The District Court of the District of Columbia has issued a decisive order vacating HUD’s 2013 Fair Housing Act disparate impact rule. The rule, as we’ve discussed, has always been based on a shaky legal foundation, but is one on which HUD and the DOJ have relied on in increasingly aggressive fair lending enforcement.
Plaintiffs the American Insurance Association and National Association of Mutual Insurance Companies sued HUD and the HUD Secretary in June 2013, challenging the agency’s promulgation of the disparate impact rule. Plaintiffs allege that HUD violated the Administrative Procedure Act by exceeding its statutory authority under the FHA, because the rule expanded the scope of the FHA to recognize not only disparate-treatment claims (i.e., intentional discrimination, which the FHA prohibits) but also disparate-impact claims (i.e., facially neutral practices with discriminatory effects, which the FHA does not mention).
Far from limiting its holding to Plaintiffs’ narrower, insurance-specific argument under the McCarran-Ferguson Act, as some industry watchers suspected it might do, the court’s wide-reaching holding decided every substantive issue in Plaintiffs’ favor:
- First, it rejected out-of-hand HUD’s argument that Plaintiffs lacked standing, exclaiming, “I find that plaintiffs’ claims are over ripe for judicial review!”
- Next, the court declined HUD’s invitation to defer to the agency’s interpretation of the FHA, explaining, “I agree with the plaintiffs that the FHA unambiguously prohibits only intentional discrimination.” The court therefore held that the disparate impact rule “exceeds HUD’s “statutory jurisdiction, authority, or limitations . . . and thereby violates the APA.”
- The court then rejected HUD’s argument that every circuit court to decide the issue has held that the FHA permits a disparate impact theory: “Please! The Supreme Court itself has made clear that a statute is not ambiguous simply because there is a lack of judicial consensus as to its proper meaning. . . .”
- The court concluded with this admonition: “This is, yet another example of an Administrative Agency trying desperately to write into law that which Congress never intended to sanction,” and, “it is nothing less than an artful misinterpretation of Congress’s intent that is, frankly, too clever by half.”
While the decision is limited to the FHA, the core reasoning—that the statute includes no “effects” based language, as is necessary to allow for a disparate impact claim after the Supreme Court’s decision in Smith v. City of Jackson, Miss., 544 U.S. 228 (2005)—ought to apply equally to the Equal Credit Opportunity Act, which the CFPB and other agencies currently interpret as permitting disparate impact claims.
As we’ve discussed, the Supreme Court will finally be allowed to hear the case for disparate impact liability under the FHA in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, No. 13-1371 (U.S. Oct. 2, 2014), after the parties in two previous appeals settled in connection with last-minute efforts engineered to avoid the Court’s review of the disparate impact question.