The U.S. District Court for the District of Columbia ruled this month that the Department of Housing and Urban Development (HUD) exceeded its authority under the Administrative Procedure Act by creating a disparate impact rule beyond the scope of the language in the Fair Housing Act (FHA). The case,American Insurance Association v. HUD, Case No. 13- cv-966, U.S. District Court, District of Columbia, addresses a HUD-created rule that prevented the pricing of homeowners insurance that has a disparate impact on minorities. Although the FHA bars disparate treatment and intentional discrimination toward minorities in housing practices, the FHA does not address disparate impact. In the housing context, the doctrine of disparate impact holds that practices in housing may be considered discriminatory and unlawful if they have a disproportionate adverse impact on individuals of a protected trait.
The U.S. District Court for the District of Columbia relied on decisions from the U.S. Supreme Court holding that statutes prohibit disparate impact in the absence of discriminatory intent only when the statute explicitly states, and the FHA law has no such “effects-based language.”
The Court also noted that applying the FHA to property or casualty insurance, which is already a well-regulated industry by states for consumer protection reasons, raises concerns about “widespread federal encroachment upon state insurance regulation.” The Court cautioned that HUD’s conduct “is yet another example of an administrative agency trying desperately to write into law that which Congress never intended to sanction.”
The decision has been viewed as a victory for the insurance industry. Other industries subject to the oversight of administrative agencies should also take note of the decision because of the Court’s scrutiny of the limits of the rulemaking authority of administrative agencies like HUD.