HUD finalizes ICBA-backed 'disparate impact' rule

The Department of Housing and Urban Development recently finalized an ICBA-supported rule to amend its interpretation of the Fair Housing Act’s "disparate impact" standard.

The rule is designed to conform to the U.S. Supreme Court's 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project that disparate-impact cases must demonstrate a causal connection between practices and alleged discriminatory impact.

Under HUD's 2013 rule, lenders could be held liable for neutral practices that have a disparate impact on certain classes of borrowers, even if the lenders had no intent to discriminate. HUD's newly finalized rule requires plaintiffs to meet a five-step framework that establishes legal liability for facially neutral practices that have unintended discriminatory effects.

Further, the new pleading standard mirrors the Inclusive Communities decision by requiring plaintiffs to show a “robust causal link” between the lender’s challenged policy or practice and the adverse effect on members of a protected class.

In an October 2019 comment letter, ICBA expressed strong support for the update for its consistency with the Supreme Court decision and the certainty it provides lenders. The final rule is effective 30 days from its publication in the Federal Register.