Federal Judge Knocks Down ‘Disparate Impact’

A federal judge ruled on Monday that the Fair Housing Act does not allow for so-called "disparate impact" claims, which are allegations that can be made based on neutral practices that may unintentionally have a discriminatory effect.

U.S. District Judge Richard Leon ruled on Monday that only claims of direct, intentional discrimination could be made under the Fair Housing Act, which was passed in 1968. While the Fair Housing Act does not specifically state it allows disparate claims lawsuits, courts have allowed them for years.

Leon said the belief of those in the Obama administration who interpret the Fair Housing Act to allow disparate impact claims "appears to be nothing more than wishful thinking on steroids."

The disparate impact rule in housing was issued by HUD in February 2013 and has since resulted in several multi-million dollar fair housing settlements against Bank of America, Wells Fargo, and other lenders.

One example of a disparate impact claim occurred in 2012 in Delaware, when the National Fair Housing Alliance sued Allstate over Allstate's refusal to insure flat-roofed houses. The suit alleged that this had a discriminatory effect on low-income minorities that were most likely to live in those houses.

Leon's ruling is a victory for opponents of the disparate impact rule such as American Insurance Association, which currently has a lawsuit pending in the U.S. District Court against HUD over a disparate impact claim.

Opponents of disparate impact have one more hurdle to clear, however. The issue of whether or not disparate impact lawsuits are allowed under the Fair Housing Act is likely to be heard in the U.S. Supreme Court sometime in the next few months. In October, the Supreme Court agreed to rule on a similar case in Texas involving allegations of the disproportionate awarding of tax credits to developers who own property in low-income minority dominated neighborhoods.

The U.S. Supreme Court has never issued a ruling on disparate impact claims.