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.”


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. 

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