HUD Steps Back on Disparate Impact: Why Courts, Not Agencies, Should Set the Rules

The Federal Government just made a smart move in proposing to remove HUD's discrimination effect regulations in housing (under the Fair Housing Act), which now exist at 24 CFR 100.5(b). Specifically, the notice of rulemaking in the Federal Register explains that setting standards to determine if discrimination occurred is better left to the Courts, who ruled on the issue of disparate impact discrimination and set standards in the 2015 case of Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. Therefore, as HUD puts it, as to its regulations, it has "determined they are unnecessary." Not only are they unnecessary, but have regulations on top of case law is confusing where landlords and brokers must look to varying sources to know how to behave and what is disallowed. Hopefully more regulations that establish standards to determine breaches of law will be deleted and we can go back to a less regulated world with more case holdings guiding behavior based on the specific facts at hand.

Have questions about fair housing compliance, discrimination claims, or enforcement risk? Talk to a litigation team that lives in the case law. Contact Lieb at Law, P.C. 

Employment Discrimination Law Updated in NYS - Discriminatory Effect is Enough

On December 19, 2025, the New York State Human Rights Law was extended by S8338, in adding a new subdivision 5-a to Executive Law 296, which provides for proving discrimination in employment without discriminatory intent, just discriminatory effect. Under the law, a discriminatory effect means that a practice "actually or predictably results in a disparate impact on a group of persons, because of their membership in a class protected under this section."  

To prove a case under subdivision 5-a, known as disparate impact discrimination, there is now a burden shifting formula:

• First, the Complainant must prove that "a challenged practice caused or predictably will cause a discriminatory effect."
• Second, the Respondent must prove "that the challenged practice is job related for the position in question and consistent with business necessity." 
• Third, the Complaint must prove "that the business necessity could be served by another practice that has a less discriminatory effect."

If a workplace policy disproportionately harms a protected group, intent no longer matters. Talk to Lieb at Law about your exposure or your claim.

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Housing Discrimination Law Updated in NYS - Discriminatory Effect is Enough

On December 19, 2025, the New York State Human Rights Law was extended by A4040A, in adding a new subdivision 5-a to Executive Law 296, which provides for proving discrimination in housing without discriminatory intent, just discriminatory effect. Under the law, a discriminatory effect means that a practice "actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces, or perpetuates segregated housing patterns because of race, creed, color, national origin, citizenship or immigration status, sexual orientation, gender identity or expression, military status, sex, age, disability, marital status, status as a victim of domestic violence, lawful source of income or familial."

To prove a case under subdivision 5-a, known as disparate impact discrimination, there is now a burden shifting formula:

• First, the Complainant must prove that "a challenged practice caused or predictably will cause a discriminatory effect."
• Second, the Respondent must prove "that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests of the respondent."
• Third, the Complaint must prove "that the substantial, legitimate, nondiscriminatory interests supporting the challenged practice could be served by another practice that has a less discriminatory effect."

If a housing policy shuts people out without saying it outright, that can now be illegal. Talk to a fair housing litigator at Lieb at Law, P.C. 

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Trump Attempts to Eliminate Disparate Impact Discrimination, BUT Does he Have that Power?

President Trump issued Executive Order 14281, which purports to eliminate disparate impact discrimination, but can a President do that?

Disparate impact discrimination refers to discrimination that is proven by the existence of a discriminatory outcome, but instead of being based on a discriminatory act undertaken with discriminatory intent, it is based on a neutral policy that is not required to be proven to be based on discriminatory intent.

3 Takeaways from the EO:

1. Elimination of Disparate Impact: The order's primary goal is to eliminate the use of "disparate-impact liability" in federal contexts. 
2. Revocation of Regulatory Approvals: The order revokes specific presidential approvals of Department of Justice Title VI (i.e., funding recipients prohibition on discrimination based on race, color, and national origin) regulations related to disparate impact.
3. Review and Revision of Existing Regulations and Cases: Federal agencies, including the EEOC and DOJ, are tasked with reviewing and revising existing regulations, pending investigations, and consent judgments that rely on disparate-impact theory.   

However, eliminating disparate impact is a topic for Congress, not the President. 

