Identify the policy or practice with a disparate

Presented by Sara Pratt
The first thing to know about challenging policies that have a disparate impact
under the Fair Housing Act is that we are playing with a full deck again. HUD, the
Department of Justice, private attorneys, courts—all recognize that the Fair
Housing Act may be used to challenge policies that have a disparate impact.
And the second thing to know is that not everyone likes that. Lenders in
particular do not like it, and they have attorneys that say that they will challenge
disparate impact lending cases all the way to the Supreme Court. Other
respondents have mounted major challenges to disparate impact cases as well.
So when we use a disparate impact theory, it is important to do so carefully and
Why should we be concerned? Haven’t there been decisions in every circuit that
have upheld the disparate impact theory in cases? Yes. And a paper written by
Professor Robert Schwemm with a little involvement by me that is in your
materials lists the cases and gives you a much more detailed analysis of the points
I am going to make today. But key votes in the Supreme Court will rest on
whether support for a disparate impact theory in fair housing cases can be found
in the text of the Fair Housing Act or in HUD regulations. And although sound
arguments can be made that that support for a disparate impact theory already
exists in the Act itself, a HUD regulation is needed to provide the clear
interpretation that will put to rest the repeated arguments that there is no
disparate impact theory under the Act. The Supreme Court has already shown us
that it can refuse to find a disparate impact theory in other civil rights statutes;
Title VII, the employment discrimination statute, was amended in 1991 to avoid
this problem for example. We hear that HUD is working on a regulation to
include the disparate impact theory and we applaud that work and look forward
to seeing a proposed rule.
Professor Schwemm and I also found that a disparate impact theory may be
brought under almost every provision in the Act and may involve almost any type
of housing transaction: from a landlord who refuses to rent to someone who does
not speak English, which might have a disparate impact based on national origin,
to a landlord who evicts victims of domestic violence, when that action has a
disparate impact based on sex, to the use by loan officers of subjective judgment
rather than objective risk based factors to determine the terms of a loan, which
might have a disparate impact based on race, national origin, gender, disability.
So a case involving a policy or practice that has a disparate impact might arise
based on any prohibited practice in the Act and based on almost any illegal basis
for discrimination. (exception for the big three in disability possible)
What are the contours of disparate impact? First, and foremost, a challenge to a
policy or practice that may have a disparate impact must first be examined to
make sure that the case actually involves the disparate impact theory. Informally,
we say that a disparate impact case involves a particular policy or practice—which
must be concretely identified—that is neutral on its face –that is, that it is not
itself directly and overtly discriminatory, that it is consistently applied, and that it
has a disproportionate effect on a group that is protected against discrimination.
Some policies or practices that seem like disparate impact cases actually are only
being applied to discourage or disqualify people based on race, national origin, or
other protected class. Those cases look like impact cases, but they aren’t. They
are unequal treatment cases. So the first question is whether the supposed
policy is being applied consistently to all.
Investigators should look for particular policies or practices that may be having a
disparate impact. Just showing that blacks, latinos, or women are being excluded
or denied does not make a case. A specific policy, a specific practice, or group of
practices must be identified.
It is very important to remember that the policy or practice can also be a way of
doing business. Courts have recognized for many years that a practice that has a
disparate impact can arise when a decision maker, like a loan officer or rental
agent makes subjective decisions and the effect of those decisions is to exclude or
limit or otherwise discriminate against a protected group that subjective process
can have a disparate impact.
A policy that has a disparate impact must have a substantial impact on an
identified group. It doesn’t have to affect everyone in the group but it does have
to have a substantial effect on the group. And, of course, how the group is
defined may vary depending on the case. In a case involving a policy where a
town that is 96% white adopts a preference for residents of the town for low
income housing, you might look at the effect of that policy on the waiting list for
that housing which might include residents and non residents or on the eligible
population for that housing in the service or market area. You might find, for
example, that the residency preference will operate to favor white, elderly
residents and exclude blacks, latinos, and families with children who would
otherwise be qualified to live in the housing.
