Presenters

1. Navigating HUD’s “Disparate Impact” RuleJuly 25, 2013Chicagoland Apartment AssociationChicago, IL

2. Presenters • Greg Brown • National Apartment Association • Jeanne McGlynn Delgado • National Multi Housing Council

3. HUD’s Disparate Impact Rule • Why did HUD publish this rule? • Why now? • What does it mean?

4. HUD’s Disparate Impact Rule • February 15, 2013 • Rule formalizes HUD’s long held recognition that discriminatory effects liability under the Fair Housing Act • HUD is statutorily charged with the authority and responsibility for interpreting and enforcing the Act

5. HUD’s Disparate Impact Rule • Why? • After 40+ years of experience with fair housing law at State and Federal levels, instances of overt intentional discrimination are more likely to be identified and remedied. • It is relatively easy to prove discrimination where there is evidence of obvious intent to discriminate. • For example, a sign that says “No _____ Need Apply”

6. HUD’s Disparate Impact Rule • Establishing Fair Housing Liability • But what happens when acts that do not show obvious intent to discriminate have a discriminatory effect? • Problem arises in two situations: • Pretext: Innocent-looking action that masks discriminatory intent • Neutral rules that have inadvertent discriminatory effect • Should someone be punished if they did not intend to violate fair housing rules? • Disparate Impact liability arises from the need to determine whether neutral rules that have a discriminatory effect should be held to violate fair housing rules

7. HUD’s Disparate Impact Rule • Courts, agencies have developed different categories to address intentional and non-intentional discrimination: • Disparate Treatment: Where someone in a protected class is singled out for adverse treatment • Disparate Impact: A policy that appears neutral on its face but that, as applied, has a harsher impact on someone in a protected class than on general public

8. HUD’s Disparate Impact Rule • If a disparate impact standard is going to be used to assess liability, it must do a couple of things: • First, there has to be some way to establish that someone in a protected class is disproportionately hurt by the challenged practice • Second, there has to be a mechanism to assess whether there is a legitimate excuse or justification for the challenged practice • Otherwise, any practice that has a disproportionate impact would violate fair housing laws • System needs to distinguish “valid” from “invalid” impacts

9. HUD’s Disparate Impact Rule • Future of Disparate Impact • If this rule is so fundamental, why did HUD just adopt it? • While courts have applied disparate impact in housing cases for many years, it remains controversial • Typically, we do not impose liability without intent or at least violation of some well-established duty • Supreme Court has been critical of fault without intent in discrimination cases • Last term and this term, cases on docket raised question whether Fair Housing Act actually does allow disparate impact • Will be interesting to see what Supreme Court does

10. Supreme Court • Steve Magner, et al. v. Thomas J. Gallagher, et al. • Township of Mount Holly, New Jersey, et al. v. Mt. Holly Gardens Citizens in Action, Inc., et al.

11. HUD’s Disparate Impact Rule • What Does It Mean? • Allows liability without finding of actual intent to discriminate • Liability is based on effects of a policy or practice, not on whether there was an intent to discriminate • In other words, “clean heart” is not necessarily a defense • HUD rule will apply to all cases within its investigatory realm • Courts will look to HUD view because it is “expert” • Important to understand HUD’s rule, because disparate impact is used in many areas of anti-discrimination law.

12. HUD’s Disparate Impact Rule • Balance Shifting Test • Uses a balance-shifting test to determine whether a violation has occurred • Plaintiff bears initial burden of showing if the policy or practice has a disparate impact on someone in a protected class • If so, burden shifts to defendant to show if there is a legally sufficient justification for the challenged practice • Must show substantial, legitimate, nondiscriminatory interest and • No less discriminatory alternative • Burden shifts to Plaintiff to show no less discriminatory alternative

13. HUD’s Disparate Impact Rule • Industry Concerns: • No clear indication in Fair Housing Act that Congress intended to impose liability based solely on effect (vs. intentional conduct) • Not clear if it can correctly distinguish between “valid” and “invalid” neutral rules • Should rule require litigation to determine if valid? • How much impact is sufficient to impose liability? • Should impact also be qualitatively harsher on protected classes? • HUD refused to create “safe harbors” that would allow persons to know they were not violating law

14. HUD’s Disparate Impact Rule • Potential apartment industry polices/practices that can come under additional scrutiny: • Resident Screening for criminal history • Section 8 policies/Source of Income • Low Income Housing Tax Credit • Public agency enforcement • i.e. development , code enforcement, etc.

