Supreme Court Prepares to Hear Disparate Impact Arguments

The U.S. Supreme Court is scheduled to begin hearing arguments on January 21 on whether or not "disparate impact" claims are allowed under the Fair Housing Act of 1968.

For years, lower courts have repeatedly ruled in favor of groups bringing disparate impact claims, which are allegations made based on neutral practices that may have a discriminatory effect—thus allowing litigation to be brought for discrimination even when there is no discriminatory intent.

The Obama Administration, specifically HUD, passed the Disparate Impact Rule for housing in February 2013, which has resulted in several multi-million dollar settlements against lenders such as Bank of America, Wells Fargo, and others.

The Supreme Court was scheduled to hear cases that involved disparate impact claims in both 2011 and 2013, but both cases were settled before they could be heard by the court.

The case scheduled to be heard later this month, Texas Department of Housing and Community Affairs, et al., v. The Inclusive Community Project, Inc., centers on claims that the Texas state housing department's fixed criteria for approving tax credits for low-income housing developers resulted in the approval of such credits for a larger percentage of developers in areas more heavily populated by minorities than in areas more populated by whites.

Opponents of the Disparate Impact Rule claimed a victory in early November 2014 when U.S. District Judge Richard Leon struck down the rule in the case of American Insurance Association, et al., v. the U.S. Department of Housing and Urban Development, ruling that only claims of direct, intentional discrimination could be made under the Fair Housing Act.

"This is, yet another example of an Administrative Agency trying desperately to write into law that which Congress never intended to sanction," Leon wrote in his decision.

Some lawmakers concurred with Leon's decision, claiming that the Fair Housing Act should not allow disparate impact claims.

“The McCarran-Ferguson Act established a system of state-based insurance regulation that has worked to the benefit of all consumers for nearly 70 years," U.S. Representative Randy Neugebauer (R-Texas), Chairman of the House Financial Services Subcommittee on Housing and Insurance, said on the day Leon issued his decision in November. "HUD's application of the disparate impact standard to homeowners insurance would not only be duplicative, inefficient and impractical, but also contrary to existing state and federal law. I'm pleased with today's ruling in the D.C. District Court and I applaud Judge Leon for recognizing that Congressional intent trumps the faulty housing policy desires of the Obama administration. It is my hope that the Supreme Court looks to this case and quickly addresses disparate impact."

Those in favor of the rule claim it is necessary to end discrimination in housing. Last month, a 17-state coalition led by New York Attorney General Eric Schneiderman and Massachusetts Attorney General Martha Coakley filed an amicus brief urging the Supreme Court to uphold the Disparate Impact Rule.

"The disparate impact model originated as a judicial response to the practical challenges of detecting and proving bias in cases of hidden and covert discrimination, and it continues to serve this essential function today," the brief said. "Without disparate impact claims, States and others will be left with fewer critical tools for combating the kinds of systemic discrimination that the FHA was intended to address."