InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
9th Circuit will rehear Oakland’s Fair Housing Act case en banc
On April 20, a majority of nonrecused active judges of the U.S. Court of Appeals for the Ninth Circuit vacated a three-judge panel’s 2020 Fair Housing Act (FHA) decision and ordered that the case be reheard en banc. As previously covered by InfoBytes, the City of Oakland sued a national bank alleging violations of the FHA and the California Fair Employment and Housing Act, claiming the bank provided minority borrowers mortgage loans with less favorable terms than similarly situated non-minority borrowers, leading to disproportionate defaults and foreclosures causing (i) decreased property tax revenue; (ii) increases in the city’s expenditures; and (iii) neutralized spending in Oakland’s fair-housing programs. Last year, the three-judge panel affirmed both the district court’s denial of the bank’s motion to dismiss claims for decreased property tax revenue, as well as the court’s dismissal of Oakland’s claims for increased city expenditures. Regarding Oakland’s alleged municipal expenditure injuries, the panel agreed with the district court that Oakland’s complaint failed to account for independent variables that may have contributed or caused such injuries and that those alleged injuries therefore did not satisfy the FHA’s proximate-cause requirement. The panel further held that Oakland’s claims for injunctive and declaratory relief were also subject to the FHA’s proximate-cause requirement, and that on remand, the district court must determine whether Oakland’s allegations satisfied this requirement. The bank filed a petition for panel rehearing and rehearing en banc last October, arguing, among other things, that the panel had “fashioned a looser, FHA-specific proximate-case standard” in conflict with the U.S. Supreme Court’s decisions involving the City of Miami (covered by InfoBytes here). Oakland responded by noting, however, that the panel’s decision is consistent with the City of Miami decisions, and that, among other things, the Supreme Court’s decision did not establish “precise boundaries of proximate cause” but rather asked lower courts to define “the contours of proximate cause under the FHA and decide how that standard applies to the City’s claims for lost property-tax revenue and increased municipal expenses.”
Biden administration to reinstate fair housing rules
On April 12, the Office of Management and Budget posted notices pending regulatory review related to two HUD fair housing rules rescinded under the Trump administration. The first notice announces a pending proposed rule to reinstate HUD’s Discriminatory Effects Standard related to a September 2020 final rule issued by the agency, which amended its interpretation of the Fair Housing Act’s 2013 disparate impact standard. As previously covered by a Buckley Special Alert, the final rule was intended to align HUD’s 2013 Rule with the Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs et al. v. Inclusive Communities Project, Inc. The final rule included, among other things, a modification of the three-step burden-shifting framework in its 2013 Rule, several new elements that plaintiffs must show to establish that a policy or practice has a “discriminatory effect,” and specific defenses that defendants can assert to refute disparate impact claims. Earlier in January, President Biden directed HUD to examine the effects of the final rule, emphasizing that HUD has a “statutory duty to ensure compliance with the Fair Housing Act.” (Covered by InfoBytes here.)
The second notice relates to a pending interim final rule: Affirmatively Furthering Fair Housing; Restoring Statutory Definitions and Certifications. As previously covered by InfoBytes, last July HUD announced plans to terminate the 2015 version of the Affirmatively Furthering Fair Housing (AFFH) rule, and proposed a new final rule titled “Preserving Community and Neighborhood Choice.” At the time, HUD stated that the AFFH rule was, among other things, overly burdensome, costly, and ineffective.
HUD approves settlement resolving alleged lending discrimination
On March 19, HUD released a Conciliation Agreement between an individual consumer and a mortgage lender to resolve allegations that the lender violated the Fair Housing Act by denying the consumer’s loan for a group home for persons with disabilities. The lender denied any discriminatory behavior, and agreed to resolve the complaint by (i) paying the consumer $125,000; (ii) implementing additional training for employees, including home mortgage consultants, managers, and underwriters; and (iii) ensuring its policies comply with the Fair Housing Act.
