AND THAT’S FINAL

HUD publishes final rule reviving Discriminatory Effects Rule.

By Howard Bookstaff, Hoover Slovacek LLP, HAA General Counsel

HUD’S SECRETARY Marsha L. Fudge announced on March 17, that the discriminatory effect’s doctrine (which includes disparate impact and perpetuation of segregation) is a tool for addressing policies that necessarily cause systemic inequality in housing, regardless of whether they were adopted with discriminatory intent. The discriminatory effects rule has long been used to challenge policies that unnecessarily exclude people from housing opportunities including, among other things, criminal records policy. Accordingly, having a workable discriminatory effect standard is vital for the Biden-Harris Administration to accomplish its goal of creating a housing market that is free from both intentional discrimination, and policies and practices that have unjustified discriminatory effects.

On March 31, HUD published a final rule in the Federal Register, which became effective May 1, formally reinstating its 2013 Discriminatory Effects Rule. Although the final rule was previously adopted as a proposed rule and has been in effect, it’s important to note that this is now HUD’s final rule regarding discriminatory effects.

Background.

1. Title VIII of the Civil Rights Act of 1968, as amended, prohibits discrimination in the sale, rental or financing of dwellings and in other housing-related activities on the basis of race, color, religion, sex (including sexual orientation and gender identity), disability, familial status or national origin.

2. In 2013, HUD published a rule which formalized HUD’s long-held recognition of discriminatory effects liability under the Act and formalized a burden-shifting test for determining whether a given practice has an unjustified discriminatory effect.

3. In 2015, the U.S. Supreme Court confirmed that the Act provides for discriminatory effects liability in a case styled Texas Department of Housing and Community Affairs v. Inclusive Communities Project.

4. In 2020, HUD published a final rule titled “HUD’s Implementation of the Fair Housing Act’s Disparate Impact Standard,” which among other things, removed the definition of discriminatory effects (in HUD’s opinion), added demanding pleading elements that made it far more difficult to initiate a case, altered the burden-shifting framework, created new defenses, and limited available remedies in disparate impact claims.

5. Prior to the effective date of the 2020 rule, the U.S. District Court for the District of Massachusetts issued a preliminary injunction in a case styled Massachusetts Fair House Center, et al v. HUD, staying HUD’s implementation and enforcement of the 2020 rule. Consequently, the 2020 rule never took effect, and the 2013 rule remained in effect.

6. On June 25, 2021, after considering the 2020 rule, HUD published a proposed rule reinstating the 2013 rule.

7. After considering the public comments HUD received, HUD in this final rule officially reinstates the 2013 rule.

In September 2021, in the “It’s the Law” ABODE article, we outlined HUD’s proposed discriminatory effects rule and the various burdens of proof in discriminatory effects cases. Since the rule now has become a final rule, let’s look again at what you can expect if you are claimed to have a policy or practice that has a discriminatory effect.

What is the final rule?

• Discriminatory Effect. A practice has a discriminatory effect where it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status or national origin.

• Legally Sufficient Justification. A legally sufficient justification exists where the challenged practice:

(i) is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests; and

(ii) those interests could not be served by another practice that has a less discriminatory effect.

A legally sufficient justification must be supported by evidence and may not be hypothetical or speculative.

• Burdens of Proof in Discriminatory Effects Cases.

Step One: The complaining party has the burden of proving that a challenge practice caused or predictably will cause a discriminatory effect.

Step Two: Once the complaining party satisfies its initial burden, the housing provider will have the burden of proving the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests of the housing provider.

Step Three: If the housing provider satisfies its burden of proof (as identified in “Step Two”), the complaining party may still prevail upon proving that the substantial, legitimate, nondiscriminatory interests supporting the challenged practice could be served by another practice that has a less discriminatory effect.

• Discriminatory Effects versus Intent. A demonstration that a practice is supported by a legally sufficient justification may not be used as a defense against a claim of intentional discrimination.

Review Your Policies.

All policies should be reviewed to determine whether any could actually or predictably result in a disparate impact on a group of persons in a protected class. Examples of policies that may be subject to disparate impact discrimination claims include criminal history screening policies and age restrictive policies.

