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HUD to Reconsider Disparate Impact Rule

On June 20, 2018, the Department of Housing and Urban Development (“HUD”) published an advance notice of proposed rulemaking (“ANPR”) seeking comment on proposed changes to HUD’s 2013 regulations concerning the Fair Housing Act’s “Disparate Impact Rule” (the “Rule”).  The changes are primarily intended to ensure the Rule is consistent with the U.S. Supreme Court’s 2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.  The proposed rulemaking is also driven in part by the Department of the Treasury’s recommendation in 2017 for HUD to reconsider application of the Rule as it relates to the insurance industry.

The Fair Housing Act (42 U.S.C. § 3601) prohibits discrimination on the basis of race, color, religion, sex, disability, familial status, or the presence of children when individuals are renting, buying, or securing financing for any housing.  In 2013, following a notice and comment period, HUD published the Disparate Impact Rule (24 C.F.R. § 100.500), which creates liability for covered entities based on whether their business practices have a discriminatory effect, even if those practices were not motivated by discriminatory intent.

HUD supplemented the Rule in 2016 with responses to insurance industry requests for categorical exemptions or safe harbors from liability for insurance practices.  In its supplement, HUD determined that such exemptions for insurers were “unworkable and inconsistent,” and that application of the Rule to insurance practices should be addressed on a case-by-case basis.

HUD’s request for comment earlier this week follows the Supreme Court’s 2015 decision in Inclusive Communities.  Although the Supreme Court’s ruling – that disparate impact claims were cognizable under the Fair Housing Act – did not rely on the Rule, HUD opted to review and evaluate potential changes to the Rule to better align it with the Court’s decision.

HUD is also seeking comment in response to the Department of Treasury’s 2017 recommendation that it reconsider the use of the Rule.  Specifically, Treasury requested that HUD examine whether the Rule would have a “disruptive effect on the availability of homeowners insurance and whether the rule is reconcilable with actuarially sound principles.”

In addition to seeking comments on “appropriate changes” to the Rule, HUD identified questions it is particularly interested in addressing, including:

  • Whether the Rule should clarify the requirements for “stating a prima facie case under Inclusive Communities” and other rulings;
  • Whether the Rule should provide defenses or safe harbors to claims of disparate impact liability “(such as, for example, when another federal statute substantially limits a defendant’s discretion or another federal statute requires adherence to state statutes)”; and
  • If there are revisions to the Rule that could reduce uncertainty, decrease regulatory burden, or assist the public in determining what is lawful.

Public comments on the Rule are due no later than August 20, 2018.

© 2019 Covington & Burling LLP


About this Author

Weiss Nusraty, Covington, litigation lawyer

Weiss Nusraty advises clients on cybersecurity and national security matters, including cyber and data security incident response, and government and internal investigations.

Mr. Nusraty joined Covington from the U.S. Department of the Treasury where he served as a Policy Advisor within the Office of Terrorism and Financial Intelligence. In that role, Mr. Nusraty developed and implemented strategies on a range of matters, including financial sanctions, anti-money laundering and counter-terrorist financing. He worked closely with the intelligence community and...