On March 17, 2023, in honor of Fair Housing Month, the U.S. Department of Housing and Urban Development (“HUD”) announced it would reinstate the 2013 discriminatory effects rule (the “2013 Rule”) (see 24 C.F.R. § 100.500 (2014)) under the Fair Housing Act. In doing so, HUD will also officially rescind its 2020 rule governing Fair Housing Act disparate impact claims (the “2020 Rule”) (see 24 C.F.R. § 100.500 (2020)). While HUD believes the 2013 Rule is more consistent with how the Fair Housing Act has been applied in the courts, in its announcement, HUD failed to reference the U.S. Supreme Court’s 2015 ruling in Tex. Dep't of Hous. & Cmty. Affairs v. Inclusive Communities Project, Inc., 576 U.S. 519 (2015), which was one of the primary motivators behind the 2020 Rule.
The final rule re-adopting the 2013 Rule was published March 31, 2023, in the Federal Register. The effective date is May 1, 2023.
The Fair Housing Act (42 U.S.C. § 3601 et seq.) prohibits discrimination in housing and housing-related services because of race, color, religion, national origin, sex (including sexual orientation and gender identity), familial status, and disability. This includes a general prohibition against discrimination in the sale or rental of housing, in “residential real estate-related transactions,” and the provision of brokerage services. Further, the discriminatory effects doctrine, which includes disparate impact, can extend Fair Housing Act protections to policies that result in discrimination—even if such policies were not adopted with discriminatory intent. For example, 42 U.S.C. § 3605(a) provides: “It shall be unlawful for any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin” (emphasis added).
As background, the 2013 Rule was an attempt to, at that time, codify then-relevant case law under the Fair Housing Act’s discriminatory effects test. Under the 2013 Rule, the discriminatory effects framework focused on whether a policy had a discriminatory effect on a protected class, and if so, assessed whether such a policy was necessary to achieve a substantial, legitimate, non-discriminatory interest, or if a less discriminatory alternative could serve that same interest. For the Rule 2013 analysis, a practice has a discriminatory effect where it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin. 24 C.F.R. § 100.500(a) (2014). Naturally, if a less-intrusive option is available, such an option would prevail over a more intrusive one.
The 2020 Rule changed this analysis by adding new pleading and proof requirements, as well as new defenses, all fashioned upon the U.S. Supreme Court’s ruling in Inclusive Communities. However, in Mass. Fair Housing Ctr. v. HUD, 496 F. Supp. 3d 600 (D. Mass. 2020), the court stayed the 2020 Rule prior to implementation on the basis that development of the rule did not meet the requirements of the Administrative Procedure Act. As such, the 2013 Rule remained in effect, and following the 2020 election (which ushered in a new presidential administration), the 2020 Rule was never implemented.
Regarding the discriminatory effects doctrine and disparate impact, under the 2013 Rule, a legally sufficient justification:
[E]xists where the challenged practice: (i) Is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests of the respondent, with respect to claims brought under 42 U.S.C. § 3612, or defendant, with respect to claims brought under 42 U.S.C. §§ 3613 or 3614; and (ii) Those interests could not be served by another practice that has a less discriminatory effect.
(24 C.F.R. § 100.500(b)(1) (2014))
[a] legally sufficient justification must be supported by evidence and may not be hypothetical or speculative. The burdens of proof for establishing each of the two elements of a legally sufficient justification are set forth in paragraphs (c)(2) and (c)(3) of this section.
(24 C.F.R. § 100.500(b)(2) (2014))