The final rule took effect on March 18, 2013. How prepared is your financial institution? Get  up to speed quickly with this overview of what’s new by AffirmX’s Jane Pannier.

The Fair Housing Act, which is enforced by HUD, prohibits discrimination in the sale, rental or financing of dwellings and in other housing-related activities on the basis of certain prohibited practices. Specifically, the Fair Housing Act prohibits discrimination based on race, color, religion, sex, disability, familial status or national origin.

The Act has long been interpreted by HUD and by the Federal courts to prohibit acts where there may have been no intent to discriminate, but the end result of a particular practice is unjustified discrimination. This interpretation, known as “disparate impact,” has been interpreted to mean that practices that may not be a violation of the Fair Housing Act on their face may be deemed discriminatory if the unintended effect is that members of a protected class are adversely affected. However, the application of this interpretation through the “effects test” has been that no violation exists if the party taking the action can show that the action taken was for a legitimate business purpose and there was not a less discriminatory way the party could have achieved the same goal.
HUD has noted, however, that not all Federal courts are applying the effects test in the same manner. In order to ensure consistent treatment among the courts, this final rule codifies the “effects test” into subpart G of the Act.

Discriminatory Effect Defined, Section 100.500(a) & (b)

This section first clarifies that liability under the Act may be established based on the effect of a discriminatory practice, even if the practice was not motivated by an intent to discriminate. However, the practice may be lawful if it is supported by a legally sufficient justification. A legally sufficient justification exists when the practice in question is necessary to achieve one or more substantial, legitimate and non-discriminatory interests and where those interests cannot be served by another practice that has a less discriminatory effect.

Burdens of Proof, Section 100.500(c)

The new rule creates a 3-step, burden-shifting burden of proof. The party brining the claim of disparate impact has the burden of proof to prove that the challenged practice caused or is predicted to cause a discriminatory effect. Once the charging party or plaintiff satisfies this burden of proof, the respondent or defendant has the burden to prove that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests. If the respondent or defendant satisfies this step, the burden of proof shifts back to the charging party or plaintiff to show that the nondiscrimatory interest of the respondent or defendant could have been served by a less discriminatory practice.