The Magazine

Rein in HUD

Jan 27, 2014, Vol. 19, No. 19 • By TERRY EASTLAND
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Under our Constitution, a government agency may not act beyond the authority given it by Congress. Indeed, as the Supreme Court has said, “an agency literally has no power to act .  .  . unless and until Congress confers power upon it.”

HUD

The principle is basic, but in a significant matter the Department of Housing and Urban Development under President Obama has ignored it, to say no worse. Fortunately, a lawsuit now moving forward in the nation’s capital promises to compel the agency to quit its conspicuous overreaching.

At issue is the Fair Housing Act (FHA) and the meaning of its provision prohibiting discrimination. The law, which HUD enforces, makes it illegal to “refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin .  .  . or handicap” or to “discriminate against any person in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of race [or any of the other prohibited characteristics].”

No one doubts that this provision means, for example, that a realtor can’t treat someone looking to buy a house differently because of the person’s race or color or religion, etc. The realtor can’t engage in what is called “disparate treatment.” That’s what “discrimination” is under the FHA, and it clearly must be intentional discrimination, engaged in by someone who refuses to sell or rent because of race or color. Indeed, to prevail in a claim of discrimination, the accusing party must prove discriminatory intent or motive.

There is, though, another view as to what discrimination is, and it defines discrimination in terms of actions or policies that are neutral on their face and nondiscriminatory in their intent but have a disproportionate impact, shown through statistics, on a group of persons defined in terms of race or color, etc. Thus, discrimination is seen in terms of “disparate impact.”

HUD has used this approach in enforcing the FHA, though never in any previous administration so aggressively as it has under Obama’s. And over the years the approach has been accepted by the circuit courts that have ruled on it in housing cases. Even so, disparate impact is not provided for in the FHA, whose focus is on the motivation of the conduct in question and not its effects.

HUD last year issued a regulation purporting to authorize disparate impact. Liability “may be established under the Fair Housing Act based on a practice’s discriminatory effect” upon a protected group, even if “the practice was not motivated by a discriminatory intent.” HUD cites its own “experience” in enforcing the law to justify its view that a disparate impact or effect may be discriminatory, even when there is no discriminatory intent. But the critical question remains what the text of the FHA actually says. And, fairly read, it doesn’t permit the disparate impact approach.

It is basic administrative law that an agency acts outside the authority delegated to it by Congress when it enacts a regulation contrary to the intent of its statutory authority. And that is precisely what HUD has done in issuing what’s known as the disparate impact rule. The rule prohibits disparate impact, but the FHA prohibits only intentional discrimination.

The challenge to disparate impact now in federal court in Washington is being brought by the American Insurance Association and the National Association of Mutual Insurance Companies, two of the largest among the trade associations representing homeowner’s insurers. But will this case actually be decided?

After all, twice now since 2011 private parties brought disparate impact claims in cases that reached the Supreme Court and were accepted for review. Both cases presented the same question as the insurers’ associations present now—whether such claims are legitimate under the FHA. And both cases were settled mere weeks before oral argument, paving the way for their withdrawal from the Court. 

Significantly, both settlements were driven by parties fearful that the Supreme Court would decide that disparate impact claims are not permitted under the FHA. In the first case, Magner v. Gallagher, administration officials, with help from the civil rights lobby, negotiated the settlement, which was reached in early 2012. Congressional investigations ensued, but were of little consequence. Yet the unusual and fiercely determined deal-making led by Thomas Perez, then head of the Justice Department’s Civil Rights Division, illustrated the lengths to which the administration was willing to go to protect its cherished legal theory. Perez was promoted to labor secretary last summer.

The administration tried to persuade the Court not to take the second case, Township of Mount Holly, New Jersey v. Mount Holly Gardens Citizens in Action. The solicitor general argued that the justices should wait to see how the new disparate impact rule fares in the lower courts. The justices rejected that counsel and accepted the case, only to see it go the way of Magner, with settlement (this past November) on the eve of oral argument, followed by removal from the Court.

While there has been no evidence (so far) that the administration played a direct role in making Mount Holly disappear, its allies in the philanthropic and housing communities did. As the Wall Street Journal reported, the Ford Foundation, George Soros’s Open Society Foundations, the National Fair Housing Alliance, and Self-Help Community Development were among the entities that contributed money to TRF Development Partners, another administration ally, to build new homes for those who brought the case as well as other private buyers.

With the American Insurance Association and National Association of Mutual Insurance Companies lawsuit, there is now a third challenge to disparate impact in housing that could make its way to the Supreme Court during the Obama presidency. While we would be eager to know whether administration officials and their disparate impact allies are dialing up the folks at AIA and NAMIC, hoping to find a way to take the case from the judiciary, the plaintiffs are serious about the issue and not likely to quit their complaint prematurely.

And let’s hope they don’t. And that the Court, in the AIA case or one like it not yet on the horizon, reads the FHA correctly and decides that disparate impact claims are not authorized by the law. 

In that event, those who favor disparate impact in housing would, of course, be free to go to Congress and try to persuade it to enact what is, on the merits, a highly controversial policy. Were that to happen, our government of separated powers would be working properly. As it is now, we have an agency that’s acting in excess of its delegated power.

It’s time—past time, really—to rein it in.

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