Disparate impact reconsideration comments

August 20, 2018

Regulations Division, Office of General Counsel
Rules Docket Clerk
Department of Housing and Urban Development
451 Seventh Street SW, Room 10276
Washington, D.C. 20410-0001

Re: Docket No. FR-6111-A-01

Advanced Notice of Proposed Rulemaking
Reconsideration of HUD’s Implementation of Fair Housing Act’s Disparate Impact Standard


Dear Assistant Secretary Farias:

On behalf of the National Community Reinvestment Coalition (NCRC) and the undersigned organizations thank you for the opportunity to comment on the Department of Housing and Urban Development’s (HUD’s) advanced notice of proposed rulemaking on the reconsideration of HUD’s implementation of the Fair Housing Act’s disparate impact standard. NCRC’s mission for over 25 years has been to create opportunities for people and communities to build and maintain wealth. NCRC members include community reinvestment organizations, community development corporations, local and state government agencies, faith-based institutions, fair housing and civil rights groups, minority and women-owned business associations, housing counselors, and social service providers from across the nation. One manner in which NCRC and its members help to create opportunities for wealth is by working to eliminate segregation and discrimination practices, which result in economic inequality. An important aspect of NCRC’s ability to ensure economic fairness and equal access to housing, credit, capital, and banking services is the application of the disparate impact doctrine to combat practices that appear neutral on their face, but result in in discriminatory effects on protected classes.

HUD’s mission is to “create strong, sustainable, inclusive communities and quality affordable housing for all”.[1] NCRC commends HUD’s previous recognition that policies and practices that result in a disparate impact are detrimental to the wellbeing of communities and are violations of the Fair Housing Act.[2] Despite contradictory claims,[3] the Disparate Impact Rule does not create uncertainty for commercial decision making, nor is it inconsistent with the Supreme Court’s holding in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.[4](Inclusive Communities). NCRC hopes that by issuing this advanced notice of proposed rulemaking, HUD is taking the necessary steps to solidify HUD’s Discriminatory Effects Standard[5] and ensure that the disparate impact standard remains an important tool in continuing to fight discriminatory policies. NCRC encourages the Department to maintain the strong, clear cut disparate impact standard that was upheld by the Supreme Court.


HUD’s Disparate Impact Rule is vital to creating consistent legal standards and obligations 

NCRC has long called upon HUD to establish a standard that would affirm the precedent on disparate impact, both in the legal system and among the regulatory agencies. With HUD’s 2013 “Implementation of the Fair Housing Act’s Discriminatory Effects Standard”[6] and the 2016 supplement[7] [collectively, “Disparate Impact Rule” or “the Rule”], HUD established a transparent rule that clearly reaffirmed the established disparate impact doctrine and standardized the burden-shifting framework for analyzing disparate impact claims under the Fair Housing Act. Prior to HUD’s adoption of its Disparate Impact Rule, every federal circuit court had ruled in favor of disparate impact liability under the Fair Housing Act. [8] However, despite the consistent holdings in disparate impact liability itself, the circuit courts had adopted many different, and sometimes conflicting, approaches to analyzing what qualified as a cognizable disparate impact claim. While many used a three-part burden shifting test, the variations in the tests created different obligations and standards under the law for housing providers and lenders, depending on which circuit they were adjudicating in. HUD’s rule ensured the same standard would be applied in all administrative hearings and it added “no additional costs to housing providers and others engaged in housing transactions.”[9] Its burden-shifting framework was subsequently adopted by many federal jurisdictions.

