Disparate-impact claims can be heard by the court under the Fair Housing Act (FHA), according to the U.S. Supreme Court’s 5-4 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.
Disparate impact occurs when a lender’s policies or practices are facially neutral (there is no explicit intent or motive to discriminate) but have discriminatory effects, nonetheless, and cannot be excused by a justifiable or legitimate business purpose. Under the FHA, when people are renting, buying or securing financing for any housing, the law protects them from discrimination on the basis of race, color, national origin, religion, sex, disability status and parental status.
Department of Housing and Urban Development (HUD) Secretary Julian Castro released a statement calling the ruling “another important step in the long march toward fulfilling one of our nation’s founding ideals: equal opportunity for all Americans.”
Dennis Parker, director of the Racial Justice Program at the American Civil Liberties Union, said the ruling recognizes that housing discrimination persists. “This decision retains the essential protections of the Fair Housing Act, meaning the law will continue to serve as an important tool in rooting out pernicious forms of racial segregation and discrimination,” Parker added.
The American Bankers Association (ABA) and Independent Community Bankers of America (ICBA) were not quite as thrilled by the decision.
“ABA and our members are strong advocates for fair lending and enforcement of the Fair Housing Act,” ABA President and CEO Frank Keating said, adding, “Disparate impact theory, however, is not the right tool to achieve fairness and prevent discrimination in lending. This approach can have unintended consequences, such as causing financial institutions to shrink their operations rather than risk litigation, hurting the very groups it is intended to help.”
Camden Fine, president and CEO of ICBA, echoed Keating’s commitment to fair lending practices but also disagreed with the decision. Fine added, however, that the trade association appreciated the Supreme Court’s limitations on the application of disparate-impact theory.
According to the decision, written by Justice Anthony Kennedy, “[A] disparate-impact claim that relies on a statistical disparity must fail if the plaintiff cannot point to a defendant’s policy or policies causing that disparity.” The decision calls for a “robust causality requirement” to ensure that “[r]acial imbalance … does not, without more, establish a prima facie case of disparate impact.” This measure is meant to protect defendants from being held liable for racial disparities they did not create.
“Without adequate safeguards at the prima facie stage [the pleading stage], disparate-impact liability might cause race to be used and considered in a pervasive way and ‘would almost inexorably lead’ governmental or private entities to use ‘numerical quotas,’ and serious constitutional questions then could arise,” the decision states.