A federal judge in Massachusetts has issued a preliminary injunction stopping the U.S. Department of Housing and Urban Development (HUD) from implementing a new rule that would have established a higher threshold for bringing housing discrimination claims under the Fair Housing Act. The new rule would have gone into effect Monday.
Last month, on Sept. 4, HUD finalized a new rule for its implementation of the Fair Housing Act’s “disparate impact” standard. The 2013 Obama-era disparate impact rule was meant to prevent discrimination against protected classes under policies that appear neutral on their face but nonetheless have a disproportionately adverse effect on minorities or perpetuate segregation without justification, regardless of their intent.
A slew of housing and civil rights groups slammed the new rule as an attack on the Fair Housing Act. On Sept. 28, fair housing organizations Massachusetts Fair Housing Center and Housing Works Inc. filed a lawsuit against HUD and its secretary, Ben Carson, challenging the Trump administration’s weakening of the disparate impact standard. On Oct. 22, other fair housing groups filed two other, similar suits seeking to vacate the new rule.
“The 2020 Rule undermines the ability of victims of housing and mortgage lending discrimination to pursue disparate impact claims under the Fair Housing Act … by introducing novel pleading and proof requirements that will be virtually impossible to meet, and creating broad new defenses to liability, contrary to the language and intent of the FHA and decades of practice, both at HUD and in the courts,” attorneys for MFHC and Housing Works argued in their complaint.
“The ability to bring disparate impact claims to root out and eliminate subtle, disguised or ignorant discrimination on the basis of race, color, religion, sex, disability, familial status or national origin is central to the FHA’s structure and purpose to eradicate systemic housing discrimination and create inclusive communities.”
HUD proposed an update to the disparate impact rule in August 2019, which outlined a five-step threshold for plaintiffs to prove unintentional discrimination and give defendants more guidance on how to rebut the claims. Activists at the time argued the updated guidance would make it easier for businesses and landlords to discriminate and harder for tenants to bring housing discrimination suits.
HUD, meanwhile, argued that the changes to the disparate impact rule were aimed at providing legal clarity and bringing the disparate impact rule more in line with a 2015 Supreme Court ruling. In that 2015 ruling in the case of Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc., the court upheld disparate impact but set vague limitations on applying the rule.
Under the new guidance, plaintiffs would have to establish a link that the practice in question is “arbitrary, artificial and unnecessary” and establish a robust link between the practice and impact. It would further require the plaintiff to prove the practice would have an impact on an entire protected class and not just an individual member of a protected class. The final two steps would require the plaintiffs to prove the disparity is significant, and for them to show that their alleged injury is directly caused by the challenged practice.
Whereas previously plaintiffs could show that another practice with a less discriminatory effect could serve the defendant’s legitimate interests, the new rule requires plaintiffs to prove that that other practice not only exists, but serves those interests “in an equally effective manner without imposing materially greater costs on, or creating other material burdens for, the defendant.”
“If the 2020 Rule is allowed to take effect, the vitally important remedial purposes of the FHA will be seriously undermined. Victims of housing and lending discrimination will face unreasonably high barriers, erected by HUD to deter the pursuit of valid disparate housing claims, and fair housing advocates such as the Plaintiffs will be stripped of an essential tool they have relied on for decades in the continuing fight against segregated housing,” the Sept. 28 complaint said.
“By making it nearly impossible for a victim of housing or lending discrimination to plead and prove their case, the 2020 Rule will allow perpetrators of housing and lending discrimination to act with impunity, defeating the central goal of the FHA.”
In his Oct. 25 order, Judge Mark G. Mastroianni of the U.S. District Court of Massachusetts, said the plaintiffs had shown” a substantial likelihood of success on the merits” in regards to their claim that the new rule is “arbitrary and capricious” and therefore violates the Administrative Procedure Act.
