Discriminatory Effects Standard

What is discriminatory effects liability?

It is clear that the Fair Housing Act (“Act”) is violated when there is intentional discrimination and a person is denied housing based on one of the seven protected classes (race, color, religion, sex, disability, familial status, and national origin).  However, courts have gone even further and interpreted the Act to create liability where no discriminatory intent or motive exists.  This type of liability is known as discriminatory effects liability.  Discriminatory effects liability may be found where a practice or rule has a harsher impact on a protected class of people.  For example, if a housing practice has a greater adverse impact on one racial group than another, a court may find the defendant liable under the Act based on discriminatory effects liability.

What is the new rule?

On February 8, 2013, HUD issued a final rule to formalize its long standing recognition of discriminatory effects liability under the Fair Housing Act (“Act”).  The new rule establishes a national standard for determining whether a particular housing practice violates the Act.  In short, HUD adopted a burden shifting test that first requires the charging party to prove that a practice results in, or would predicable result in, a discriminatory effect on the basis of a protected characteristic.  If the charging party is successful in so proving, the burden then shifts to the defendant to prove that the challenged practice is necessary to achieve one or more of its substantial, legitimate, nondiscriminatory interests.  If satisfied, the charging party may still establish liability by proving that the substantial, legitimate, nondiscriminatory interest could be served by a practice that has a less discriminatory effect.

What does the new rule cover?

The rule prohibits practices that result in an unjustified discriminatory effect on one of the seven protected classes under the Act, regardless of whether or not there was intent to discriminate.

Is this a change in the law?

No.  The availability of discriminatory effects liability under the Act has long been recognized by HUD and by every Circuit Court, except the Eleventh and District of Colombia Circuits.  However, the Circuit Courts varied in the test used to determine such liability.  HUD hopes that the new rule will make it easier to comply with the Act by providing clarity and consistency in the determination of discriminatory effects liability. 

What is an example of conduct that may violate the rule? 

A lender who has a practice of providing prime loans to Caucasian applicants, while providing subprime loans to Hispanic and African American applicants in similar financial situation may be in violation of the rule.  Another example would be selectively targeting low-income housing in the enforcement of a city’s housing code, which results in the closing of low-income housing and contributes to an existing housing shortage that disproportionally affects a city’s large population of African American residents that rely on these low-income housing communities.  A third example would be a refusal by a city zoning commission to permit the construction of federally financed low-cost housing, which results in the perpetuation of racial segregation in the area.

What does this mean for brokers listing and selling property?

The new rule is not likely to have a significant impact on the average broker involved in the day-to-day listing and selling of property.  The greater effect will be on lenders and zoning commissions, but brokers involved in property management should keep this rule in mind and conduct periodic assessments of any unintended impact of its practices or policies.  For example, if a property manager requires a certain income level to obtain housing, has an occupancy limit on the number of person’s occupying a bedroom, or has a zero violence policy when it comes to criminal activity, the property manager should ensure that such facially neutral applicant screening criteria or housing policies do not disproportionately affect the availability of housing for a particular demographic group protected under the Act.