HUD Proposes to Reinstate 2013 Disparate Impact Rule

June 28, 2021

On June 25, the U.S. Department of Housing and Urban Development (HUD) issued a proposed rule to recodify the Discriminatory Effects Standard regulations (2013 Rule) — commonly referred to as the disparate impact rule or burden-shifting framework — that has been in place since 2013. Under the Trump Administration, in September 2020 HUD issued the final rule, titled “HUD’s Implementation of the Fair Housing Act’s Disparate Impact Standard” (2020 Rule), intended to replace the 2013 Rule. However, due to a preliminary injunction issued in a court case challenging the 2020 Rule prior to its effective date, the 2020 Rule never took effect; thus, the 2013 Rule remains in effect.

The 2013 Rule was intended to provide a framework for how courts could deal with cases related to policies that may have a disparate impact — facially neutral practices that have an unjustified discriminatory effect on a protected group, even if unintentional. The rule established a burden-shifting test with the following components: First, the plaintiff is required to prove the challenged practice caused or will cause a discriminatory effect; then, the defendant is given the opportunity to prove the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory outcomes; and last, the plaintiff is given the opportunity to show the outcomes of the challenged practice could be serviced by another practice that has a less discriminatory effect.

The 2020 Rule would have established a new burden-shifting framework that significantly increased the burden on the plaintiff in bringing a case and eased the burden on the defendant in rebutting the plaintiff’s case. Fair housing and many affordable housing advocates generally opposed the changes in the 2020 Rule, and HUD was sued in three separate federal courts, with the plaintiffs’ claiming the 2020 Rule was invalid because it was inconsistent with the Fair Housing Act. The Trump Administration maintained the change to the disparate impact rule was needed in light of the 2015 Supreme Court case Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. In that case, the court ruled that disparate impact claims are cognizable under the Fair Housing Act. However, the court did not rule on the underlying dispute in the case — which dealt with the siting of Low Income Housing Tax Credit properties — but rather only on the merits of disparate impact as a legal theory. On remand, the district court dismissed the claim against Texas Department of Housing and Community Affairs. HUD notes in the preamble of the 2021 proposed rule, “the Court did not call into question the 2013 Rule’s framework for analyzing discriminatory effects claims, nor did it suggest that HUD should make any modifications to that framework.”

Upon taking office, President Biden charged the HUD Secretary with examining the 2020 Rule’s effects and taking necessary steps to implement the Fair Housing Act. HUD maintains the 2013 Rule “sets a more appropriately balanced standard for pleading, proving, and defending a fair housing case alleging a policy or practice has a discriminatory effect.”

Comments on its proposal to recodify the 2013 Rule are due to HUD on August 24. By August 3, please send to Jennifer Schwartz any feedback for NCSHA to consider in its comments.

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