In a memorandum issued on January 26, 2021, President Biden has ordered the Secretary of the U.S. Department of Housing and Urban Development (“HUD”) to “as soon as practicable, take all steps necessary to examine the effects of” the final rule issued by HUD in September 2020 (“2020 Rule”) revising its 2013 Fair Housing Act (“FHA”) disparate impact standards (“2013 Rule”). President Biden has named Matt Ammon Acting HUD Secretary and has nominated Congresswoman Marcia Fudge to serve as HUD Secretary.
In the memorandum, titled “Memorandum on Redressing Our Nation’s and the Federal Government’s History of Discriminatory Housing Practices and Policies,” President Biden declares that it is the policy of his Administration for the federal government to:
work with communities to end housing discrimination, to provide redress to those who have experienced housing discrimination, to eliminate racial bias and other forms of discrimination in all stages of home-buying and renting, to lift barriers that restrict housing and neighborhood choice, to promote diverse and inclusive communities, to ensure sufficient physically accessible housing, and to secure equal access to housing opportunity for all.
With regard to the 2020 Rule, the memorandum provides that:
- The effects of the 2020 Rule that the HUD Secretary must examine include “the effect that amending the [2013 Rule] has had on HUD’s statutory duty to ensure compliance with the Fair Housing Act.”
- Based on this examination, the Secretary must take any necessary steps, as appropriate and consistent with applicable law, to implement the FHA’s requirements that HUD administer in a manner that affirmatively further fair housing and HUD’s overall duty to administer the FHA including by preventing practices “with an unjustified discriminatory effect.”
The 2020 Rule has been widely criticized by consumer advocates and HUD’s proposal of the 2020 Rule met with strong criticism from Democratic lawmakers. As a result, the 2020 Rule will likely face an uphill battle to remain intact when reviewed by new HUD leadership.
Although set to become effective on October 26, 2020, the 2020 Rule’s effective date has been stayed pursuant to a preliminary injunction entered by a Massachusetts federal district court. As we have previously reported, the Massachusetts lawsuit is one of three lawsuits challenging the 2020 Rule under the Administrative Procedure Act that are currently pending in federal district court. The Massachusetts court’s order, entered on October 25, 2020, also enjoins HUD from enforcing the 2020 Rule and keeps the 2013 Rule in place until further order of the court.
In Inclusive Communities, which was decided in 2015, the U. S. Supreme Court ruled that disparate impact claims are cognizable under the FHA. Such claims allege that a policy or practice that is neutral on its face nevertheless violates the FHA because it has a discriminatory effect on a prohibited basis. The FHA prohibits discrimination based on characteristics such as race, sex, disability, and familial status, among others. Discrimination claims can be brought under the FHA against lenders, landlords, and others involved in residential real estate-related transactions.
In their complaint, the Massachusetts plaintiffs contend that contrary to HUD’s assertion that the 2020 Rule “merely brings the 2013 Rule into alignment with the Supreme Court’s decision in Inclusive Communities,” the 2020 Rule “is directly contrary to Inclusive Communities; introduces novel pleading and proof requirements, and new defenses, which upset accepted practice and undermine enforcement of the FHA.” The two other lawsuits, one in California and the other in Connecticut, also call into question the premise that Inclusive Communities required the changes made by the 2020 Rule and allege that the 2020 Rule’s pleading and burden-shifting standard is arbitrary, capricious, and contrary to law.
President Biden’s memorandum does not establish a deadline by which HUD must complete its review of the 2020 Rule. However, HUD is likely to face pressure to take a position on how it intends to proceed from the plaintiff in the lawsuit currently pending in the D.C. federal district court challenging the 2013 Rule. Initially filed in 2013 by the National Association of Mutual Insurance Companies (“NAMIC”) and the American Insurance Association (“AIA”), the plaintiffs filed an amended complaint in April 2016 in which they allege that the 2013 Rule is inconsistent with Inclusive Communities. In June 2016, the plaintiffs filed a summary judgment motion seeking to invalidate the 2013 Rule to the extent it applies to insurers’ ratemaking and underwriting decisions.
Since June 2018, the lawsuit has been stayed in anticipation of HUD’s issuance of revisions to the 2013 Rule. (In March 2019, AIA was terminated as a plaintiff.) In the most recent joint status report filed with the court on December 14, 2020, NAMIC stated that if as of the next status report (due to be filed on February 12, 2021) the Biden Administration does not intend to defend the 2020 Rule, NAMIC will ask the court to set an argument date for its summary judgment motion at the court’s earliest convenience.
The use of disparate impact analysis has also been a controversial issue for the CFPB. Under the leadership of former Director Cordray, the CFPB embraced the use of disparate impact analysis for establishing discrimination under the Equal Credit Opportunity Act (“ECOA”) and Regulation B and brought several enforcement actions premised on the use of disparate impact analysis. However, under the leadership of former Acting Director Mulvany, the CFPB indicated that it planned to reexamine its use of disparate impact analysis in light of Inclusive Communities. In July 2020, under the leadership of former Director Kraninger, the CFPB issued a request for information (“RFI”) seeking public input on a number of issues relating to expanding credit access and discrimination in credit transactions. . Among the issues on which the CFPB sought comment in the RFI was its approach to disparate impact analysis under the ECOA and Regulation B. (The RFI’s extended comment period closed on December 1, 2020.) Given the Biden Administration’s goal of addressing racial economic inequality, rather than move away from the use of disparate impact analysis, the CFPB under the leadership of Rohit Chopra, President Biden’s nominee for CFPB Director, can be expected to renew its use of disparate impact analysis under the ECOA and Regulation B.