HUD’s EFFECTS TEST STANDARD

On February 15 the Department of Housing and Urban Development (HUD) published a final rule that formalizes a test for determining whether a given practice has an unjustified discriminatory effect, leading to liability under the Fair Housing Act. The final rule is effective on March 18, 2013.

The regulation formalizes HUD’s long-held interpretation of the availability of “discriminatory effects” liability under the Fair Housing Act and to provide nationwide consistency in the application of that form of liability. Through four decades of case-by-case application of the Fair Housing Act’s discriminatory effects standard by HUD and the courts, a small degree of variation has developed in the methodology of proving a claim of discriminatory effects liability. This inconsistency threatens to create uncertainty as to how parties’ conduct will be evaluated.

The rule establishes the three-part burden-shifting test for determining when a practice with a discriminatory effect violates the Fair Housing Act.
1. The plaintiff first bears the burden of proving its prima facie case that a practice results in, or would predictably result in, a discriminatory effect on the basis of a protected characteristic.
2. If the charging party or plaintiff proves a prima facie case, the burden of proof shifts to the respondent or defendant to prove that the challenged practice is necessary to achieve one or more of its substantial, legitimate, nondiscriminatory interests.
3. If the respondent or defendant satisfies this burden, then the plaintiff may still establish liability by proving that the substantial, legitimate, nondiscriminatory interest could be served by a practice that has a less discriminatory effect.

Because the rule does not change decades-old law, but rather formalizes a clear, consistent, nationwide standard for litigating discriminatory effects cases under the Fair Housing Act, it adds no additional costs to those engaged in housing transactions. Rather, the rule will simplify compliance with the Fair Housing Act’s discriminatory effects standard and decrease litigation associated with such claims by clearly allocating the burdens of proof and how such burdens are to be met.

A copy of the final rule is available here.

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