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Reinstatement of HUD's Discriminatory Effects Standard rule (2023)

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The Reinstatement of HUD's Discriminatory Effects Standard rule is a significant rule issued by the U.S. Department of Housing and Urban Development (HUD) effective May 1, 2023, that recodified a 2013 rule establishing a discriminatory effects standard pursuant to the Fair Housing Act. The rule also rescinded a 2020 rule issued by the Trump administration that amended the 2013 rule by altering the discriminatory effects standard.[1]

HIGHLIGHTS
  • Name: Reinstatement of HUD's Discriminatory Effects Standard
  • Agency: Office of the Assistant Secretary for Fair Housing and Equal Opportunity, U.S. Department of Housing and Urban Development
  • Action: Final rule
  • Type of significant rule: Other significant rule

    • Timeline

    The following timeline details key rulemaking activity:

    Background

    The U.S. Department of Housing and Urban Development (HUD) issued a rule in the Federal Register on February 15, 2013, to establish a standard for determining discriminatory effects pursuant to the Fair Housing Act. HUD issued the regulations to align with prior judicial decisions which "had long found that discrimination under the Act may be established through evidence of discriminatory effects, i.e., facially neutral practices with an unjustified discriminatory effect," according to a publication in the Federal Register. The rule established what the agency referred to as a three-part burden-shifting test for determining the discriminatory effect of a certain practice. The test included the following steps:[1][3]

    “ (1) The plaintiff or charging party is first required to prove as part of the prima facie showing that a challenged practice caused or predictably will cause a discriminatory effect; (2) if the plaintiff or charging party makes this prima facie showing, the defendant or respondent must then prove that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests of the defendant or respondent; and (3) if the defendant or respondent meets its burden at step two, the plaintiff or charging party may still prevail by proving that the substantial, legitimate, nondiscriminatory interests supporting the challenged practice could be served by another practice that has a less discriminatory effect.[1][4] ”


    The U.S. Supreme Court on June 25, 2015, ruled in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. that the Fair Housing Act covers not only intentional housing discrimination but also practices that have a discriminatory effect.[1][5]

    Discriminatory effects standard under the Trump administration

    In response to the ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc, HUD issued a proposed rule on August 19, 2019, proposing amendments to the 2013 rule which the agency determined were a necessary result of the 2015 SCOTUS decision.[1]

    The proposed changes were published in a final rule on September 24, 2020, despite concerns raised by commenters "that the proposed changes did not align with case law," according to a publication in the Federal Register. The 2020 rule removed the definition of discriminatory effect and amended the framework for the burden-shifting test.[1]

    Three lawsuits were filed in federal courts challenging the 2020 rule, arguing that the changes violated the Fair Housing Act. The U.S. District Court for the District of Massachusetts issued a preliminary injunction on October 25, 2020, in Massachusetts Fair Housing Ctr. v. HUD, which prevented the 2020 rule from taking effect. The district court ruled that the 2020 rule did not align with case law.[1]

    Discriminatory effects standard under the Biden administration

    President Joe Biden (D) issued a presidential memorandum on January 26, 2021, which directed HUD to review the 2020 rule and its amendments to the 2013 rule and take necessary steps to implement the requirements of the Fair Housing Act.[1]

    In response to Biden's memorandum, HUD reviewed the 2020 rule and issued a proposed rule on June 25, 2021, aimed at recodifying the 2013 rule and rescinding the 2020 rule. HUD argued in the final rule that "the 2013 Rule set a more appropriately balanced standard for pleading, proving, and defending a fair housing case alleging that a policy or practice has a discriminatory effect."[1]

    Summary of the rule

    The following is a summary of the rule from the rule's entry in the Federal Register:

    “ The Fair Housing Act prohibits discrimination in the sale, rental, or financing of dwellings and in other housing-related activities. This prohibition extends to practices with an unjustified discriminatory effect, regardless of whether there was an intent to discriminate. In 2013, HUD published a rule which formalized a burden-shifting test for determining whether a given practice has an unjustified discriminatory effect. In 2020, HUD published a rule that would have altered the standards set forth in the 2013 rule. However, a preliminary injunction prevented the 2020 rule from ever going into effect. On June 25, 2021, HUD published a proposed rule to recodify the 2013 rule. After considering public comments, HUD in this final rule reinstates and maintains the 2013 rule and rescinds the 2020 rule.[1][4] ”

    Summary of provisions

    The following is a summary of the provisions from the rule's entry in the Federal Register:[1]

    “ HUD stated in the proposed rule that it believed that the 2013 Rule would be preferable to the 2020 Rule. It believed the 2013 Rule would be more consistent with judicial precedent construing the Fair Housing Act, including Inclusive Communities, as well as the Act's broad remedial purpose. Based on its experience interpreting and enforcing the Act, HUD also believed the 2020 Rule, if put into effect, threatened to limit the effectiveness of the Act's discriminatory effects doctrine in ways that are inconsistent with the doctrine continuing to play its critical role in 'moving the Nation toward a more integrated society.' Furthermore, HUD stated that it believed that the 2013 Rule provided clarity, consistency, and a workable, balanced framework, recognized by the Supreme Court, under which to analyze discriminatory effects claims, and under which HUD could better ensure it has the tools to further its 'duty to administer the Act [ ] including by preventing practices with an unjustified discriminatory effect.'[4] ”

    Significant impact

    See also: Significant regulatory action

    Executive Order 12866, issued by President Bill Clinton (D) in 1993, directed the Office of Management and Budget (OMB) to determine which agency rules qualify as significant rules and thus are subject to OMB review.

