HUD to Propose Reinstating 2013 ‘Disparate Impact’ Rule

The Department of Housing and Urban Development last week proposed to recodify its 2013 discriminatory effects rule. If finalized, it would overturn HUD’s September 2020 final rule that conformed HUD’s 2013 disparate impact rule with the Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, which recognized disparate impact analysis to demonstrate discrimination claims under the FHA but added key limitations to ensure the burden of proof in disparate impact cases is with the plaintiffs. The 2020 final rule never took effect because a Massachusetts federal district court judge stayed the rule pending consideration of consumer advocates’ challenge to the rule as arbitrary and capricious.

Under the 2013 rule that HUD proposes to recodify, the burden shifts to the defendant to prove that its policy or practice is necessary to achieve a substantial, legitimate, nondiscriminatory interest, if the plaintiff first proves that the policy or practice caused or predictably will cause a disparate impact on a protected group.

In contrast, the 2020 final rule added five elements that must be included in disparate impact claims under the FHA. ABA and other trade groups had supported the 2020 final rule, which they noted struck the “appropriate balance” envisioned by Inclusive Communities. The association is closely following these developments and will provide feedback to HUD on this latest proposal. Comments are due Aug. 26.