In Inclusive Communities, the Supreme Court upheld that disparate impact claims are cognizable under the Fair Housing Act. The Court acknowledged that disparate impact liability is vital to uncovering discriminatory intent because “[i]t permits plaintiffs to counteract unconscious prejudices and disguised animus that escape easy classification as disparate treatment.”[10] The Court discussed standards and constitutional limitations on disparate impact claims and ultimately maintained HUD’s established burden-shifting framework. The standard of liability upheld in the decision, allowing for liability without illegal intent, dates back to the Court’s 1971 decision in Griggs v. Duke Power Co.,[11] which allowed for impact-based claims under federal employment discrimination law.[12] The Inclusive Communities outcome made it clear that HUD’s rule created no new legal obligations for market players. HUD’s rule has ensured uniformity in administrative hearings and encouraged consistency in Fair Housing litigation, ultimately reducing litigation costs by creating predictability for the housing market.


HUD’s Rule Is Consistent with the Standards Mandated by the Supreme Court in Inclusive Communities

The Inclusive Communities decision explained that “disparate impact liability has always been properly limited” and simply “mandates the ‘removal of artificial, arbitrary, and unnecessary barriers,’ not the displacement of valid government policies.”[13] The Court acknowledged that an expansive reading of the Fair Housing Act was necessary to help accomplish its goal of eliminating racially segregated neighborhoods and avoid the path “[o]ur nation is moving toward [of] two societies, one black, one white—separate and unequal.”[14]

The Court cautioned against “abusive” impact claims and placed emphasis on a “robust causality requirement”, noting the need for an identified policy and statistical evidence that the policy is causing the disparity.[15] These cautionary standards do not diverge from how causality has generally been treated by the courts under HUD’s Disparate Impact Rule. Consistent with Inclusive Communities, the Rule requires that plaintiffs identify a policy that causes a statistical disparity, and that liability can only be established after further consideration of any business justification or public purpose of that policy, and an assessment of whether the policy is properly tailored to the identified justification.[16] Like the Inclusive Communities decision, HUD’s Rule requires a robust causal connection between the challenged practice and impact, and its burden of proof is consistent with the Court’s ruling.  Just like Inclusive Communities, HUD’s Rule places the burden of establishing the less-discriminatory-alternative on the plaintiff. Though precise terms from Inclusive Communities might not appear in the Rule, the principles of disparate impact liability under the Fair Housing Act laid out in the Court’s decision are consistent with HUD’s Disparate Impact Rule on each point. If HUD’s Rule caused conflicting or new legal standards, the Court had every opportunity to point to these issues, instead, it reaffirmed forty years of lower court precedent recognizing disparate impact claims under the Fair Housing Act and the application of HUD’s burden-shifting framework in evaluating these claims.

Post Inclusive Communities jurisprudence has further demonstrated that HUD’s rule is aligned with the Court’s decision. In 2016, the Second Circuit held in Mhany Mgmt., Inc. v. Cty. of Nassau that in Inclusive Communities “[t]he Supreme Court] implicitly adopted HUD’s approach.”[17] The Northern District of Illinois issued a decision that analyzed the relationship between HUD’s Rule and the Supreme Court decision and concluded that, “[i]n short, the Supreme Court in Inclusive Communities expressly approved of disparate-impact liability under the FHA and did not identify any aspect of HUD’s burden-shifting approach that requires correction.”[18] HUD itself acknowledged this consistency in its April 2017 Motion in Prop. Cas. Insurers Ass’n of Am. v. Carson, stating “the Supreme Court’s holding in Inclusive Communities is entirely consistent with the Rule’s reaffirmation of HUD’s longstanding interpretation that the FHA authorizes disparate impact claims.[19]


Safe Harbors Would Severely Weaken the Disparate Impact Doctrine

There is no need for HUD’s Rule to provide defenses or safe harbors to claims of disparate impact liability. The Rule already carves out allowances for legitimate business purposes and substantial, nondiscriminatory interests, such as adhering to federal statutes like the McCarran Ferguson Act[20] (“the Act”) and state law.

