In a much-anticipated decision, the U.S. Supreme Court held in Texas Department of Housing and Community Affairs v. Inclusive Communities Project (“Inclusive Communities”) that claims of disparate impact discrimination are cognizable under the Fair Housing Act (“FHA”). In the case, the Inclusive Communities Project (“ICP”) accused the Texas state housing agency of violating the FHA by causing continued segregated housing patterns through disproportionately allocating low-income housing tax credits. ICP alleged that Texas granting too many tax credits for developments in predominantly African American inner-city neighborhoods and too few in predominantly Caucasian suburban neighborhoods in the Dallas area resulted in a disparate impact based on race in violation of the FHA.
While Inclusive Communities has some housing advocates cheering, it imposes limitations that mitigate its effects. The Court held that a racial imbalance, without more, does not establish a prima facie case of discrimination, and directed lower courts to “examine with care” the claims presented at the pleading stage. The Court further directed that remedial orders in disparate impact cases must “concentrate on the elimination of the offending practice” and employ “race-neutral [remedial] means.” The Court found these limitations necessary to “avoid serious constitutional questions that might arise” and “to protect potential defendants against abusive disparate-impact claims.”
“Disparate impact” is one of the ways that courts have permitted plaintiffs to prove fair housing and fair lending violations. As the Court explained, “In contrast to a disparate-treatment case, where a ‘plaintiff must establish that the defendant had a discriminatory intent or motive,’ a plaintiff bringing a disparate-impact claim challenges practices that have a ‘disproportionately adverse effect on minorities’ and are otherwise unjustified by a legitimate rationale.” Importantly, the Court’s interpretation of the FHA raises new questions regarding the decision’s impact, including whether “disparate impact” claims are permitted under a similar statute that prohibits discrimination in lending, the Equal Credit Opportunity Act (ECOA).
Read more in our client alert.