This final rule responds to a heated battle between housing providers (broadly defined to include all parties involved in selling, renting, insuring, lending, and zoning of residential property in the U.S.) and fair housing advocates that ended up in front of the Supreme Court last year. (Just this month, the case was withdrawn, presumably in response to HUD’s published position on the issue.)
What is “Disparate Impact?”
Section 100.500(a) provides that a “discriminatory effect” occurs where a facially neutral practice actually or predictably results in a discriminatory effect on a group of persons protected by the Act (that is, has a disparate impact), or on the community as a whole on the basis of a protected characteristic (perpetuation of segregation). Any facially neutral action, e.g., laws, rules, decisions, standards, policies, practices, or procedures, including those that allow for discretion or the use of subjective criteria, may result in a discriminatory effect actionable under the Fair Housing Act and this rule. For examples of court decisions regarding policies or practices that may have a discriminatory effect, please see the preamble to the proposed rule at 76 FR 70924-25.
Simply stated, disparate impact occurs when a housing provider’s policies or actions, although neutral and non-discriminatory on their face, serve to disproportionately negatively impact a protected class of individuals, as defined under the Fair Housing Act. These “Protected Classes” include race, color, religion, gender, national origin, familial status (presence of children under 18), and handicap (mental or physical disability).
Even when an intent to discriminate cannot be proven, fair housing cases have been successfully pursued through courts and Administrative Law Judges, using the theory of disparate impact. In HUD’s words:
In formal adjudications of charges of discrimination under the Fair Housing Act over the past 20 years, HUD has consistently concluded that the Act is violated by facially neutral practices that have an unjustified discriminatory effect on the basis of a protected characteristic, regardless of intent.
What does this mean to Property Managers?
Let’s say, for example, that you have an occupancy restriction that addresses the number of people that can live in one of your rental properties. It doesn’t address children (familial status), or any other protected class, specifically. It just limits the total number of people. And, for the sake of discussion, let’s say that policy limits occupancy to 3 people in a 2-bedroom apartment. Because your occupancy restriction disproportionately impacts families with children, a fair housing claim could likely be proven based on the disparate impact of the occupancy restriction.
Here’s another example, and one HUD addressed in 2011, in its “Domestic Violence Guidance.” Let’s say your company employs a “zero tolerance” policy as to crime and violence. You don’t rent to anyone with a criminal conviction, or anyone with family members or guests who demonstrate violent behavior…
One of your rental homes is occupied by a single mom and her children. A neighbor of the home emails you to complain that he’s had to call the police numerous times because of loud disturbances at your managed rental property. You ask for a copy of the police reports, and sure enough, there have been quite a few. You schedule an inspection of the property, and one of the first things you see is a hole punched through the entry closet door. That’s all you need, for proof of the violence. When asked about it, your tenant tells you that her ex-husband caused the damage, and she’s been working with an attorney to protect herself and her children against his violent temper. Although you sympathize with your tenant’s predicament, you evict her. After all a zero-tolerance policy is just that – zero tolerance.
Zero-tolerance policies could be discriminatory…
Because women are approximately five times as likely as men to experience domestic violence, a zero-tolerance policy in this particular case could be proven to have a disparate impact against women, and therefore, discriminatory on the basis of gender.
So, what does the Final Rule say?
The final rule formalizes what it calls a “Three-Part Burden-Shifting Test” used to prove liability under the Fair Housing Act when the intent to discriminate cannot be proven. This three-part test has been used many times in fair housing cases by the courts and administrative law judges, but has never been formalized as a standard by HUD, until now. (Emphasis added.)
Under § 100.500(c), the charging party or plaintiff first bears the burden of proving its prima facie case:that is, that a practice caused, causes, or predictably will cause a discriminatory effect on a group of persons or a community on the basis of race, color, religion, sex, disability, familial status, or national origin. Once the charging party or the plaintiff has made its prima facie case, the burden of proof shifts to the respondent or defendant to prove that the practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests of the respondent or defendant. If the respondent or defendant satisfies its burden, the charging party or plaintiff may still establish liability by proving that these substantial, legitimate, nondiscriminatory interests could be served by another practice that has a less discriminatory effect.
From the final rule:
Even if a policy has a discriminatory effect, it may still be legal if supported by a legally sufficient justification.
To summarize its justification for publication of this final rule, HUD goes on to say:
Compliance with the Fair Housing Act has for almost 40 years included the requirement to refrain from undertaking actions that have an unjustified discriminatory effect. The rule does not change that substantive obligation; it merely formalizes it in regulation, along with the applicable burden-shifting framework.
Tips for Property Managers
I think it’s safe for us to say that most property managers have every intention of running fair and non-discriminatory rental businesses. However, this final rule makes it very clear that, whether or not you intend to discriminate, you can still be found in violation of fair housing law, through the theory of disparate impact.
My advice to you, as a housing provider, is this:
- Take a close look at all your policies, procedures, and rules. Do any of them have a potentially negative impact on any protected class under Fair Housing law?
- Make sure each policy/procedure/rule has a very clear and necessary business justification. Moreover, make sure you can prove that justification.
- On those rules or policies that might negatively impact one or more protected classes, examine whether there exists a replacement policy that would accomplish the same business goal, yet be less discriminatory than the policy you currently have in place.
What are your thoughts? Do you have any rules or policies that might need to be adjusted, based on the theory of disparate impact? Please share your experience and opinions by leaving a comment on this post. Thanks for reading!