On January 14, the Department of Housing and Urban Development (HUD) issued a proposed rule that would repeal its Fair Housing Act (FHA or Act) “discriminatory effects” (disparate impact) regulations and leave the development and application of disparate impact standards entirely to the courts. Comments are due February 13, 2026.

Background

This rulemaking has had a long and convoluted saga. Since 2013, HUD has maintained regulations interpreting the FHA to permit disparate impact liability and setting out a burden‑shifting test. The 2013 “Implementation of the Fair Housing Act’s Discriminatory Effects Standard” rule added provisions to 24 C.F.R. part 100 that: (1) confirmed that a “discriminatory effect” theory is cognizable under the Act; and (2) established a framework under which a plaintiff could prove liability based on a policy’s effects, even absent discriminatory intent, subject to a defendant’s legally sufficient justification.

In 2015, the U.S. Supreme Court held in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. that disparate impact claims are cognizable under the FHA but emphasized the need for “robust causality” and procedural safeguards to avoid pressuring defendants into race‑based decision‑making. In 2019, HUD revised its 2013 disparate impact rule to align with the Inclusive Communities decision. Under the first Trump administration in 2020, HUD issued an amended rule that sought to revise the 2013 standard to address specific issues, such as state insurance law. That rule never took effect, however; a federal court in Massachusetts enjoined it. In 2021, the Biden administration withdrew the 2019 disparate impact rule. In 2023, HUD issued a “Reinstatement” rule that formally brought back the 2013 framework.

What the Proposed Rule Would Do

The proposed rule makes two key changes. First, HUD would revise 24 C.F.R. § 100.5(b), the general scope provision, by deleting the sentence that ties the examples in part 100 to discriminatory‑effect liability and cross‑references the disparate impact standard in § 100.500. Second, HUD would “remove and reserve” subpart G of part 100 — currently consisting of § 100.500 — which is the central regulatory provision setting out HUD’s disparate impact standard. Section 100.500 now defines discriminatory effect, describes when a practice may nevertheless be lawful if supported by a “legally sufficient justification,” and specifies how the burdens of proof are allocated in disparate impact cases.

If the rule is finalized as proposed, HUD will no longer have a codified regulatory test for disparate impact under the FHA. In the Federal Register notice preamble, HUD does not state that disparate impact claims are invalid as a matter of law. Instead, it takes the position that whether and how disparate impact applies under the Act are questions for the courts to decide rather than for agency regulation.

HUD’s Rationale

HUD cites several developments to explain why it is stepping back from its discriminatory‑effects regulations. The first is Executive Order 14281, “Restoring Equality of Opportunity and Meritocracy,” issued on April 23, 2025. That order states that equal treatment under the law guarantees equality of opportunity, not outcomes, and characterizes disparate impact liability as threatening that principle by creating a “near insurmountable presumption of discrimination” whenever there are group differences in outcomes, even without a facially discriminatory policy or intent. The order establishes a federal policy to eliminate disparate impact liability “to the maximum degree possible” and directs federal agencies, in coordination with the Attorney General, to identify and consider amending or repealing regulations that impose disparate impact regimes.

HUD also points to the U.S. Supreme Court’s recent decision in Loper Bright, which rejected judicial deference to agency interpretations of ambiguous statutes. HUD notes that under Loper Bright, courts will independently interpret the FHA and are free to accept or reject HUD’s prior views. In this environment, HUD states that maintaining a codified interpretation of disparate impact does not provide the stability or predictability it once believed it could, because courts are not required to defer to HUD’s framework and case law continues to evolve on its own.

Finally, HUD references broader deregulatory efforts under Executive Order 14192 (Unleashing Prosperity Through Deregulation) and Executive Order 14219 (implementing the “Department of Government Efficiency” initiative). Those orders instruct agencies to identify regulations that are outmoded, unnecessary, or excessively burdensome and to streamline or repeal them. HUD concludes that its disparate impact regulations are “unnecessary,” do not reflect an up‑to‑date view of the law, and may be subject to being vacated by reviewing courts.

Shortened Comment Period

HUD notes that its own policy generally favors a 60‑day comment period for notice‑and‑comment rulemaking, but here the agency has provided only 30 days. HUD explains that this proposal is a general statement of policy about how it will approach disparate impact liability and that it does not create new obligations or rights. Instead, it removes an interpretive framework and leaves courts to apply the FHA directly. HUD also emphasizes that it has already engaged in extensive public process on this subject. The three prior versions of the proposed disparate impact rules together generated well over 50,000 comments from a wide range of stakeholders, and HUD says it has considered those submissions, relevant case law, and other legal authorities over the course of multiple rulemakings.

Given the volume of prior comment and the agency’s desire to act “as expeditiously as possible” to remove the regulations, HUD concludes that a 30‑day period is justified. The agency notes that interested parties are familiar with these rules and should be able to respond within that timeframe.

Our Take

If finalized, HUD’s proposal would not erase the concept of disparate impact from fair housing law, but it would materially change the regulatory landscape. HUD would no longer prescribe a specific burden‑shifting test or define “discriminatory effect” and “legally sufficient justification” by regulation. Instead, enforcement and litigation would be governed directly by judicial interpretations of the FHA in each jurisdiction, just as it was pre-2013. Practically, this may increase the importance of circuit‑specific case law and could lead to more variability among courts as they address what constitutes a prima facie disparate impact claim, how defendants can demonstrate business justifications, and when plaintiffs must show less discriminatory alternatives.

At the same time, the proposal does not eliminate disparate impact risk. Fair housing and fair lending advocates can and likely will continue to bring disparate impact claims under the FHA through private litigation, and state actors are increasingly active in this space. Several state fair housing and fair lending laws incorporate disparate impact theories, and we are already seeing rulemaking and enforcement that rely on those theories — for example, New Jersey’s recent disparate impact rulemaking. State attorneys general and state banking and housing agencies can therefore continue to pursue disparate impact theories even if HUD steps back from its own regulatory framework.

Finally, this change should be viewed as policy‑contingent, not permanent. A future administration could attempt to re‑impose a federal disparate impact framework through a new rulemaking at HUD. For that reason, while many industry participants may welcome HUD’s current move, we believe it would be risky to treat it as a signal to dismantle existing disparate impact risk controls.