On January 21, the U.S. Supreme Court will hear argument in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, on the question of whether disparate impact claims for discrimination are recognized under the Fair Housing Act (FHA). The third time may be the charm as the Supreme Court has twice dismissed recent cases on this question prior to oral argument due to settlements.
What is not at issue is disparate treatment, or intentional discrimination, which is clearly enforceable under the FHA. Disparate impact, however, has less clear support in the statute’s text, yet claims have arisen under guidance from the U.S. Department of Housing and Urban Development (HUD). Disparate impact claims define discrimination based only on certain adverse effects, often established by statistical analysis. The question before the Court is one of statutory interpretation considering whether disparate impact claims are actionable when the FHA only prohibits actions that discriminate “because of race, color, religion, sex, familial status, or national origin.” (42 U.S.C. 3604).
On behalf of the state’s Department of Housing and Community Affairs, the Texas Attorney General argues that FHA’s “because of” language means strictly “the reason for” the action, and thus the text does not authorize HUD to allow for disparate impact claims on resulting effects. Further, the Texas AG argues that disparate impact theories would actually require states and private entities to affirmatively consider race in housing and mortgage lending decisions in order to avoid liability.
The American Financial Services Association (AFSA) and other banking associations note that American society is not homogeneous in housing. Risk-based lending in the residential mortgage market requires lenders to assess a borrower’s ability and willingness to repay a loan. The underwriting tools used by mortgage lenders to determine the availability of certain loans are primarily down payments as well as income-to-debt ratios and credit scores. Wealth, the primary source for down payments, differs significantly among racial and ethnic groups which can show differences in loan availability when lending is viewed according to groups. The AFSA brief asserts, however, that uniform risk-based factors in lending are applied individually.
A number of other business associations filed relevant amici briefs. The National Association of Home Builders’ brief makes a forceful argument on the separation of powers issues at stake. The American Bankers Association and other business associations focus the absence of a private right of action for disparate impact claims in the FHA and in its legislative history. The American Insurance Association writes of the disruptions to homeowner’s insurance if disparate impact claims are authorized. The Consumer Data Industry Association argues that disparate impact liability will harm legitimate interests in racially-neutral screening including credit and criminal record information.
The Massachusetts Attorney General and 16 other bipartisan AGs filed a brief arguing the need for disparate impact claims to identify hidden intentional discrimination. The AGs contend that disparate impact claims are indeed necessary to remedy the same injury that disparate treatment claims would otherwise address, proof provided. The AGs assert that proof of subjective intent is often difficult to identify, yet objective effects, such as statistical evidence toward disparate impact, are probative of purposeful discrimination.
Further, the AGs brief argues for strong measures to combat “residential segregation” that would otherwise largely continue. The AGs point out that there is a strong correlation between where people live and the opportunities available to them, such as schools or jobs, and the resulting disparities go to the core of continuing issues of race and poverty.