“There can be doubt that the 2020 Rule weakens, for housing discrimination victims and fair housing organizations, disparate impact liability under the Fair Housing Act,” Mastroianni wrote. “It does so by introducing new, onerous pleading requirements on plaintiffs, and significantly altering the burden-shifting framework by easing the burden on defendants of justifying a policy with discriminatory effect while at the same time rendering it more difficult for plaintiffs to rebut that justification.”
“In addition, the 2020 Rule arms defendants with broad new defenses which appear to make it easier for offending defendants to dodge liability and more difficult for plaintiffs to succeed. In short, these changes constitute a massive overhaul of HUD’s disparate impact standards, to the benefit of putative defendants and to the detriment of putative plaintiffs (and, by extension, fair housing organizations, such as MFHC).”
HUD’s argument that the changes were meant to provide greater clarity “appear arbitrary and capricious,” he added, because “its new and undefined terminology, altered burden-shifting framework, and perplexing defenses accomplish the opposite of clarity.”
His order postpones the effective date of the new rule until there is a final judgment on the plaintiffs’ claims.
HUD did not immediately respond to a request for comment on the court’s order, but did respond to similar lawsuits filed on Oct. 22. In an emailed statement, a HUD spokesperson told Inman: “The suits ignore the plain text of controlling Supreme Court precedent and well-established doctrine of administrative law.”
On Oct. 22, the National Fair Housing Alliance, Fair Housing Advocates of Northern California, the NAACAP Legal Defense & Educational Fund and lender consulting firm BLDS filed a lawsuit against HUD in the U.S. District Court for the Northern District of California. On the same date, fair housing organizations Open Communities Alliance and SouthCoast Fair Housing sued HUD in the U.S. District Court for the District of Connecticut.
Both lawsuits argue that the new rule is contrary to law in violation of the Administrative Procedure Act, in part because it “unlawfully eliminates perpetuation of segregation as an independent basis of liability.”
In their complaint, attorneys for Open Communities Alliance and SouthCoast argued that the new rule “would eviscerate the federal Fair Housing Act’s discriminatory effects standard and thereby set the clock back a half century in the fight for fair housing in the United States.”
The groups argue that the disparate impact standard has been a crucial tool for challenging structural discrimination, including “exclusionary zoning ordinances that prevent the development of affordable housing in predominantly white suburbs; public housing authority policies that prevent people of color from obtaining Housing Choice [Section 8] Vouchers in surrounding suburbs; and landlord policies of evicting victims for domestic violence occurring in their home, including women tenants who are survivors of domestic violence.”
“If organizations like Plaintiffs Open Communities Alliance and SouthCoast Fair Housing no longer have a reasonable prospect of success in bringing these claims, the societal costs and consequences will be monumental,” the complaint said.
Similarly, attorneys for the NFHA wrote that the organization works with banks and insurers to avoid unnecessary discriminatory impact and that the incentive for these companies to work with the NFHA “will be gone or largely curtailed” because of the new rule.
“The central tenet of disparate-impact law under the Act has always been that a public or private entity must adopt an available alternative to a policy or practice that has discriminatory effect, so long as the alternative can satisfy the entity’s legitimate needs with less discriminatory effect. This rule does not require a business to sacrifice legitimate needs, like a bank’s need to accurately assess the likelihood that an applicant will repay a mortgage loan; it only requires the bank to base policies on legitimate needs and meet them in the least discriminatory manner reasonably available,” attorneys for NFHA wrote.
“It does not require banks to ignore relevant considerations like unequal incomes or credit scores; it only requires a company to avoid considerations that disproportionately harm members of protected classes unnecessarily.”
NFHA has invested in technology that will allow companies to “test their predictive models for discriminatory impact and, where found, determine whether less discriminatory alternatives are available,” the complaint said. “The effectiveness of this ‘debiasing sandbox’ will be much reduced because companies will no longer be incentivized to use it by the prospect of disparate-impact liability.”
Read the judge’s preliminary injunction order:
