HUD to Propose Controversial Changes to Disparate Impact Regulations

August 5, 2019 at 10:09 am 1 comment

HUD will shortly be proposing major revisions to a 2013 Obama administration regulation that would make it much more difficult for homebuyers to prove that mortgage lenders have discriminated against them. Don’t start changing your policies anytime soon the reality is that these changes will be hugely controversial and will be challenged in court quicker then Christina El Moussa from Flip or Flop can get divorced, find a new husband, and start another show. Trust me she’s quick.

The draft was provided to politico and has not been formally proposed in the federal register.

Title VII of the civil rights act prohibits discrimination in the sale or rental of housing on the basis of race, color, religion, sex, disability, familiar status or national origin.The Department of Housing and Urban Development has responsibility for promulgating regulations to enforce this statute. Under the statute, intentionally discriminating against someone is clearly illegal. So, for example a lending policy, under which a bank or credit union explicitly does not provide loans to African Americans who live in certain communities, would be a slam dunk case of intentional discrimination. But, what happens in the case of a lending policy or procedure which negatively impacts protected classes for  legitimate reasons. For example, if your credit union decides to raise the minimum credit scores for mortgage applicants it will by definition exclude individuals who would have otherwise qualify for a mortgage loan. It may even disproportionally impact minorities within your field of membership.

In 2013, HUD promulgated disparate impact regulations. Under the current approach the plaintiff must prove that a challenged practice caused or predictably will cause a discriminatory effect. If this burden is met the lender then has the burden of proving that the challenged practice is necessary to achieve one or more substantial and legitimate non-discriminatory purposes.

If HUD goes forward with this new proposal it will be more difficult for plaintiffs to prove discrimination based on the impact of a lenders practices. Under the proposed changes plaintiffs seeking to prove disparate impact discrimination will have to prove five elements. Plaintiffs would be obligated to prove that the challenged policy is “arbitrary artificial and unnecessary to achieve a valid interest or legitimate objective.” Only if this standard is met would a defendant have the obligation to demonstrate why the policy is legitimate. Second, the plaintiff would have to allege that there is a “robust causal link between the challenged policy or practice and the disparate impact;” thirdly plaintiffs would have to allege that the challenged policy or practice has an adverse effect on members of a protected class, presumably meaning that plaintiffs cannot prove discriminatory impact based on the experiences of a few individuals. Fourth, the plaintiffs would have to prove that the disparate impact is significant. Finally, plaintiffs would have to show that there is a direct plausible link between the alleged injury and the challenged practice.

 The bottom line is that if these regulations are implemented as proposed it will be extremely difficult for plaintiffs to bring discrimination claims on the disparate impact theory.


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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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