• Criminal History Screening. On April 4, 2016, HUD published a guidance on the application of the Act’s standards to the use of criminal records by housing providers. In the guidance, HUD stated that African Americans and Hispanics are arrested, convicted and incarcerated at rates disproportionate to their share of the general population. HUD further stated that while having a criminal record is not a protected characteristic under the Act, criminal history-based restrictions on housing opportunities violate the Act if, without justification, their burden falls more often on renters or other housing market participants of once race or national origin over another.

On June 10, 2022, HUD published a memorandum to highlight the importance of applying principles of HUD’s 2016 guidance on the application of the Fair Housing Act’s standards to the use of criminal record by housing providers.

• Age restrictive rules. Age restrictive rules could be deemed discriminatory to the extent that they adversely impact persons that have familial status protected class. Rules restricting age may come up in connection with policies relating to swimming pools, fitness centers and other common areas, such as business centers.

Keep in mind that this does not mean that these policies are discriminatory. It only means that they could be scrutinized under a disparate impact analysis.

Determine Your Legally Sufficient Justification.

Once you determine which of your policies may actually or predictably result in a disparate impact on persons in a protected class, you should articulate your substantial, legitimate, nondiscriminatory interest in having that policy.

• Criminal history screening. You may have a number of legally sufficient justifications for not allowing persons convicted of a felony to reside at your property. You may feel that persons convicted of crimes may cause problems at your property and not be good residents. You may have reason to believe that persons convicted of crimes are more likely to cause damage and threaten the safety of others who live and work at the property.

• Age restrictive rules. Your legally sufficient justification for age restrictive swimming pool and fitness center rules may be related to the safety of the children and to prevent injuries. Age restricted rules for the business center may be related to controlling the conduct of persons in the business center and how they treat the business center equipment.

Can your legally sufficient justification be served by a policy that has a less discriminatory effect?

• Criminal history screening. With respect to your criminal history criteria, could your interest be served by a less discriminatory policy? In other words, would your interest still be served by allowing occupancy to persons convicted of certain crimes (such as misdemeanors) but not other crimes (such as felonies)? Would your interest still be served if you determined eligibility based on when the crime occurred?

HUD suggests having a screening policy that considers both the types of crimes and when the crimes occurred.

Although the identification of a less discriminatory policy will depend on the particulars of the criminal history or policy practice being challenged, HUD also suggests that an individualized assessment of relevant mitigation information beyond that contained in an individual’s criminal records is likely to have a less discriminatory effect than categorical exclusions that do not take such additional information into account. HUD suggests that relevant individualized evidence might include: (i) the facts or circumstances surrounding the criminal conduct; (ii) the age of the individual at the time of the conduct; (iii) evidence that the individual has maintained a good tenant history before or after the conviction or conduct; and (iv) evidence of rehabilitation efforts.

• Age restrictive rules. How about age restricted policies in the swimming pool, fitness center and other common areas, such as the business center? If you have these types of age restrictions, you should be able to articulate a legally sufficient justification for whatever age you choose.

The Texas Department of Health has revised its signage rules for swimming pools and spas. Under current Texas Department of Health Rules, each swimming pool and spa is required to have a sign which includes a statement that persons under the age of 14 must not be in the pool or spa without adult supervision. This clarifies that, from a security and health standpoint, your swimming pool rules should reflect the required language in the Texas Department of Health signage.

The same analysis should apply with respect to age restrictions in the fitness center or business center. With respect to the fitness center, your safety related concern may justify a similar age restriction. However, in the business center, an age-neutral policy that focuses on the conduct you do not want in the business center (such as vandalizing the equipment or viewing inappropriate material on computers) may be a less discriminatory alternative to avoid a potential disparate impact claim.

Keep in mind that the final rule is not new with respect to disparate impact analysis. However, since HUD is reestablishing its prior rule, there may be additional attention given to this type of discrimination complaint by fair housing agencies that monitor and investigate complaints. Consequently, it would be beneficial to examine your policies so that you can articulate your legally sufficient justification if a particular policy is ever questioned.