On November 19, 2013, the House Financial Services Subcommittee on Oversight and Investigations held a hearing entitled "A General Overview of Disparate Impact Theory."

Testimony was presented by:

  • Peter N. Kirsanow, Commissioner, United States Commission on Civil Rights
  • Kenneth L. Marcus, President and General Counsel, Louis D. Brandeis Center for Human Rights Under Law
  • Dennis Parker, Director, Racial Justice Program, American Civil Liberties Union

The hearing covered the use of disparate impact theory as expressed in:

  • The U.S. Department of Housing and Urban Development (HUD) rule issued on February 15, 2013, providing for the use of a disparate impact analysis in determining violations of the Fair Housing Act (FHA); and
  • The Consumer Financial Protection Bureau's bulletin explaining the disparate impact analysis when exercising supervisory and enforcement authority under the Equal Credit Opportunity Act and its implementing regulation, Regulation B.

Disparate impact theory allows the government or private litigants to bring discrimination claims based solely on statistics that show that an otherwise neutral policy has a disparate impact on protected classes without having to show intent to discriminate. Although the disparate impact theory is used primarily to bring housing discrimination cases under the FHA, which prohibits discrimination in housing on the basis of color, religion, sex, familial status and national origin, it could conceivably be used to challenge insurance risk classifications that have a disparate impact on a protected class. Courts have found that homeowners insurance is essential to obtaining a mortgage and, therefore, is subject to the FHA.

The three witnesses expressed sharply different views regarding the use of disparate impact theory. Commissioner Kirsanow said he thought the doctrine was a violation of the equal protection clause of the Fourteenth Amendment to the U.S. Constitution because it allows for distinctions based on a person's skin color rather than on the "content of one's character." He said there is no language in the FHA that would support the use of the disparate impact theory.

Parker took an opposite position. He said that the disparate impact theory has been upheld by federal appellate courts in all 11 circuits and has been used successfully for more than 40 years to combat discrimination where proving actual discriminatory intent would be impossible or impractical (such as discrimination in mortgage financing).

Marcus took somewhat of a middle position. He said that discrimination still exists, including blatant, intentional discrimination, and the problem with the disparate impact theory is that it is often used against people who are not discriminating, either intentionally or otherwise. The use of the theory shifts the burden of proof to the defendant, requiring the defendant to be race conscious in defending against a discrimination charge. Marcus would allow its use only to prove individual intent in situations where actual and invidious discrimination has been shown.

The Chairman of the Subcommittee, Representative Patrick T. McHenry (R-NC), noted in his opening remarks that a case that was supposed to have been argued this term would have allowed the U.S. Supreme Court to opine on this question for the first time. On November 13, 2013, however, Mount Holly Township voted to settle Mount Holly v. Mount Holly Gardens Citizens, thus delaying the debate as to whether disparate impact claims could be brought under the FHA.

Another case on this issue is pending. The American Insurance Association (AIA) and the National Association of Mutual Insurance Companies (NAMIC) filed a lawsuit in the United States District Court for the District of Columbia challenging the HUD rule. The plaintiffs seek to invalidate the HUD rule on the grounds that the FHA prohibits only intentional discrimination and, if applied to insurers, the rule would force insurers to violate state rating and underwriting laws in order to comply with the HUD rule.