    Significant rules have had or might have a large impact on the economy, environment, public health, or state or local governments. These actions may also conflict with other rules or presidential priorities. Executive Order 12866 further defined an economically significant rule as a significant rule with an associated economic impact of $100 million or more. Executive Order 14094, issued by President Joe Biden (D) on April 6, 2023, made changes to Executive Order 12866, including referring to economically significant rules as section 3(f)(1) significant rules and raising the monetary threshold for economic significance to $200 million or more.[1]


    The text of the rule states that OMB deemed this rule significant, but not economically significant:

    “ This rule was determined to be a 'significant regulatory action' as defined in section 3(f) of Executive Order 12866 (although not an economically significant regulatory action, as provided under section 3(f)(1) of the Executive Order).[4] ”

    Text of the rule

    The full text of the rule is available below:[1]

    Responses

    The following section provides a selection of responses to the rule issued by HUD to reinstate the discriminatory effects standard.

    The Fair Housing Institute published an article aiming to explain the effects of the HUD rule and supporting the reinstatement of the discriminatory effects standard:[6]

    “ The reinstatement of HUD’s Discriminatory Effects Rule marks a significant step forward in the ongoing fight against housing discrimination. Property management professionals now have a renewed responsibility to ensure their policies and practices comply with the guidelines set forth by this rule. By understanding the nuances of disparate impact and taking proactive measures to eliminate any unintentional discriminatory effects, property managers can create environments that promote equal access to housing opportunities for all individuals.[4] ”


    Representatives for the Public Interest Law Center, a Philadelphia, Pennyslvania-based nonprofit, submitted a response to HUD in support of the proposed rule, citing its affect on what the group refers to as housing discrimination:[7]

    “ [T]he Public Interest Law Center welcomes and strongly supports HUD’s proposed return to the 2013 Rule’s demonstrably workable and balanced framework, which served to effectuate the central purpose of the Fair Housing Act – eradicating discrimination and segregation in housing. As the Supreme Court recognized in Inclusive Communities, the FHA was enacted against a legacy of segregative practices, whose 'vestiges remain today, intertwined with the country’s economic and social life.' We see that still in readily apparent ways here in Philadelphia. As such, we especially welcome the Proposed Rule’s explicit reaffirmation of the perpetuation of segregation as a distinct form of discriminatory effect. The Proposed Rule will ensure that the Fair Housing Act is once again a viable law to combat housing discrimination – both intentional discrimination and practices that have discriminatory or segregative consequences.[4] ”


    The American Financial Services Association (AFSA) sent a letter to HUD expressing their concerns with the rule, arguing that the 2013 rule did not align with case law because it did not offer safeguards to defendants or include a causality requirement, among other reasons. AFSA argued that the 2013 rule should not be reinstated:[8]

    “ HUD’s 2013 Disparate Impact Rule does not align with binding Supreme Court precedent; and it would be incongruous to return to the use of an outdated rule that was finalized two years before the Supreme Court’s landmark Inclusive Communities decision.[4] ”


    The American Bankers Association sent a letter to HUD arguing that reinstating the 2013 rule would violate the SCOTUS decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. The association claimed that the 2013 rule did not address artificial, arbitrary, and unnecessary limitations on disparate impact claims or address requirements of the pleading stage which they argued were required by Inclusive Communities:[9]

    “ Recodifying the 2013 Rule would reinstate a standard that predates and is inconsistent with binding Supreme Court precedent. Inclusive Communities is the law of the land, and all stakeholders need a durable disparate-impact rule that is aligned with the decision. Each new administration’s initiation of rule changes creates uncertainty for industry members and fair housing advocates alike, and undermines the fundamental statutory goal of expanding credit opportunity and availability.[4] ”

    See also

    External links

    Footnotes

    1. ↑ 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 Federal Register, "Reinstatement of HUD's Discriminatory Effects Standard," March 31, 2023
    2. ↑ 2.0 2.1 Federal Register, "Reinstatement of HUD's Discriminatory Effects Standard," June 25, 2021
    3. ↑ Federal Register, "Implementation of the Fair Housing Act's Discriminatory Effects Standard," February 15, 2023
    4. ↑ 4.0 4.1 4.2 4.3 4.4 4.5 4.6 4.7 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
    5. ↑ Oyez, "Texas Dept. of Housing and Community Affairs v. Inclusive Communities Project, Inc." accessed November 17, 2023
    6. ↑ Fair Housing Institute, "HUD Reinstates Discriminatory Effects Rule — Explained," accessed November 20, 2023
    7. ↑ The Public Interest Law Center, "Our letter in support of HUD's proposed reinstatement of the disparate impact standard," August 24, 2021
    8. ↑ American Financial Services Association, "Re: Reinstatement of HUD's Discriminatory Effects Standard; Document No. FR-6251-P-01," August 24, 2021
    9. ↑ American Bankers Association, "Comments of the American Bankers Association, Consumer Bankers Association, Independent Community Bankers of America, and Mortgage Bankers Association regarding the proposal to recodify the 2013 regulation titled Implementation of the Fair Housing Act's Discriminatory Effects Standard," accessed November 20, 2023
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