In fact, this EO is inconsistent with Statutory/Case Law and rises the potential for lawsuits. To be clear, Title VI, which is the main thrust of this EO, can be established by disparate impact analysis based on Supreme Court precedent from Lau v. Nichols. As to Employment Discrimination (i.e., Title VII of the Civil Rights Act of 1964), disparate impact is also a valid legal theory for proving employment discrimination based on the Supreme Court in cases like Griggs v. Duke Power Co. Similarly, the Fair Housing Act and the Equal Credit Opportunity Act also recognize disparate impact. This order attempts to undermine these protections, potentially leading to increased employment, education, housing, and credit discrimination. Moreover, the Executive Order's argument that disparate-impact liability violates equal protection is flawed. Equal protection aims to prevent discriminatory outcomes, not give paths to discriminate. 

That is all not to say whether the Trump Administration is right or wrong on their policy initiative to revoke disparate impact analysis while focusing on a meritocracy. Instead, this is to say that this should not be undertaken by an ineffective Executive Order, but instead it needs to happen legislatively through Congress. By doing it this way, the Trump Administration is going to create confusion for business that results in more discriminatory lawsuits because decision-makers will trust the EO to do what it purports to do while it likely does not much of anything at all. 

Disparate Impact Discrimination Rule Adopted by HUD for Housing Discrimination

Unintentional discrimination is still discrimination and can result in serious penalties in a lawsuit so long as the effects of actions cause a discriminatory result. 

In the sale, rental, or financing of dwellings and in other housing-related activities, HUD has clarified, by 24 CFR 100, its Rule to evaluate a case, which is effective on May 1, 2023. 

The Rule sets forth how our government analyzes a Title VIII Fair Housing Act case and looks back to reinstate HUD's 2013 rule, titled "Implementation of the Fair Housing Act's Discriminatory Effects Standard." Under the rule, discrimination occurs through "facially neutral practices with an unjustified discriminatory effect." To understand whether there is an unjustified discriminatory effect, the Rule requires "a burden-shifting test," as follows:

The plaintiff or charging party is first required to prove as part of the prima facie showing that a challenged practice caused or predictably will cause a discriminatory effect;

if the plaintiff or charging party makes this prima facie showing, the defendant or respondent must then prove that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests of the defendant or respondent; and 

if the defendant or respondent meets its burden at step two, the plaintiff or charging party may still prevail by proving that the substantial, legitimate, nondiscriminatory interests supporting the challenged practice could be served by another practice that has a less discriminatory effect.

As a result, defendants now have much greater exposure to liability than they had under the 2020 Rule, which has been revoked by this new Final Rule even though it was never enforced or went into effect during the Trump era. 

Are Minimum Income-to-Rent Policies Discriminatory?

Landlords and brokers should pay close attention to Long Island Housing Servs. Inc. v. NPS Holiday Square LLC in the Eastern District of New York. 

This case addressed whether minimum income requirements for rentals are discriminatory. 

What do you think?

Should a landlord be able to screen tenants based on their income?

The landlords in this case utilize "a two-to-one income requirement, which generally requires applicants without housing vouchers to have an income double the monthly rent." If they have vouchers, the vouchers are credited "as one month's rent and [the] applicants [] have [to have] an income equal to between 80 percent and 100 percent of one month's rent." 

To be discriminatory, this policy would have to have "'a significantly adverse or disproportionate impact' on housing voucher users." 

Currently the plaintiffs and defendants are battling over experts, but this case is going to teach landlords, brokers, property managers, and the like how to frame their policies moving forward. 

So, keep a close eye on this one. 

New Rules Coming on Housing Discrimination - Disparate Impact Discrimination is Changing Again

In housing discrimination, you can't treat people differently in the terms, conditions, privileges, and/or availability of housing. 

Yet, you aren't just responsible for your intended acts of discrimination, known as disparate treatment discrimination. Instead, you are also responsible for your unintended acts that impact groups of people as a secondary effect, which is known as disparate impact discrimination.

Think about it this way, if you don't rent to women, as a policy, that is clearly an act of disparate treatment sex discrimination. However, if you don't rent to long-haired people, aren't you still impacting women in sex discrimination under a different name? That is called disparate impact discrimination.

As to disparate impact discrimination, President Biden just ordered HUD to make sure that the regulations on disparate impact discrimination is preventing practices with an unjustified discriminatory effect. 

