Proposed rule will make combating fair housing discrimination much harder

Fifty years ago, President Lyndon B. Johnson signed the federal Fair Housing Act with the goal to "guarantee a basic American right -- the right of a man to secure a home for his family regardless of the color of his skin." In 2020, that guarantee remains unfulfilled, and it faces serious attack from President Donald Trump's administration.

The administration has proposed rolling back the disparate impact rule in fair housing, which, if finalized, will make combating discrimination and segregation much harder by making it more difficult for attorneys to bring claims under this theory.

The Department of Housing and Urban Development's proposed rule would dramatically change the way the Fair Housing Act is enforced, undoubtedly leading to a more segregated and less inclusive America. That is why over 45,000 organizations and individuals, including the Western Center on Law & Poverty and the Law Foundation of Silicon Valley, submitted comments about the rule's proposed changes. The vast majority of commenters have asked the Trump administration not to move forward with the rule.

Disparate impact is discrimination that occurs when a facially neutral practice has a discriminatory effect on a protected class. Much of what we think of as overt discrimination has been replaced with more subtle forms of discrimination through seemingly neutral policies that exclude protected groups. Recent examples of cases brought under the disparate impact include:

• Occupancy standards that exclude families with children or individuals with disabilities, by restricting the number of people allowed to live in a unit together.

• The practice of targeting historically segregated minority neighborhoods for predatory loans using zip codes or other proxies.

• Landlord screening policies that exclude persons with criminal histories (this is particularly discriminatory since blacks and Latinos are incarcerated at disproportionate rates).

• Cities limiting construction of multi-family housing that is affordable for working-class people, a majority of whom are people of color.

Proving discrimination using disparate impact has become essential in civil rights enforcement. As described by Justice Anthony Kennedy in Texas DHCA v. Inclusive Communities Project (2015), "It permits plaintiffs to counteract unconscious prejudices and disguised animus that escape easy classification as disparate treatment. In this way disparate impact liability may prevent [discrimination] that might otherwise result from covert and illicit stereotyping."

Despite the importance of this tool, disparate impact cases are notoriously difficult to bring, especially for low-income plaintiffs. Disparate impact cases require significant investments in investigation and data collection to determine that a policy or practice has any differential effect on a protected class. For low-income households and legal services nonprofits who can't afford to bankroll extensive pre-filing investigation, this hurdle, on top of all the other pre-suit challenges, frequently means that meritorious cases will never see the inside of a courtroom.

HUD's proposed rule will make it even more onerous to plead disparate impact cases, to advance them past procedural challenges, and to overcome new, affirmative defenses. The proposed rule eliminates standards used to prove disparate impact claims since the U.S. Supreme Court in Griggs v. Duke Power Co. (1971) threw out the discriminatory use of intelligence tests in hiring and promotion. Instead of the long-standing burden-shifting structure since Griggs, (and affirmed in Inclusive Communities Project), the proposed rule adds a five-element test for plaintiffs at the pleading stage. The new five-part test essentially creates a near impossible standard for plaintiffs to survive a motion to dismiss at the 12(b) stage, part of the judicial process that is far beyond the control of HUD.

The proposed rule also creates entirely new defenses for discrimination, not based in any statute or case law. Part of the proposed rule allows a business entity to evade responsibility for discriminatory impacts if they use an algorithm to deny someone a housing opportunity. Algorithms are routinely used for housing decisions, many of which reflect and maintain existing disparities in the housing market. Much like the reasoning in Griggs, seemingly neutral tests or formulas, like "algorithms," end up having a disparate impact on people of color.

Think of it this way: Because of redlining and other historical disadvantages, people of color have been explicitly and systematically excluded from credit-building opportunities compared to white counterparts. Algorithms that base loan decisions on existing creditworthiness perpetuate racial disparities in access to loans, meaning historical disadvantages continue and deepen. HUD's proposal would shield actors who rely on these algorithms from liability despite the fact that these algorithms and policies disproportionately exclude people of color from accessing credit and homeownership opportunities.

Discrimination of all types continues to cause direct harm to victims in the forms of emotional distress and limitations on opportunity. But further, discrimination in housing reinforces our country's patterns of segregation, which separates too many people of color from access to resources, and otherwise contributes to racial inequality in education, wealth, income, health and economic mobility. These harms are felt deeply here in California.

If this rule moves forward, it will allow the Trump administration to roll back other protections. Victims of discrimination in employment and education have also utilized disparate impact theory to address systemic harms. These areas of law borrow significantly from each other, with many advocates and courts pointing across subjects for the persuasive authority of similar discrimination cases. Even though HUD's proposed rule specifically targets housing discrimination enforcement, we are extremely concerned that this will have serious impacts on the interpretation of disparate impact with other civil rights claims.

HUD's proposed rule on disparate impact is one of many other administrative rule changes aimed at rolling back housing rights that remain in the administrative review process. HUD has proposed rule changes that would roll back Obama-era guidance for local jurisdictions in affirmatively furthering fair housing, reduce protections for transgender persons in homeless shelters, and eliminate housing subsidies for mixed-immigration status households. In these ways, HUD, the very organization tasked with ending housing discrimination, is now making it more difficult to bring discrimination claims. These rules limit liability for landlords, banks, and insurance companies in what amounts to clear self-dealing by a president with significant residential real estate holdings. The rule changes will increase the difficulty for people trying to find and create homes by allowing housing-related businesses like Trump's to unfairly limit where and how people can live.

However, the proposed disparate impact rule is not yet final. The public comment period has closed, but there are still opportunities for people to either participate in meetings with the Office of Information and Regulatory Affairs to voice concerns, or to provide pro bono or financial support to local legal service offices as they fight the rule's adoption.

California's strong state-wide civil rights protections remain in place, but it is essential that we continue to fight the federal administration's attack on fair housing laws, which are fundamental tools in combatting racial segregation and promoting our core values. We encourage all members of the legal profession to remain aware of these proposed changes to the disparate impact theory because they constitute a threat to the rule of law that poses particular harm to the most marginalized members of our society. Join us in opposing the final adoption of this proposed rule and protecting civil rights. 