HUD already examined the insurance industry in its 2016 Disparate Impact Supplement.[21] While it recognized the need for risk-based decision making in the insurance industry, it noted that disparate impact liability has worked in related industries that similarly must make risk-based decisions, like mortgage lending, without the need for exemptions for safe harbors. While the insurance industry has routinely asserted that the McCarren-Ferguson Act should be read to bar application of Fair Housing Act liability to insurance market entirely, the Act requires an inquiry into whether a “specific state law” might be invalidated or impaired by application of a federal law like the Fair Housing Act. This can only be made on a case-by-case basis. The courts have engaged in this individualized review of state law in every disparate impact case, and there is broad agreement that the federal Fair Housing Act can be applied to discriminatory practices of homeowners insurers without running afoul of McCarran-Ferguson. This has been in the finding in every such case dealing with disparate impact liability since the 1988 amendments.[22] The Fifth Circuit specifically rejected the argument that disparate impact claims are likely to impair state law, finding “no. . . convincing evidence that disparate impact suits will necessarily impair state insurance regulation.”[23]HUD’s Disparate Impact Rule’s burden-shifting approach accommodates underwriting decisions that are based on any legitimate business purposes. The Rule is consistent with industry underwriting principles and only establishes liability policies and practices that are artificial, arbitrary, and unnecessary, i.e., that have the effect of discriminating on a protected basis without a business need to do so.[24]

It would be irresponsible, and inconsistent with HUD’s legal obligation to affirmatively further fair housing, to create an overly broad exemption to discriminatory effects liability like a safe harbor for the entire home insurance market.


Strong, Consistent Disparate Impact Standards are Essential for Fighting Discriminatory Policies and Creating Equal Access to Housing and Credit

The importance of the disparate impact standard for effective and vigorous fair housing enforcement cannot be overstated. HUD’s application of disparate impact liability is essential for eradicating discriminatory practices in the housing sector that might otherwise go undetected, such as redlining policies, where an intention to discriminate can be nearly impossible to prove. Over the past several years, HUD, along with other agencies, have used this doctrine in bringing important enforcement actions to combat modern-day redlining and reverse redlining practices. HUD’s Disparate Impact Rule provides clarity and consistency under a single standard of liability for housing industry professionals when faced with disparate impact claims and gives the public a greater understanding of their rights.

A couple significant examples of NCRC’s cases involving the disparate impact doctrine include:

  • NCRC v. SouthStar Funding LLC, stemming from NCRC’s determination that SouthStar would not make mortgage loans for row homes in Baltimore. This case was resolved with a conciliation that changed SouthStar’s discriminatory policy of refusing to lend for row homes.
  • NCRC v. NovaStar Financial Inc. et. al. NCRC’s investigation revealed NovaStar’s underwriting guidelines relating to “properties located on Indian reservations” and a policy regarding “Properties for Adult Foster Care” were both violations of the Fair Housing Act by virtue of the disparate impact these policies had on borrowers in protected classes. As a result, these policies were changed.

Disparate impact liability has also enabled other advocates and private enforcers to pursue a wide range of cases on issues that might have otherwise gone unchecked such as:

  • Cases attacking zoning and land-use policies and decisions which block development of affordable housing in communities of opportunity which result in denial of housing to minorities and perpetuate residential segregation (In Inclusive Communities, the Supreme Court deemed zoning problems the “heartland” of disparate impact liability.[25]);
  • A wide variety of fair lending policies that disproportionately impact protected groups such as underwriting policies, pricing and fee policies, misapplication of credit score criteria in determining interest rates, and minimum loan amount policies;
  • Residency requirements and other admission procedures imposed by public housing agencies or housing management firms which result in blocking residency to minorities in predominately white communities;
  • Cases challenging governmental redevelopment or demolition plans or polices which disproportionately displace minority populations;
  • Cases involving group homes for disabled persons denied homes in residential areas because of zoning ordinances;
  • Cases eliminating unreasonably restrictive occupancy standards resulting in effectively barring families with children from renting units or forcing them into higher cost, multi-bedroom units.
  • Cases attacking policies requiring that tenants speak English or be U.S. citizens.
  • Combating apartment policies that only accept people with full time jobs, effectively barring disabled veterans or elders who cannot work, regardless of their ability to afford the unit.
  • Eliminating criminal background screening processes that have an unfair and disproportional; impact on formally incarcerated minorities. Since blacks and Latinos are incarcerated at rates disproportionately higher than their white counterparts, disparate impact liability enables more scrutiny on these screening processes.
  • Combating broadly drafted ‘disorderly conduct’ or ‘chronic nuisance’ ordinances that have been applied to include police responses to domestic violence incidents. These laws can have a clear disparate impact on women, who make up the very large majority of domestic violence victims.”[26]