Do you think that there should be disparate impact discrimination laws? If so, what do you think they should be? 

New Discrimination Standard Under the Fair Housing Act is Effective

Effective October 26, 2020, HUD implemented a new disparate impact fair housing standard.

 

Disparate impact discrimination occurs when housing practices have an unjustified discriminatory effect even though they were not motivated by a discriminatory intent. 

The new standard exists at 24 CFR 100.500 and it makes a claim of disparate impact discrimination far harder to bring and even harder to prove as compared to the prior HUD standard.

Previously, the regulation did not contain an express pleading standard and instead, only required the plaintiff to prove "that a challenged practice caused or predictably will cause a discriminatory effect." 

Now a plaintiff must "sufficiently plead facts to support each of the following elements: (1) That the challenged policy or practice is arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective such as a practical business, profit, policy consideration, or requirement of law; (2) That the challenged policy or practice has a disproportionately adverse effect on members of a protected class; (3) That there is a robust causal link between the challenged policy or practice and the adverse effect on members of a protected class, meaning that the specific policy or practice is the direct cause of the discriminatory effect; (4) That the alleged disparity caused by the policy or practice is significant; and (5) That there is a direct relation between the injury asserted and the injurious conduct alleged."

With respect to the 3rd element, that is a very heavy burden for a plaintiff to satisfy at the pleading stage of litigation because the requisite evidence is often unavailable until the parties have engaged in the discovery process. 

Moreover, while the prior regulation provided that a defendant would then have to rebut the claim by "proving that the challenged practice is necessary to achieve one or more substantial, legitimate, nondiscriminatory interests[,]" a defendant now can just rebut the first element "by producing evidence showing that the challenged policy or practice advances a valid interest (or interests) and is therefore not arbitrary, artificial, and unnecessary." Changing the term from a "substantial" interest to "a valid interest" results in the defendant's burden seemingly being far lower.

 

Moreover, under the new standard, once the defendant rebuts the first element, "the plaintiff must prove by the preponderance of the evidence either that the interest (or interests) advanced by the defendant are not valid or that a less discriminatory policy or practice exists that would serve the defendant’s identified interest (or interests) in an equally effective manner without imposing materially greater costs on, or creating other material burdens for, the defendant." Previously, this was the defendant's burden. 

Regardless, there are now also 3 express defenses available, including that "(i) The policy or practice is intended to predict an occurrence of an outcome, the prediction represents a valid interest, and the outcome predicted by the policy or practice does not or would not have a disparate impact on protected classes compared to similarly situated individuals not part of the protected class, with respect to the allegations under paragraph (b). This is not an adequate defense, however, if the plaintiff demonstrates that an alternative, less discriminatory policy or practice would result in the same outcome of the policy or practice, without imposing materially greater costs on, or creating other material burdens for the defendant. (ii) The plaintiff has failed to establish that a policy or practice has a discriminatory effect under paragraph (c) of this section. (iii) The defendant’s policy or practice is reasonably necessary to comply with a third party requirement, such as a: (A) Federal, state, or local law; (B) Binding or controlling court, arbitral, administrative order or opinion; or (C) Binding or controlling regulatory, administrative, or government guidance or requirement."

Housing participants should be particularly interested in the third available defense in the form of a controlling administrative opinion or binding regulatory guidance. It is strenuously suggested that every housing industry participant seeks such opinion or guidance as a necessary incident of any business plan covering a new product or service. To fail to do so is just reckless in a world where such a defense exists. 

That being said, it is noted that this regulation only pertains to a federal housing discrimination claim and states and locales may offer increased protections to their citizens. So, these other laws must also be analyzed for housing participants to the extent that they afford disparate impact claims (e.g., NYC Admin. Code). 

New HUD Guidance - The Intersection of Disparate Impact Discrimination and Criminal Background Checks

Last year, the Supreme Court ruled that disparate impact discrimination claims are cognizable under the Fair Housing Act. For a refresher, read my blog post about the decision here. In sum, landlords may be liable for discrimination if the effect of a facially neutral housing action has a disproportionate impact on a protected class.

