On March 17, the U.S. Department of Housing and Urban Development (HUD) announced that it is rescinding its 2020 rule governing Fair Housing Act (FHA) disparate impact claims and restoring its 2013 discriminatory effects rule on the basis that it believes the 2013 rule is more consistent with how the FHA has been applied in the courts and by HUD in administrative proceedings. To effectuate this change, HUD has submitted to the Federal Register for publication a final rule entitled “Restoring HUD’s Discriminatory Effects Standard” (Final Rule). The Final Rule will go into effect 30 days after it is published in the Federal Register.
As discussed here, the FHA prohibits discrimination in the sale, rental, or financing of dwellings and other housing-related activities because of race, color, religion, sex, disability, familial status, or national origin. Under the 2013 rule, a housing discrimination claim would follow this three step, burden-shifting framework: (1) the plaintiff must show prima facie evidence that a challenged practice caused or predictably will cause a discriminatory effect; (2) the burden then shifts to the defendant to show that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests; and (3) if the defendant meets its burden in step 2, the plaintiff may still prevail by proving that the substantial, legitimate, nondiscriminatory interests supporting the challenged practice could be served by another practice that has a less discriminatory effect. This framework is now reinstated in the Final Rule.
Due to a preliminary injunction staying the implementation of the 2020 rule in Massachusetts Fair Housing Center v. HUD, the 2020 rule never went into effect, although it was published in the Federal Register. Accordingly, regulated entities that were complying with the 2013 rule have no need to change any practices they have in place to comply with this rule. Additionally, this action by HUD was expected, as the agency had announced that it planned to reinstate the 2013 version of the disparate impact rule when it issued a notice of proposed rulemaking on June 25, 2021. Shortly after taking office in January 2021, President Biden had ordered HUD to revisit the 2020 rule through a memorandum requiring the agency to “take all steps necessary to examine the effects of the [2020 Rule], including the effect that amending the [2013 Rule] has had on HUD’s statutory duty to ensure compliance with the [FHA].”