Supreme Court to Hear ‘Disparate Impact’ Housing Case

By | October 3, 2014

The U.S. Supreme Court agreed to decide whether people suing for housing discrimination must prove they were victims of intentional bias, in a case that may give long-sought protection to the lending industry.

The justices today said they will hear an appeal from Texas officials sued under the U.S. Fair Housing Act over tax credits for low-income building projects. The question is whether people can sue by showing a practice had a “disparate impact” on racial minorities, or whether they must meet a higher standard by proving intentional bias.

The court will consider jettisoning the disparate-impact theory, which has helped the Obama administration get hundreds of millions of dollars in fair-lending settlements with Bank of America Corp., Wells Fargo & Co. and other financial companies.

“The far-reaching scope of disparate-impact liability makes this a question of exceptional importance,” Texas officials led by Attorney General Greg Abbott argued in their appeal.

The court has twice before granted review on the issue, only to have settlements scuttle the case. President Barack Obama’s administration and civil rights advocates have sought to steer the issue away from the Supreme Court. In other contexts, the court under Chief Justice John Roberts has cut back legal protection for racial minorities.

Inclusive Communities

Texas is fighting a lawsuit by the Inclusive Communities Project, a Dallas-based group that advocates for racially integrated housing. The organization accuses Texas of allocating a disproportionate number of federal low-income housing tax credits to minority neighborhoods.

“That practice makes dwellings unavailable in particular areas, thereby perpetuating residential segregation in the Dallas area,” the group said in court papers.

Disparate-impact claims focus on the effect of a disputed policy without requiring evidence of intent. The question for the Supreme Court is whether the Fair Housing Act authorizes those suits.

Although the Supreme Court has allowed disparate-impact claims under other federal discrimination statutes, Texas says the wording of the Fair Housing Act is different in crucial respects.

A ruling in favor of Texas would change the scope of the law across the country. The federal appeals court that ruled in the Texas case is one of 11 that have decided the issue, and all have said the Fair Housing Act allows disparate-impact claims.

Broader Impact

The case could also affect the Equal Credit Opportunity Act, the law used by the administration against Bank of America and Wells Fargo. The Consumer Financial Protection Bureau has relied on the disparate-impact doctrine in enforcing that law, which contains language similar to that in the Fair Housing Act. ECOA, as the law is known, covers auto lending as well as mortgages.

Lenders say the disparate-impact approach puts them in a difficult, if not impossible, situation. They say factors that indicate an ability to repay a loan — like income — often correlate with race.

Commentary: Will HUD’s Disparate Impact Rule Have Say in Ratemaking?

The threat of disparate-impact liability means lenders must pay close attention to racial outcomes of even nondiscriminatory policies, says Paul Hancock, a Miami lawyer who filed a brief backing Texas on behalf of business groups led by the American Bankers Association.

“It really pushes more toward advancement of racial quotas as the only way to avoid legal claims,” he said in a phone interview.

In agreeing to take up the case, the justices said they will consider only whether the Fair Housing Act allows disparate-impact claims and not what standards apply if those claims do go forward. Texas had sought review on both questions.

The case, which the court will consider in the first half of next year, is Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, 13-1371.

Topics Texas

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