HUD approves settlement resolving Fair Housing Act violation
On March 8, HUD released a Conciliation Agreement between an African-American consumer and a mortgage lender to resolve allegations that the consumer’s home was appraised at an amount lower than its actual worth due to her race. Under the Fair Housing Act, a homeowner’s race may not influence the valuation of a home, HUD stated. While the lender denied having engaged in any discriminatory behavior, it agreed to pay $50,000 to the consumer and will provide mandatory training to all of its home lending advisors and client care specialists nationwide on the reconsideration of value (ROV) process and fair lending issues related to appraisals. Training will include information on how to handle complaints of discrimination in the appraisal process and the process for consumers to submit ROV requests.
HUD to “fully enforce” prohibition against sex- and gender-based discrimination
On February 11, HUD announced that it will administer and enforce the Fair Housing Act (FHA) to prohibit discrimination on the basis of sexual orientation and gender identity, in response to President Biden’s Executive Order (E.O.) 13988. According to a memorandum issued by HUD’s Acting Assistant Secretary for Fair Housing & Equal Opportunity (FHEO), the E.O. directs federal agencies to assess actions taken under federal statutes that “prohibit sex discrimination and to fully enforce those statutes to combat discrimination based on sexual orientation and gender identity,” in response to the recent Supreme Court opinion in Bostock v Clayton County (holding that prohibitions against sex discrimination in the workplace contained in Title VII of the Civil Rights Act of 1964 extend to and include discrimination on the basis of sexual orientation and gender identity). The memorandum notes that “the [FHA’s] sex discrimination provisions are comparable in text and purpose to those of Title VII of the Civil Rights Act,” thus HUD intends to enforce the FHA to prevent and combat similar discrimination. The memorandum directs HUD’s Office of Fair Housing and Equal Opportunity to, among other things, (i) “accept and investigate all jurisdictional complaints of sex discrimination, including discrimination because of gender identity or sexual orientation…”; (ii) “conduct all activities involving the application, interpretation, and enforcement of the [FHA]’s prohibition on sex discrimination consistent with its conclusion that such discrimination includes discrimination because of sexual orientation and gender identity”; and (iii) ensure FHEO regional offices and other associated agencies review, within 30 days, all allegations of alleged discrimination based on gender identity or sexual orientation received since January 20, 2020.
Biden directs HUD to examine disparate impact rule
On January 26, President Biden issued an Executive Order (E.O.) directing the secretary of HUD to examine the effects of the September 2020 final rule amending the agency’s interpretation of the Fair Housing Act’s 2013 disparate impact standard (2013 Rule). As previously covered by a Buckley Special Alert, the final rule is intended to align its 2013 Rule with the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs et al. v. Inclusive Communities Project, Inc. and among other things, includes a modification of the three-step burden-shifting framework in its 2013 Rule, several new elements that plaintiffs must show to establish that a policy or practice has a “discriminatory effect,” and specific defenses that defendants can assert to refute disparate impact claims. The E.O. emphasizes HUD’s “statutory duty to ensure compliance with the Fair Housing Act,” and requires the HUD secretary to take any necessary steps, “to implement the Fair Housing Act’s requirements that HUD administer its programs in a manner that affirmatively furthers fair housing and HUD’s overall duty to administer the Act (42 U.S.C. 3608(a)) including by preventing practices with an unjustified discriminatory effect.”
Court stays HUD’s DI rule
On October 25, the U.S. District Court for the District of Massachusetts issued an order granting a preliminary injunction and stay of effective date of HUD’s disparate impact regulation under the Fair Housing Act (Final Rule). As previously covered by a Buckley Special Alert, in September, HUD issued the Final Rule, which is intended to align its disparate impact regulation, adopted in 2013 (2013 Rule), with the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. Among other things, the Final Rule includes a modification of the three-step burden-shifting framework in its 2013 Rule, several new elements that plaintiffs must show to establish that a policy or practice has a “discriminatory effect,” and specific defenses that defendants can assert to refute disparate impact claims.
