HUD Issues Discriminatory Effects Standard Final Rule

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

The rule provides clarity and consistency for individuals, businesses and government entities subject to the Fair Housing Act. HUD anticipates the rule also will make it easier for individuals and organizations covered by the law to understand their responsibilities and comply with the law.

According to the final rule, “discriminatory effect” occurs when a facially neutral practice actually or predictably results in a discriminatory effect on a group or person protected by the Fair Housing Act, such as, for example, a large city’s Department of Housing enforcing the city’s housing codes on rentals. Due to the large number of issues being found in low-income rental properties, the actual availability of low-income rental property is decreased, thereby having a greater impact on a minority sub-group.

The practice may still be lawful if supported by a legally sufficient justification. A legally sufficient justification exists when (1) it is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests of the respondent; and (2) those interests could not be served by another practice that has a less discriminatory effect. A legally sufficient justification must be supported by evidence and cannot be hypothetical or speculative.

The burden of proof in a discriminatory effects test follows a burden-shifting test that has been a standard legal concept in cases of discrimination. The HUD’s final rule creates a three-part burden-shifting test for determining when a practice with a discriminatory effect violates the Fair Housing Act. Under this test:

  • The charging party that is bringing forth the claim has the first burden of proving that a challenged practice causes or predictably will cause a discriminatory effect.
  • Once the charging party establishes that, the burden shifts to the defendant, who must prove that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests.
  • If the defendant satisfies this burden, then the charging party may still prevail by proving that the substantial, legitimate, nondiscriminatory interest supporting the challenged practice could be served by another practice that has a less discriminatory effect.

Click here to read the new rule in its entirety.

 

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in NCUA.