In 2011, the Department of Justice reached a $135 million settlement with Countrywide for its practices that allowed its brokers to vary a loan’s interest rate and other fees based on subjective, non-credit related factors. This resulted in more than 200,000 black and Hispanic borrowers paying more for prime loans or receiving subprime loans compared to similarly qualified white borrowers.[27]In 2012, the Department reached a $175 million settlement with Wells Fargo for its practices, which allowed officers to place individuals in subprime loans, even if they qualified for prime loans. This practice resulted in 300,000 black and Hispanic borrowers paying more for loans than similarly situation white borrowers.[28] The disparate impact doctrine afforded this important relief.



The Fair Housing Act is remedial law that should be broadly interpreted.[29] The questions HUD has put forward in this Notice indicate an inclination to turn back the clock on fair housing. HUD should not attempt to take over the role of both the courts and Congress by providing unneeded guidance or creating “safe harbors” for regulatory exemptions to the to the application of the disparate effects standard. Creating these regulatory loopholes would perpetuate discrimination and cannot be justified.

HUD must maintain robust, consistent standards for disparate impact liability under the Fair Housing Act. Disparate impact is vital to communities’ and advocates’ efforts to foster inclusive communities and remove barriers to access to wealth and credit. The Supreme Court recognized the importance of this doctrine, and ruled consistently with HUD’s previous regulations. It is imperative that HUD not weaken this rule or create safe harbors that could enable covert discriminatory intent or unconscious bias to continue to perpetuate the wealth divide in this country.

NCRC, and the undersigned organizations appreciate the opportunity to share our views on this advanced notice of proposed rulemaking. If you have any questions or need additional information regarding our comment, please do not hesitate to Stella Adams, NCRC’s Chief of Civil Rights, at 202-464-2729.



National Community Reinvestment Coalition (NCRC)

Consumer Action

727 Mgt. LLC
Affordable Homeownership Foundation Inc.
African Career and Education Resource, Inc
CAARMA (Consumer Advocates Against Reverse Mortgage Abuse)
California Coalition for Rural Housing
California Reinvestment Coalition
CASA of Oregon
Chattanooga Organized for Action
Chicago Community Loan Fund
Coastal Enterprises, Inc.
Communities United for Action
Community Action Committee of the Lehigh Valley
Delaware Community Reinvestment Action Council, Inc.
Detroit Peoples Platform
Edgemoor Revitalization Cooperative, Inc.
Empowering and Strengthening Ohio’s People (ESOP)
Fair Housing Center for Rights & Research
Fair Housing Center of Metropolitan Detroit
Fair Housing Council of the San Fernando Valley
Forward Community Investments
Friendship Primitive Baptist Church
Habitat for Humanity of Michigan
Hawai’i Alliance for Community-Based Economic Development
HOPE of Evansville, Inc.
Housing Land Advocates
HousingWorks RI
Inner City Redevelopment Corp
JCVision and Associates, Inc.
Metropolitan Milwaukee Fair Housing Council
Metropolitan St. Louis Equal Housing and Opportunity Council
National Business League of Alabama
National Council on Independent Living (NCIL)
National Housing Counseling Agency
National Housing Institute
Neighborhood Development Foundation
Neighborhood Housing Services of Greater Cleveland
New Jersey Citizen Action
NHS of Kansas City, Inc.
Northwest Fair Housing Alliance
Northwest Indiana Reinvestment Alliance
PathStone Enterprise Center
Peoples’ Self-Help Housing
Pittsburgh Community Reinvestment Group
REVA Development Corporation
Toledo Fair Housing Center
Urban Economic Development Association of Wisconsin, Inc. (UEDA)
Vermont Slauson Economic Development Corporation
Woodstock Institute
Working In Neighborhoods




