Consumer Finance Insights
November 6, 2014

D.C. District Court Strikes Down HUD’s Disparate Impact Rule

On November 3, 2014, Judge Richard J. Leon of the U.S. District Court for the District of Columbia struck down the U.S. Department of Housing & Urban Development’s (HUD) March 2013 much-discussed disparate impact rule.  In American Insurance Association, et al. v. United States Department of Housing & Urban Development, et al., Case No. 1:13-cv-00966-RJL (D.D.C.), the court held that HUD had exceeded its authority to promulgate rules implementing the Fair Housing Act (FHA) when it issued the rule because the FHA does not contain language that expressly prohibits practices that result in a disparate impact “in the absence of discriminatory intent.”

Instead, the Court reasoned, the Fair Housing Act “prohibits disparate treatment only, and … [HUD], therefore, exceeded [its] authority” under the Administrative Procedures Act, 5 U.S.C. §§ 551, et seq., by promulgating a rule that allowed FHA claims based on disparate impact. Using a disparate impact theory, a plaintiff may establish liability for actions performed without any intent to discriminate simply because the actions may have a disproportionate effect on protected groups.

Judge Leon compared the language in the Fair Housing Act to language in other civil rights statutes that the U.S. Supreme Court already has concluded do not permit disparate impact claims in his ruling. Judge Leon also noted that, if it intended to allow disparate impact claims under the FHA, Congress knew how to include language authorizing such “affects-based” claims.

Judge Leon was especially critical of HUD in his opinion that HUD’s rule was not entitled to deference, noting that, given the absence of clear language or congressional intent to permit disparate impact claims, HUD’s rule was calculated, and served as “another example of an Administrative Agency trying desperately to write into law that which Congress never intended to sanction.”

The Supreme Court will weigh in on this issue soon, as Judge Leon noted in his opinion.  Whether the Fair Housing Act supports disparate impact claims is currently pending on writ of certiorari to the U.S. Supreme Court in Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc., Case No. 13-1371.

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