15. HUD’s Disparate Impact Rule • Criminal Background Checks • Private owners of multifamily housing perform various checks before admitting new tenants • Is it permissible to screen tenants on the basis of criminal history/conduct? • Some groups contend that screening on this basis has a harsher impact on protected classes than on others • US Government itself requires owners of HUD-insured/assisted housing to perform criminal background checks • Owners should be able to show legitimate purpose but strict “no-record” standards may not satisfy less discriminatory alternatives component

16. HUD’s Disparate Impact Rule • Source of Income • Fair Housing Act does not include economic status as a protected class • Some states/cities prohibit discrimination on the basis of the source of income (alimony, Section 8, public assistance) • In some areas, groups claim that discrimination on the basis of source of income has a disparate impact on persons in a protected class • In this case, disparate impact is being used to create a new protected class (persons who receive alternative income)

17. HUD’s Disparate Impact Rule • Low Income Housing Tax Credits (LIHTC) • Inclusive Communities case (Texas) shows problems posed by disparate impact analysis • Plaintiff wanted to develop LIHTC properties in non-minority areas • Texas agency allocates LIHTCs using Federal standards, resulting in more LIHTC housing in minority areas • Court ruled: • Plaintiff showed disparate impact on minorities • Defendant showed legitimate justification, but did not show that no less discriminatory alternative available • Plaintiff won

18. HUD’s Disparate Impact Rule • Low Income Housing Tax Credits (LIHTC) • Inclusive Communities case is alarming, but should not be over-dramatized • Several factors should limit its reach: • State agency did not mount effective defense to showing ofdisparate impact • In a different case, numbers might lead to different result • Court did not give weight to many steps that agency took expressly to reduce disparate impacts • Did steps amount to a “less discriminatory alternative”? • Does not mean local focus by community developer is invalid

19. HUD’s Disparate Impact Rule • Enforcement Actions by Public Agencies • Magner and Mount Holly cases • In these cases, city governments attempted to enforce public building/health codes or to redevelop blighted areas • Residents argued that these policies had a disparate impact on minorities in these areas • Essentially argued that enforcement activities were pretexts for discriminatory conduct • Supreme Court : has agreed to hear Mt Holly • Township of Mt Holly currently in settlement discussions • Moving forward preparing briefs

20. HUD’s Disparate Impact Rule • Other Industries Impacted • Lenders, insurers objected to proposed HUD rule • They feared liability if general policies inadvertently have harsher impact on protected classes • Lenders: stricter post-recession underwriting practices may result inless credit offered to protected classes, which could result indisparate impact claims • HUD rejected request to establish “safe harbors” that would assure that practices do not violate the act • Argued that courts are well-acquainted with disparate impact theories and can resolve disputes • But is it a good rule if you have to litigate to know whetheryou are acting properly?

21. State and Local Fair Housing Laws • State and local governments can enact and enforce their own fair housing laws. • State and local governments may adopt protections in their fair housing laws for classes of people not protected under federal law. • Kansas City, MO – sexual orientation; gender identity • Washington, DC – age; political affiliation; personal appearance; place of residence/business; domestic violence; gender identity/expression. • Cook County, IL – source of income • This allows for additional types of disparate impact claims under state and local laws, if courts accept the theory.

22. Source of Income Protections Washington Maine Michegan (upper penisula) Minnesota North Dakota Montana New Hampshire Oregon Vermont Massachutes Wisconsin Idaho Rhode Island South Dakota Connecticut New York Wyoming Michigan New Jersey Iowa Nebraska Pennsylvania Indiana West Virginia Illinois Nevada DC Ohio Maryland Utah Virginia Colorado Kansas Missouri Kentucky California North Carolina Oklahoma Tennessee Arkansas New Mexico South Carolina Arizona Georgia Alabama Delware Mississippi Alaska Louisiana Texas Florida Rhode Island Hawaii

23. Criminal Background Checks • Recent surge in legislative proposals restricting consideration of arrest and conviction records. • Only handful of governments actually enacted such policies. • Frustration of advocates with pace of change generating disparate impact litigation. • Some jurisdictions driving policy around disparate impact theory. • Kansas City, MO • Complaints against communities initiated by the City on resident-selection grounds (i.e. denying tenancy on the basis of felony convictions). • Claim of disparate impact on African-Americans and Hispanics. • Further claim that there is no business necessity for such astrict policy.

24. Considerations for Resident Selection Policies* • Liability exposure - blanket prohibition vs. selective criteria. • But how narrow of a scope? • Areas for possible consideration: • Arrest Records • Expunged, Sealed or Closed Records • Registered Sex Offenders • Differing Crimes and/or Number of Convictions • Victims of Domestic Violence *SOURCE: Apartment Association of Kansas City White Paper on Disparate Impact and Criminal Background Checks

25. HUD’s Disparate Impact Rule • At Federal level, three primary laws affect discrimination in housing: • Fair Housing Act: Prohibits discrimination on the basis of race, color, national origin, religion, sex, disability and familial status in various real-estate/housing transactions • Section 504: Prohibits discrimination against persons with disabilities in programs that receive Federal financial assistance • Americans With Disabilities Act (ADA): Prohibits discrimination against persons with disabilities, including in places of public accommodation

26. HUD’s New Disparate Impact Rule

27. HUD’s Disparate Impact Rule • Lessons to Learn: • Before adopting any policy or practice, you need to ask: • Is it likely that policy or practice will have a harsher impact on persons in a protected class? • Is there a legally sufficient justification for the policy or practice? • Is there a less discriminatory alternative that would meet the same practical goals?

28. QUESTIONS?

29. Presenter Contact Information Greg Brown Senior Vice President of Government Affairs National Apartment Association greg@naahq.org(703) 797-0615 Jeanne McGlynn Delgado Vice President, Business and Risk Management Policy/Government Affairs National Multi Housing Council jdelgado@nmhc.org(202) 974-2344

30. 15893213_1_Chicago Disparate Impact Housing Issues.pptx