Compliance Matters

HUD Formalizes Discriminatory Effects Standard

The agency issues a final rule on whether a housing practice violates the Fair Housing Act.

April 14, 2013

The Department of Housing and Urban Development (HUD) issued a final rule to formalize a national standard for determining whether a housing practice violates the Fair Housing Act (FHA) as the result of a “discriminatory effect.” The rule went into effect on March 18, 2013.

A practice has a discriminatory effect when it “actually or predictably results in a disparate impact on a group of persons; or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, color, religion, sex, handicap, familial status, or national origin.”
A lender might be liable under the FHA based on a practice’s discriminatory effect on a protected class (e.g., demonstrated by statistical analysis), even if the practice was not motivated by a discriminatory intent.
The practice might still be lawful if supported by a “legally sufficient justification,” which exists where the challenged practice is:
  • Necessary to achieve one or more substantial, legitimate, nondiscriminatory interests; and
  • Couldn’t be served by another practice that has a less discriminatory effect.
Evidence must support a legally sufficient justification, which can’t be hypothetical or speculative.
HUD’s rule formally establishes a three-part, burden-shifting test to determine when a practice with a discriminatory effect violates the FHA. Under this test:
  • The plaintiff first bears the burden of proving a practice results in, or would predictably result in, a discriminatory effect on the basis of a protected characteristic.
  • If the plaintiff proves his or her case, the burden of proof shift s to the defendant to prove that the challenged practice is necessary to achieve one or more of its “substantial, legitimate, nondiscriminatory interests.”
  • If the defendant satisfies this burden, then the plaintiff might still establish liability by proving the substantial, legitimate, nondiscriminatory interest could be served by a practice with less discriminatory effect.
The rule also adds and revises illustrations of practices that violate the FHA through intentional discrimination or through a discriminatory effect.
For more information, see “Fair Housing Act” under CUNA’s e-Guide at