WASHINGTON—In response to the Department of Housing and Urban Development’s (HUD) proposed rule on its implementation of the Fair Housing Act's (FHA) disparate impact standard, NAFCU and CUNA each sent letters in support of several amendments while also offering up potential additions and suggestions to the rule.
NAFCU wrote that “credit unions strongly support laws and regulations aimed at detecting and preventing discrimination, as well as the legal mechanisms used to protect fundamental consumer interests.”
HUD said its objective in updating the disparate impact standard is to better align it with the Supreme Court's 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project.
‘Reasonably Tailored’
Andrew Morris, NAFCU’s Senior Counsel for Research and Policy, stated, “The proposed changes to the legal framework used for evaluating disparate impact claims are reasonably tailored to ensure that only artificial, arbitrary, and unnecessary practices are targets of disparate impact liability. They also affirm the Court’s view that “disparate-impact liability must be limited so employers and other regulated entities are able to make the practical business choices and profit-related decisions that sustain a vibrant and dynamic free-enterprise system.”
Other Issues Raised
In the letter, Morris detailed areas where NAFCU agreed and disagreed with HUD’s approach, including:
- New Burden Shifting Framework: NAFCU said it is supportive of the burden shifting aspect of the amendment as it supports the Supreme Court's 2015 decision, which recognized the need for plaintiffs to meet a “robust causality requirement.”
- Defenses for Algorithmic Models: The proposal introduces defenses that may be used to rebut an assertion that the cause of a discriminatory effect is an algorithmic model used by the defendant. NAFCU shared concerns regarding the lack of proposed definitions, including for 'algorithmic model,’ and recommended further clarification.
- Burdens of Proof for Discriminatory Effect: HUD has yet to create a definition for evidence that is not remote or speculative. The association believes that an appropriate definition must show measurable harm and be responsive to any unique legal or regulatory restrictions that are imposed on the lender.
In an effort to ensure an environment where credit unions can thrive, Morris requested that HUD clarify aspects of how it will implement some of the changes, stating that “key details must be resolved to avoid confusion and potential discouragement of innovation.”
CUNA’s Comment
Meanwhile, CUNA raised a number of points of its own.
“Credit unions firmly believe that illegal discrimination should have no place in the financial services market. Individuals and institutions engaging in discriminatory behavior should and must be penalized. Accordingly, credit unions have long supported the Fair Housing Act and its use as a tool to help eradicate illegal discrimination from this nation’s housing markets,” CUNA’s letter reads. “As part of those efforts, however, it is essential that both financial institutions and consumers have a clear understanding of the standards imposed by the law and the requirements for demonstrating compliance with its mandates.”
Specifically, HUD’s proposal would replace the 2013 Rule’s disparate impact analytical structure with a revised burden-shifting framework where a plaintiff raising a disparate impact claim would, initially, be required to plead that the policy or practice in question was “arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective.”
Shifting Burden
The proposal requires a plaintiff to show that a specific, identifiable policy or practice caused the discriminatory effect and to allege five elements set forth in the Proposed Rule with respect to the specific policy or practice. If the plaintiff makes this prima facie case, the burden would then shift to the defendant to rebut the disparate impact claim, CUNA explained.
“Credit unions support the FHA and its objective of achieving more equitable and integrated communities, and they acknowledge a personal responsibility to act as leaders in the effort to make this objective a reality for both credit union members and the communities that credit unions serve,” the letter reads.