Supreme Court OKs Disparate Impact Analysis under Fair Housing Act

The U.S. Supreme Court ruled today that disparate impact claims are enforceable under the Fair Housing Act. The decision in the case — Texas Department of Housing and Community Affairs v. Inclusive Communities Project — included a note of caution that statistical disparities only impose liability if plaintiffs can connect it to a defendant’s policy causing the disparity in order to “protect defendants against abusive disparate-impact claims.”

The 5-4 decision, written by Justice Anthony Kennedy, held that two previous and similar civil rights laws proceeding the Fair Housing Act explicitly authorized disparate impact claims and that case law interpreting those statutes strongly support a similar analysis for the Fair Housing Act. It also held that Congress “ratified such liability” in its 1988 amendments to the law.

However, the opinion foreclosed the use of disparate impact to impose liability “solely on a showing of a statistical disparity.” The court added that “[a] disparate-impact claim relying on a statistical disparity must fail if the plaintiff cannot point to a defendant’s policy or policies causing that disparity.” It instructed lower courts to “examine with care whether a plaintiff has made out a prima facie showing of disparate impact” and to “avoid interpreting disparate-impact liability to be so expansive as to inject racial considerations into every housing decision.”

“ABA and our members are strong advocates for fair lending and enforcement of the Fair Housing Act,” commented ABA President and CEO Frank Keating. “Disparate impact theory, however, is not the right tool to achieve fairness and prevent discrimination in lending. This approach can have unintended consequences, such as causing financial institutions to shrink their operations rather than risk litigation, hurting the very groups it is intended to help.”

The case centered around Texas’ allocation of federal low-income housing tax credits in Dallas. The respondent, a Dallas-based nonprofit, argued that by “disproportionately” allocating the tax credits to minority neighborhoods, the tax credits had a disparate impact on minorities and thus ran afoul of the Fair Housing Act.