Judge Rejects ‘Disparate Impact’ Housing Discrimination

On Nov. 3, Judge Richard J. Leon of the U.S. District Court issued a scathing opinion striking down the Obama administration’s “disparate impact” regulations for the Fair Housing Act, ruling that they are inconsistent with that statute.

The ruling centers on an ongoing debate about the controversial regulatory principle — known as disparate impact — which uses statistical models to build discrimination cases, rather than overt examples of unequal treatment. The Obama administration has used the disparate impact theory in several federal agencies, building alleged discrimination cases that have led to sizable settlements running in the millions of dollars.

Picking apart the government’s defense in his 32-page ruling, federal Judge Leon concluded that Congress intended for the government to focus on intentional-discrimination cases. The case is American Insurance Association v. U.S. Department of Housing and Urban Development.

“This is yet another example of an administrative agency trying desperately to write into law that which Congress never intended to sanction,” wrote Leon, adding that the arguments made by Obama administration attorneys were “nothing less than an artful misinterpretation” of the law.

The law that Leon referred is the 1968 Fair Housing Act, administered by the U.S. Department of Housing and Urban Development (HUD). In February 2013, HUD built discriminatory cases against mortgage lending institutions using the disparate impact theory, garnering hundreds of millions of dollars in settlements. In July 2012, Wells Fargo paid a $175 million settlement after the Department of Justice accused the bank of discriminating against thousands of black and Hispanic borrowers. In 2011, Bank of America agreed to pay $335 million to settle discrimination lending charges by federal regulators.

“Defendants contend that previous holdings of other federal circuit courts that recognized disparate-impact liability under the FHA, preclude this court from  finding that the FHA unambiguously prohibits disparate treatment only” wrote Leon. “Please! The Supreme Court itself has made clear that a statute is not ambiguous simply because there is a lack of judicial consensus as to its proper  meaning … and ‘judges cannot cause a clear text to become ambiguous by ignoring it.’”

Meanwhile, the Obama administration has gone to great lengths to avoid a Supreme Court ruling on disparate impact, but this year the Justices have taken such a case — The Inclusive Communities Project v.Texas Department of Housing and Community Affairs — and Leon’s opinion will be front and center to finally address this controversial subject.

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