According to the order, two fair housing organizations (collectively, “plaintiffs”) filed the action against HUD seeking to vacate the Final Rule under the Administrative Procedures Act (APA) and subsequently filed for a preliminary injunction and stay, arguing, among other things, that the changes to the 2013 Rule are “arbitrary and capricious.” The court noted that the Final Rule “constitutes a significant overhaul to HUD’s interpretation of disparate impact standards,” and that the alterations to the 2013 Rule “appear inadequately justified.” The court further explained that the Final Rule’s “massive changes pose a real and substantial threat of imminent harm” to the plaintiffs by increasing “the burdens, costs, and effectiveness of disparate impact liability.” Lastly, the court noted that HUD did not identify any “particularized” harm to the government or public should the injunction be granted. Thus, the court granted the preliminary injunction and stayed the implementation date until further order.
District court allows Georgia counties’ disparate impact claims to proceed
On September 18, the U.S. District Court for the Northern District of Georgia denied a national bank’s motion to dismiss claims that the bank and its subsidiaries’ (collectively, “defendants”) mortgage originating and servicing practices and policies had a disparate impact on, and resulted in disparate treatment of, minority borrowers, in violation of the Fair Housing Act (FHA). The plaintiffs, three Georgia counties, filed a second amended complaint raising two disparate impact claims and one disparate treatment claim under the FHA, claiming the defendants’ lending and servicing practices—which included allegedly targeting minority borrowers for higher cost loan products, approving unqualified minority borrowers for loans they could not afford, and providing less favorable terms for loan modifications—were “designed to reduce the overall equity minority borrowers located within their counties had in their homes.” The practices, among other things, allegedly caused African-American and Latino borrowers to receive disproportionately higher cost mortgage loans than similarly situated white, non-Latino borrowers, creating an increase in defaults and foreclosures, and causing the plaintiffs to incur alleged damages, including out-of-pocket foreclosure-related costs and increased municipal expenses, and loss of property tax revenues due to decreased home values.
The defendants moved to dismiss, asserting, among other things, that the plaintiffs failed to properly allege their disparate impact claims under Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (covered by a previous Buckley Special Alert). The defendants also argued that the plaintiffs’ municipal “economic injuries were not proximately cause by the [d]efendants’ discriminatory policies under [City of Miami Garden v. Wells Fargo & Co.]” (covered by InfoBytes here), and that the plaintiffs failed to allege specific allegations within the FHA’s two-year statute of limitations.
The court granted the motion in part and denied it in part. With respect to the disparate impact claims, the court applied Inclusive Communities and held that the plaintiffs identified several specific policies that caused the alleged disparate impact. The court also rejected the statute of limitations arguments and held that the plaintiffs “‘can prove a set of facts’ showing a timely violation of the FHA.” The court dismissed certain of the counties’ injury claims—the plaintiffs’ attempts to recover franchise tax and municipal expenses (police, fire, and sanitation services related to vacant or foreclosed-upon properties)—ruling that plaintiffs failed to establish proximate cause and “explain how their municipal services injuries ‘are anything more than merely foreseeable consequences’ of [the d]efendants’ discriminatory acts.”
Special Alert: HUD finalizes new disparate impact regulation
The Department of Housing and Urban Development earlier this month issued a final disparate impact regulation under the Fair Housing Act (Final Rule). HUD’s new Final Rule is intended to align its disparate impact regulation, adopted in 2013 (2013 Rule), with the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (Inclusive Communities). While the new Final Rule is a notable development, the relatively recent Supreme Court decision makes it unclear to what extent courts and federal agencies will look to the rule for guidance.
HUD finalizes new disparate impact standard
On September 4, HUD released the final rule amending agency’s interpretation of the Fair Housing Act’s disparate impact standard (also known as the “2013 Disparate Impact Regulation”). The final rule, among other things, seeks to (i) codify the burden-shifting framework from the 2015 Supreme Court ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (covered by a Buckley Special Alert); (ii) create a uniform standard for determining when a policy or practice has a discriminatory effect in violation of the Fair Housing Act; and (iii) codify HUD’s position that its rule is not intended to infringe on the states’ regulation of insurance. Based on public feedback, the final rule largely adopts the August 2019 proposed rule (covered by InfoBytes here) with a number of clarifying and substantive changes.
A Special Alert from Buckley on the details of the final rule will soon be available.