[1] 82 U.S. Department of Housing and Urban Development, Mission, retrieved from: https://portal.hud.gov/hudportal/HUD?src=/about/mission

[2] 42 U.S.C. § 3601 et seq.

[3] See, e.g., Paul F. Hancock et al., HUD’s Approach to Disparate Impact Remains Under Fire – Lending Trade Associations Weigh In, K&L Gates Stay Informed (Aug. 4, 2016), https://bit.ly/2vpK1Rt (claiming “HUD improperly disregarded the legal standard for disparate-impact claims established by the Supreme Court  . . .”).

[4] 135 S. Ct. 2507 (2015).

[5] 78 Fed. Reg. 11460 (Feb. 15, 2013) (codified at 24 C.F.R. § 100 (prohibiting practices that have a discriminatory effect by actually or predictably resulting in a disparate impact on a group of persons or creating, increasing, reinforcing, or perpetuating segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin)._

[6] 78 Fed. Reg. 11460.

[7] 81 Fed. Reg. 193 (Oct. 5, 2016).

[8] 78 Fed. Reg. 11460, 11469 (Feb. 15, 2013) (citing Graoch Assocs. #33, L.P. v. Louisville/Jefferson Cnty. Metro Human Relations Comm’n, 508 F.3d 366, 374–78 (6th Cir. 2007); Reinhart v. Lincoln Cnty., 482 F.3d 1225, 1229 (10th Cir. 2007); Hallmark Developers, Inc. v. Fulton County, Ga., 466 F.3d 1276, 1286 (11th Cir. 2006); Charleston Hous. Auth. v. U.S. Dep’t of Agric., 419 F.3d 729, 740–41 (8th Cir. 2005); Langlois v. Abington Hous. Auth., 207 F.3d 43, 49–50 (1st Cir. 2000); Simms v. First Gibraltar Bank, 83 F.3d 1546, 1555 (5th Cir. 1996); Jackson v. Okaloosa Cnty., Fla., 21 F.3d 1531, 1543 (11th Cir. 1994); Keith v. Volpe, 858 F.2d 467, 484 (9th Cir. 1988); Huntington Branch, NAACP v. Town of Huntington, 844 F.2d 926, 937– 38 (2d Cir. 1988), aff’d, 488 U.S. 15 (1988) (per curiam); Resident Advisory Bd. v. Rizzo, 564 F.2d 126, 148 (3d Cir. 1977); Betsey v. Turtle Creek Assocs., 736 F.2d 983, 987–89 & n.3 (4th Cir. 1984); Metro. Hous. Dev. Corp. v. Vill. ofArlington Heights, 558 F.2d 1283, 1290–91 (7th Cir. 1977); United States. v. City of Black Jack, 508 F.2d 1179, 1184–86 (8th Cir. 1974).

[9] 78 Fed. Reg. 11460-61.

[10] 135 S. Ct. at 2522

[11] 401 U.S. 424, 431-32 (1971).

[12] Title VII of the Civil Rights Act of 1964 (42 U.S.C. § 2000e).

[13] 135 S. Ct. at 2521-22.

[14] Id. at 2516 (quoting the Kerner Commission).

[15] Id. at 2523-24.

[16] See Implementation of the Fair Housing Act’s Discriminatory Effects Standard, 78 Fed. Reg. 11,460, 11,467-73 (Feb. 15, 2013) (discussing the first and third phase of impact claims).

[17] 819 F.3d 581, 618 (2nd Cir. 2016).

