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Disparate Impact Liability is the Best Remedy for Structural Racism

Stephen Menendian, assistant director, Haas Institute for a Fair and Inclusive Society | October 22, 2019

In 1968, Congress enacted the Fair Housing Act, the nation’s first open housing law. This critical piece of legislation not only prohibited racial discrimination in housing, but sought to reverse decades of federal, state, and local policies that promoted and deepened residential segregation by requiring government agencies to “affirmatively further fair housing” and to replace racially concentrated poverty with “truly integrated and balanced living patterns,” as the Supreme Court observed in an early case applying the act.

Unfortunately, this aspiration never materialized.

Racial residential segregation remains stubbornly high. More than half of either black or white Americans would have to move to a different neighborhood to achieve integration. In the San Francisco Bay Area, overall racial residential segregation is higher today than in 1970, because Latinx and Asian residents are more segregated today than they were even a few decades ago.

In the decades since the passage of the Fair Housing Act, federal courts of appeals consistently interpreted the Act as extending its prohibitions not only to intentional discrimination (“disparate treatment” liability), but also to actions or policies that perpetuate segregation or otherwise have a disparate racial effect (“disparate impact” liability), regardless of intent. This consensus was based on broad purposes and text of the act, as well as the legislative intent of Congress when it amended the Act in 1988.

In 2013, forty-five years after the enactment of the Fair Housing Act, the department of Housing and Urban Development (HUD) finally codified ‘disparate impact’ liability as an agency standard, defining the element of the claim and specifying the burdens on both plaintiffs and defendants in a way that reasonably balanced the purposes of the act with fairness to potential defendants. And in 2015, the Supreme Court of the United States affirmed that disparate impact liability exists under the federal fair housing act in a landmark decision challenging the administration of the federal low income housing tax credit program in Texas.

Unfortunately, HUD has now proposed a revision to the HUD rule that would make it significantly more difficult for plaintiffs to successfully bring disparate impact suits. Under the 2013 rule, plaintiffs had to establish a statistically significant disparate impact and identify the policy or practice that produced this impact to survive the initial pleadings stage of a lawsuit. The 2015 Supreme Court decision clarified that plaintiffs must also establish a “robust causal” connection between the impact and the policy or practice. This proposed rule, however, not only requires that the policy not be “artificial, arbitrary, and unnecessary,” at the pleadings stage, but it also requires plaintiffs to establish that the policy or practice is “significant” and a “direct cause.”

The proposed rule would circumscribe disparate impact liability for activity that should be covered, by exempting, for example, certain use of algorithms that produce a racially disparate impact. Algorithms and other predictive analytics are increasingly relied upon to determine to assess credit worthiness for loans to bail risk to informing hiring decisions. Unfortunately, the use of big data sets to create such algorithms has a noted tendency to replicate past discrimination and structural disparities. Rather than exempt these tools from civil rights protections, they need greater scrutiny to ensure that they are not replicating structural inequalities.

Further, the new proposed rule excises any mention of segregation as a form of disparate impact. The 2013 rule, issued under the Obama administration, defined “discriminatory effects” as “A practice [that] actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race” (emphasis added).  The new rule eliminates the language that defines discriminatory effects to encompass the perpetuation of segregation.  The reason this matters is because one of the main purposes of the Fair Housing Act was to disrupt and to remediate patterns of racial segregation that were entrenched around the country at the time of the act’s enactment, and which persist to this day.  As Justice Kennedy wrote in his controlling opinion in the 2015 decision, “The Court acknowledges the Fair Housing Act’s continuing role in moving the Nation toward a more integrated society.”

Residential segregation is one of the core components of structural racial inequality. It is through racial residential segregation that resources are unevenly allocated among racial groups, and racial inequalities in education, employment, and health are maintained. Structural racism explains the production of racial inequality not through the actions of racist actors, but rather through the relationships of critical systems and markets, such as the relationship between place of residence and employment opportunities and school quality.

If racial inequality is mainly structural, then a disparate impact rule is well tailored to address structural racism – to make actors, private and public, sensitive to how their actions either advance racial equity or exacerbate it. For example, when cities undertake land use restrictions, such as banning apartments to improve property values, or redevelopment projects to make a neighborhood more attractive, a disparate impact rule requires them to consider how their ideas – no matter how well-intended – advance racial equity and reduce racial segregation.

This is especially important since we know that many municipalities historically took actions that undermined those goals. Disparate impact is thus about sensitizing political leaders, institutional leaders, and community leaders to how their actions may produce racial effects, even with good intentions. It is a necessary step when systemic and racial inequality are so deeply structured in our society.

This proposed rule makes it much more difficult not only to win disparate impact claims, but to survive a motion to dismiss or summary judgment. The reduced threat of liability will undoubtedly make public and private actors less anxious about the risk of liability, would undermine a main purpose of the Fair Housing Act, and would make it much harder to achieve the goal of racial equity in our country.

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