A zero tolerance for violence policy that requires eviction of all residents of a unit
when a violent crime occurs in the unit might have a disparate impact on women
in a particular property who are evicted when they are victims of domestic
violence. The same policy might not have a disparate impact in another
When an investigation finds that a policy or practice has a disparate impact, that
is not the end of the investigation. That is the point where the identified policy or
practice has to be examined to see what the justification is for the policy. An
investigator must find out why the policy was adopted and what business reason
or reason there are to justify it. Courts have framed the standard in different
ways—some cases say that the standard is “business necessity” and later cases,
including a case that originated in a HUD ALJ decision say that the legal standard
to justify a discriminatory policy or practice is that it must have a manifest
relationship to the business operations in question. Other courts say that it can’t
be a hypothetical or speculative reason and that the reason must, in effect, be
real. This is a higher legal standard that the familiar “legitimate non
discriminatory reason” standard we see in unequal treatment cases. If there isn’t
a real business reason that directly justifies the policy then a violation should be
found. Investigative questions include why the policy was adopted and when,
and an investigation of whatever the reasons are that have been given.
Even more to the point, even if there is a business justification for the policy an
investigator must examine whether there were less discriminatory ways to
accomplish the business reason. In a court case, although who has the legal
burden is not completely clear, the best approach and the one that Schwemm
and I recommend is to require that the respondent, or defendant, prove that
there is no less discriminatory alterative that would serve the business reason
that was given. This means that the investigator should ask whether other
policies were considered, why the policy in question was chosen, and then
investigate whether there are in fact other ways to address the respondent’s
concern other than the policy or practice that has a discriminatory impact.
Now let’s bring the disparate impact discussion down to continuing violations. In
May, the Supreme Court held in an employment case, that a complaint about a
policy that has a disparate impact that was applied during the statute of
limitations period was timely, even though the initial action occurred long before
the statute of limitations period. In Lewis v. City of Chicago, the Supremes
looked at a fire fighter test that set up categories of “well qualified” “qualified and
“unqualified” based on the scores that the test taker got on the test. The test and
the scoring process was adopted in 1996; it was used into the 2000s. Assuming
that the test and the scoring process was discriminatory, the Supremes found that
when an employer repeatedly used a discriminatory practice that had a disparate
impact, a continuing violation was established. This would not be the case in an
case involving unequal treatment, or intentional discrimination, the court said.
The analysis was NOT like the Supreme Court’s decision in Ledbetter which was a
case of intentional discrimination, and the Lewis decision turned on Congress’s
use of the word “use.” An employer violates title VII if it USES a policy or practice
that has a disparate impact that does not have a business justification, or where
there is a justification but there is also a less discriminatory alternative. NOTE TO
In lending cases, there is already a line of cases under the Fair Housing Act that
takes a similar position. In those cases, a lending policy or a practice that has a
disparate impact that continues into the limitations period may be considered to
be timely, even if the individual loan that was made was outside the statute of
limitations period. Let me repeat that. The loan that was discriminatory was
made a long time ago, but the policy which resulted in the loan, and which had a
disparate impact continued to exist into the limitations period. The case is timely.
Note: do not make up a disparate impact claim to get a timely case! But if the
shoe fits, argue it.
Other arguments that may be successful in claiming that that the statute of
limitations has not run in a lending case even if a discriminatory loan was made
outside of the limitations period:
 There were other acts as to that borrower after the loan was
originated within the limitations period. (Jackson v. Novastar, Davis v.
Wells Fargo)
 There was a showing that a discriminatory pricing policy continued
into the limitations period (Miller v. Countrywide)
 There were further discriminatory practices as to other class
members (Ramirez v. Greenpoint)
 There were multiple closings on various loans, the last of which was
in the limitations period. ( Barrett v. H and R Block)
 There was fraudulent behavior, including use of materials not in the
language read by the complainant that might toll the limitations
 And possibly, as to a secondary market type lender, that the loan was
purchased during the limitations period.
 BUT it’s probably NOT enough to show that the policy was just to
continue soliciting loans in minority communities (Robinson v. Argent
 AND it’s not clear whether a Ledbetter argument—that each loan
payment was a new act of discrimination because it included
discriminatory terms—would be successful under the Fair Housing
Disparate impact in lending—or in almost any case that you look at under the Fair
Housing Act? Proceed thoughtfully. But proceed.
Identify the policy or practice with a disparate impact where the loan was made too
long ago to be within the limitations period; look at the policy and practice, find
out how it was applied, and when it was applied, and to whom, and make your
arguments accordingly.