[18] Prop. Cas. Insurers Ass’n of Am. v. Carson, 2017 WL 2653069 (N.D. Ill. June 20, 2017) at *8.

[19] Def.’s Opp. to Pl.’ Motion for Leave to Amend Complaint at 9. Prop. Cas. Insurers Ass’n of Am. v. Carson, No. 13-CV-8564, 2017 U.S. Dist. LEXIS 94502 (N.D. Ill. June 20, 2017).

[20] The McCarran-Ferguson Act of 1956 (15 U.S.C.A. § 1011 et seq.) “The McCarran Ferguson Act give states the authority to regulate the ‘business of insurance’ without interference from federal regulation, unless federal law specifically provides otherwise . . .  . [The Act] provides that a state law shall govern the regulation of insurance and that no act of Congress shall invalidate a state law unless the federal law specifically relates insurance.” Retrieved from http://law.jrank.org/pages/8497/McCarran-Ferguson-Act-1945.html.

[21] 81 Fed. Reg. 193 (Oct. 5, 2016).

[22] See, e.g., NAACP v. American Family Mut. Ins. Co., 978 F.2d 287, 301 (7th Cir. 1992); Nationwide Mut. Ins. Co. v. Cisneros, 52 F.3d 1351, 1360 (6th Cir. 1995); United Farm Bureau Mut. Ins. Co. v. Metropolitan Human Relations Comm’n, 24 F.3d 1008, 1016 (7th Cir. 1994); Lindsey v. Allstate Ins. Co., 34 F. Supp. 2d 636, 641-43 (W.D. Tenn. 1999); Strange v. Nationwide Mut. Ins. Co., 867 F. Supp. 1209, 1212, 1214-15 (E.D. Pa. 1994); National Fair Hous. Alliance v. Prudential Ins. Co. of America, 208 F. Supp. 2d 46, 55-9 (D.D.C. 2002); Nevels v. Western World Ins. Co., Inc., 359 F. Supp. 2d 1110. 1117-1122 (W.D. Wash. 2004); Ojo v. Farmers Group Inc., 600 F3d 1205, 1208 (9th Cir. 2010).

[23] Dehoyos v. Allstate Corp., 345 F.3d 290, 299 n.7 (5th Cir. 2003).

[24] See Civil rights groups’ letter to HUD regarding the disparate impact rule and the Supreme Court’s Inclusive Communities decision (January 26, 2018), available at https://nationalfairhousing.org/wp-content/uploads/2018/07/2018-01-26-Civil-Rights-Letter-to-Sec-Carson-re-HUD-DI-Rule-FINAL.pdf

[25] 135 S. Ct. at 2522 

[26] Stephen M. Dane, The Potential ‘Impact’ of Texas Department of Housing and Community Affairs v. Inclusive Communities Project on the Future of Civil Rights Enforcement and Compliance, Federal Lawyer Magazine (July 2016), https://bit.ly/2KhSknW (citing Briggs v. Borough of Norristown, No. 2:13-cv-2191 (E.D. Pa. 2013)).

[27] https://www.justice.gov/usao-cdca/dojcountrywide-settlement-information

[28] https://www.justice.gov/opa/pr/justice-department-reaches-settlement-wells-fargo-resulting-more-175-million-relief

[29] See Havens Realty Corp. v. Coleman, 455 U.S. 363, 380 (1982) (acknowledging the “broad remedial intent of Congress embodied in the [Fair Housing] Act); See also Implementation of the Fair Housing Act’s Discriminatory Effects Standard, 78 Fed. Reg. 11,460, 11,465 (Feb. 15, 2013) (noting “Congress’s broad, remedial intent in passing the Fair Housing Act”).

Fair Housing Act’s Discriminatory Effects Standard, 78 Fed. Reg. 11,460, 11,465 (Feb. 15, 2013) (noting “Congress’s broad, remedial intent in passing the Fair Housing Act”).


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