the disparate impact rule.

Disparate impact claims have been the basis for successful challenges to discriminatory policies since the enactment of the Fair Housing Act. The doctrine is time-tested and has traditionally been nonpartisan, used by both Democratic and Republican administrations and upheld in every federal circuit court as well as the Supreme Court.2

Over the years, the disparate impact rule has been used to protect veterans, seniors, and people of color from unfair bank deposit fees, guaranteed families with children the opportunity to rent an apartment, and ensured nondiscriminatory enforcement of nuisance ordinances.3 It continues to safeguard citizens’ right to fair housing to this day, particularly in complex situations. As companies increasingly turn to artificial intelligence and algorithms to estimate credit risk, detect fraud, or advertise housing vacancies, a disparate impact rule that grants discretion to evaluate impact—not just intent—is essential to fulfilling the promise of the Fair Housing Act. 

What Would HUD's Proposal Change? 

In June 2018, HUD issued an Advanced Notice of Proposed Rulemaking (ANPR) to reconsider “HUD’s implementation of the Fair Housing Act’s disparate impact standard.” On August 16, HUD released its proposed rule that would dramatically change the current disparate impact process from a three-part, burden shifting process to a five-step threshold. 

Under the proposed rule, the burden of proof is dramatically shifted to the plaintiff; defendants would only have the burden of proving that the policy or program is not discriminatory if the plaintiff could meet the five-part test. Furthermore, plaintiffs would need to be prepared to satisfy the five-part test at the motion to dismiss phase of any case, which is early stage in litigation. Legal advocates argue that it will be very difficult for plaintiffs to collect the necessary information to pass the five-part test at that stage without getting information from defendants through a discovery process. The proposed rule would therefore make it very challenging for disparate impact cases to advance.4 

The proposed rule would also establish three new defenses for defendants accused of discrimination based on models and algorithms. Defendants would be permitted to indicate that a model is not the cause of harm; to show that a model or algorithm is being used as intended and is the responsibility of a third party; and to call on a qualified expert to show that the alleged harm is not the fault of the model. This creates a loophole for the many financial institutions that use third-party vendors to develop credit-risk algorithms and would not be held liable for discrimination resulting from that algorithm.5 

Enterprise Opposes Changes to Disparate Impact Rule

The ability to pursue disparate impact cases is critical for preventing discrimination in the 21st century. Enterprise strongly opposes the proposed changes to the disparate impact rule. The disparate impact rule has been applied to disparate impact cases since 2013, serving HUD’s interest of advancing cases to prevent discrimination and uphold the Fair Housing Act. Rather than rewriting a functioning regulation, HUD should focus its attention on its incomplete work when it comes to advancing fair housing and correcting the ongoing legacy of racial discrimination and segregation perpetuated by federal policies and programs. HUD should focus on improving the administration of the critical Fair Housing Initiatives Program (FHIP) grant process, and reinstate the suspended Affirmatively Furthering Fair Housing rule, another key tool for fulfilling the Fair Housing Act that is currently in jeopardy. 

What Can Advocates Do?

Enterprise, Housing Partnership Network (HPN), Local Initiatives Support Corporation (LISC), National Housing Trust (NHT), and Stewards of Affordable Housing for the Future (SAHF) provided comments to HUD, strongly opposing the proposed disparate impact rule and urging HUD to withdraw it. The comment period closed on October 18, 2019. HUD is now responsible for reviewing the submitted comments before releasing a final rule. 

View Enterprise's joint comment letter here. View the proposed rule here

Ashwin Warrior, policy intern, contributed to this blog post. 

National Fair Housing Alliance. “New Report Makes “The Case for Fair Housing” as Segregation Persists & Hate Crimes Rise” April 19, 2017.
Debby Goldberg. “Testimony of Debby Goldberg Vice President, Housing Policy and Special Projects National Fair Housing Alliance before the U.S. House of Representatives Committee on Financial Services.” April 2, 2019. 
Debby Goldberg. 
Weinberger, Evan. “HUD Proposal Would Make it Harder to Bring Fair Housing Claims.” Bloomberg Law. July 31, 2019. 
Capps, Kriston. “How HUD Could Dismantle a Pillar of Civil Rights Law.” City Lab. August 16, 2019.

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