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HUD Proposes Revival of Discriminatory Effects Rule. Review Your Policies Today.

ON JUNE 25, 2021, Housing and Urban Development Secretary Marcia L. Fudge stated:

“We must acknowledge that discrimination in housing continues today and that individuals, including people of color and those with disabilities, continue to be denied equal access to rental housing and homeownership. It is a new day at HUD – and our Department is working to lift barriers to housing and promote diverse, inclusive communities across the country.”

In 2020, HUD published a disparate impact rule. Ultimately, the 2020 rule never took effect. After reconsidering the 2020 rule, HUD now also proposes bringing back the 2013 discriminatory effects rule they published in 2013.

According to HUD, under the 2013 rule, the discriminatory effects framework was straightforward: A policy that had a discriminatory effect on a protected class was unlawful if it did not serve a substantial, legitimate, nondiscriminatory interest or if a less discriminatory alternative could also serve that interest.

The 2020 rule complicated that analysis by adding new pleading requirements, new proof requirements and new defenses, all of which made it harder to establish that a policy violates the Fair Housing Act. HUD now proposes to return to the 2013 rule’s straightforward analysis.

HUD published a proposed rule on June 25, which restores the 2013 discriminatory effects rule. It remains open to public comment through August 24. Although the change is not yet in effect, it is likely to occur. Let’s take a look at the rule purposed on June 15 and how it might affect your policies and procedures.

Liability Under the June 25 Proposed Rule

The proposed rule states that liability 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. The practice may still be lawful if supported by a legally sufficient justification.

Note the following definitions:

• 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 challenged 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 more substantial, legitimate, nondiscriminatory interests of the housing provider.

Step Three:

- If the housing provider satisfies its burden of proof (as identified above 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 Effect versus Intent:

A demonstration that a practice is supported by 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. For example, if you have a policy that no person convicted of a crime would be eligible for occupancy, could that be subject to scrutiny under the disparate impact rule?

On April 4, 2016, HUD published a guidance on the application of the Fair Housing 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 one race or national origin over another.

Another example would be any policies that affect minors. To the extent that you have a policy that singles out minors as opposed to all persons, that policy could have an adverse impact on families with children (who would be covered by the familial status protected class).

Keep in mind that this does not mean that these policies are discriminatory. It only means that they should 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.

Your legally sufficient justification for not allowing persons convicted of a felony to reside at your property may be that you feel persons convicted of crimes may cause problems at your property and not be good residents. Your legally sufficient justification for singling out children with respect to swimming in the pool may be related to the safety of those children and to prevent injuries in the pool.

• Can Your Legally Sufficient Justification Be Served by a Policy That has a Less Discriminatory Effect?

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?

With respect to your policy related to minors in the pool, are your safety related concerns served by limiting the age under which the person is required to have supervision in the pool? Do you have the same concern with a 17 year old that you would with a 10 year old?

Keep in mind that the proposed 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 under the Fair Housing Act. 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.

Want to read more legal news from Howard? See previous issues of ABODE online at http://issuu.com/haa_abode.