Today, the office of general counsel to the U.S. Department of Housing and Urban Development issued a memorandum offering guidance regarding the potential discriminatory effects of taking an adverse housing action against a tenant based upon their criminal history. A link to the memorandum can be found here. The logline for this memorandum is that HUD believes taking an adverse housing action based upon criminal history may constitute discrimination on the basis of race or national origin because of its disparate impact on those protected classes.

The memorandum examines the three-step burden-shifting test a court would analyze in a claim brought by a tenant who alleges they were discriminated based upon their criminal history. The stated purpose of the memorandum is facially neutral, addressing “how the discriminatory effects and disparate treatment methods of proof apply in Fair Housing Act cases in which a housing provider justifies an adverse housing action… based on an individual’s criminal history.” The practical effect of the memorandum, however, is that HUD has armed plaintiff’s attorneys with a new theory of liability that all landlord’s should understand.

The three-step burden-shifting test requires that a plaintiff first prove that the complained of practice has a discriminatory effect. If the plaintiff is successful, the defendant must then prove that the challenged practice has a legally sufficient justification. Finally, if the defendant proves a legally sufficient justification, a plaintiff must then prove that there is a less discriminatory alternative available. The HUD memorandum examines each question and attempts to offer guidance in turn.

Discriminatory Effect

HUD submits that national statistics stand for the conclusion that “[n]ationally, racial and ethnic minorities face disproportionately high rates of arrest and incarceration. Without drawing its own conclusion, HUD posits that these statistics, along with other evidence, could provide sufficient proof for the legal position that taking an adverse housing action, such as refusing to enter or renew a lease based upon criminal history, has a disparate impact on African Americans or Hispanics.

Legally Sufficient Justification

If a plaintiff is successful in proving that an adverse housing action on the basis of criminal history has a discriminatory effect on racial or ethnic minorities, a defendant would then be compelled to provide a legally sufficient justification for the action. In analyzing this factor, HUD acknowledges that “resident safety and protecting property are often considered to be among the fundamental responsibilities of a housing provider”. However, HUD does push back by requiring that a defendant submit evidence supporting the conclusion that a policy of discriminating on the basis of criminal history furthers the stated purpose of protecting residents and property. That is, a landlord cannot blindly rely upon this justification in every situation. HUD suggests that landlords consider each potential tenant on a case by case basis instead of having a blanket policy of refusing to lease to anyone with a criminal history

For example, HUD submits that the existence of a prior arrest, which does not carry a subsequent conviction, “has very little, if any, probative value in showing that he has engaged in any misconduct. An arrest shows nothing more than that someone probably suspected the person apprehended of an offense.” HUD concludes that “because arrest records do not constitute proof of past unlawful conduct… the fact of an arrest is not a reliable basis upon which to assess the potential risk to resident safety or property posed by a particular individual.”

Moving further, HUD submits that even a criminal conviction does not automatically create a legally sufficient justification. “A housing provider that imposes a blanket prohibition on any person with any conviction record – no matter when the conviction occurred, what the underlying conduct entailed, or what the convicted person has done since then – will be unable to meet this burden [of proving a legally sufficient justification].” HUD suggests that a “housing provider must show that its policy accurately distinguishes between criminal conduct that indicates a demonstrable risk to resident safety and/or property and criminal conduct that does not.”

Less Discriminatory Alternative

If a landlord proves a legally sufficient justification for the challenged policy or act, the plaintiff may still prevail by proving that a less discriminatory alternative exists. Here, HUD offers no substantiated guidance but submits that the analysis must be performed on a case by case basis. The only suggestion proffered by HUD is that a landlord may consider delaying a criminal history investigation until after a tenant has already qualified financially.

Conclusion

In the end, HUD has taken an aggressive position that all landlords must remain cognizant of when making housing decisions. When forming a policy of utilizing criminal background checks, a landlord should ensure that their policy is “tailored to serve the housing provider’s substantial, legitimate, nondiscriminatory interest and take[s] into consideration such factors as the type of the crime and the length of the time since conviction.” A landlord who has no evidence that its policy or action is grounded in nondiscriminatory justification will be vulnerable to complaints. 

At the very least, HUD has made it clear that blanket prohibitions on any person with a criminal history will face legal challenges based upon the Supreme Court’s upholding of the disparate impact theory of discrimination.