Federal Court Vacates HUD Disparate Impact Rule

HUD Disparate Impact FHA

On November 3, the United States District Court for the District of Columbia vacated HUD’s Disparate Impact Rule under the Fair Housing Act (FHA). The court, in American Insurance Association v. United States Department of Housing and Urban Development, held that “the FHA prohibits disparate treatment only,” and therefore HUD, in promulgating the Disparate Impact Rule, “exceeded [its] authority under the [Administrative Procedures Act].” (Emphasis in original.)

In the Disparate Impact Rule, HUD provided that “[l]iability may be established under the Fair Housing Act based on a practice’s discriminatory effect . . . even if the practice was not motivated by a discriminatory intent.” 24 C.F.R. § 100.500. It then articulated a burden shifting framework for such claims. Id. § 100.500(c)(1)-(3). In vacating HUD’s Disparate Impact Rule, the court reviewed the text of the FHA and concluded that “the FHA unambiguously prohibits only intentional discrimination.” (Emphasis in original.) The court explained that the FHA lacks the “effects-based language” that makes disparate impact claims cognizable under other anti-discrimination statutes. The court reasoned that this lack of effects-based language created “an insurmountable obstacle to [HUD’s] position regarding the plain meaning of the Fair Housing Act.” The court further reasoned that this textual reading is consistent with the FHA’s statutory scheme and, in the case of insurance products, required by the McCarran-Ferguson Act.

The court also explains that its decision to vacate the Disparate Impact Rule is required by the Supreme Court’s decision in Smith v. City of Jackson, in which the Supreme Court “made it clear that an inquiry into the availability of disparate-impact liability turns on the presence, or absence, of effects-based language.” In so reasoning, the court further noted that “none of the Circuit Courts that have recognized claims of disparate impact subsequent to the Supreme Court’s decision in Smith have either discussed Smith in any detail, or reconsidered their Circuit precedent in light of its holding.” (Emphasis added.) The court also noted that the Supreme Court has three times granted certiorari to address whether disparate impact claims are cognizable under the FHA, most recently in Texas Department of Housing, however, two cases were settled before the Court could rule and the third is currently pending.

This case comes in the wake of the holding of the United States District Court for the Northern District of Illinois that “HUD’s response to the insurance industry’s concerns [regarding the Disparate Impact Rule] was arbitrary and capricious” and remand to HUD “for further explanation.” Property Cas. Insurers Ass’n of Am. v. Donovan, No. 13 C 8564, at 46-47 (N.D. Ill. Sept. 3, 2014).

Even prior to HUD’s rule, the federal enforcement agencies took the position that both the FHA and the Equal Credit Opportunity Act (ECOA) permit disparate impact claims. Today’s decision does not expressly address ECOA. For a discussion of the cognizability of disparate impact claims under the FHA and ECOA, see here, here, and here.