Proposed Changes to HUD Disparate Impact Rule Would Create New Burden-Shifting Framework to Reflect Inclusive Communities

An article from the National Law Review states:

“The Department of Housing and Urban Development is expected to soon release proposed revisions to its 2013 rule under which HUD or a private plaintiff can establish liability under the Fair Housing Act (FHA) for discriminatory practices based on disparate impact even if there is no discriminatory intent (Rule). The proposal has been submitted to Congress for review pursuant to the Congressional Review Act. Comments on the proposal will be due on or before 60 days after the date it is published in the Federal Register.


HUD’s proposed revisions to the Rule include the following:

  1. To reflect language in Inclusive Communities warning against the use of racial quotas, a statement that nothing in the Rule or elsewhere in Part 100 of HUD’s regulations requires or encourages the collection of data with respect to protected characteristics and that the absence of such collection will not result in an adverse inference against any party.

  2. To conform with language in Inclusive Communities, a statement that the remedy in an administrative proceeding should concentrate on eliminating or reforming the discriminatory practice so as to eliminate disparities and may include equitable remedies and, where pecuniary damage is proved, compensatory damages or restitution but (consistent with the FHA) not punitive or exemplary damages (HUD asks for feedback on the question of whether, and under what circumstances, punitive or exemplary damages may be appropriate in disparate impact litigation in federal court).

  3. To reflect guidance in Inclusive Communities, revised language that makes clear that providing information which is inaccurate or different from that provided others because of protected characteristics does not violate the FHA if the information is not materially inaccurate or materially different from that provided others.

  4. Based on Inclusive Communities, a new framework that requires the plaintiff to allege each of the following five elements to establish a prima facie case based on a claim that a specific, identifiable policy or practice has a discriminatory effect:

    1. That the challenged policy or practice is arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective

    2. That there is a robust causal link between the challenged policy or practice and a disparate impact on members of a protected class which shows the specific policy or practice is the direct cause of the discriminatory effect

    3. That the alleged disparity caused by the policy or practice has an adverse effect on members of a protected class

    4. That the alleged disparity caused by the policy or practice is significant

    5. That there is a direct link between the disparate impact and the complaining party’s alleged injury

  5. In addition to alleging that a plaintiff has not alleged sufficient facts to support a prima facie case, a defendant can use one of the following two methods to establish that the plaintiff’s allegations do not support a prima facie case:

    1. The defendant can show that its discretion is materially limited by a third party, such as through a federal, state, or local law or binding court, arbitral or other order or administrative requirement

    2. Where the cause of a discriminatory effect is alleged to be a model used by the defendant such as a risk assessment algorithm, the defendant can:

      1. Identify the material factors used in the model and shows that these factors are not substitutes for protected  characteristics and that the model is predictive of credit risk or another similar valid objective

      2. Show that a recognized third party that determines industry standards is responsible for producing, maintaining, or distributing the model, the inputs within the model are not determined by the defendant, and the defendant is using the model as directed by the third party

      3. Show that the model has been validated by a neutral third party that found it to be empirically derived, that its inputs are not substitutes for protected characteristics, and that it is demonstrably and statistically sound and accurately predicts risk or other valid objectives.”

See the full article at