HUD Reinstates “Discriminatory Effects Rule”

HUD recently announced that it plans to restore the 2013 “discriminatory effects” rule to the Fair Housing Act (FHA). HUD has submitted to the Federal Register the final rule, which rescinds a 2020 rule governing “disparate impact” claims and restores the 2013 discriminatory effects rule.

The context: The discriminatory effects doctrine is a tool for addressing policies that unnecessarily cause systemic inequality in housing, regardless of whether they were adopted with discriminatory intent. It has been used to challenge policies that unnecessarily exclude people from housing opportunities, including zoning requirements, lending and property insurance policies, and criminal records policies.

One level deeper: In the final rule, HUD emphasizes that the 2013 rule is more consistent with how the FHA has been applied in the courts and in front of the agency for more than 50 years, and that it more effectively implements the Act's broad purpose of eliminating unnecessary discriminatory practices from the housing market.

Under the 2013 rule, a policy that had a discriminatory effect on a protected class was unlawful if:

• It was not necessary to achieve a substantial, legitimate, nondiscriminatory interest; or
• If a less discriminatory alternative could also serve that interest.

The 2020 rule complicated that analysis, HUD said, by adding new pleading requirements, new proof requirements, and new defenses. All of that made it more difficult to establish that a policy violates the FHA and harder for entities regulated by the FHA to assess whether their policies were lawful.

The bottom line: HUD is repealing a rule that never actually went into effect. The 2020 rule never took effect due to a preliminary injunction issued in a lawsuit, Massachusetts Fair Housing Center v. HUD, that stayed its implementation. The 2013 rule still stands and entities that have been complying with the 2013 rule do not need to change any practices to comply with the final rule, HUD said.