Housing Discrimination Claims Could Be on Way Out

The U.S. Supreme Court is positioned to wipe out a major category of housing-discrimination suits, and civil rights groups are running out of ways to stop it.

In arguments Wednesday in Washington, the court will consider requiring people suing under the U.S. Fair Housing Act to prove that discrimination by a bank, insurer or government agency was intentional.

That would mark the end of a decades-old type of suit in which plaintiffs had to show only that a policy had a discriminatory effect. It would undercut an approach the Obama administration has used to get hundreds of millions of dollars in fair-lending settlements from financial companies, including Bank of America Corp. and Wells Fargo & Co.

Twice in the past three years, the justices have accepted a case to decide that question, only to be thwarted by a settlement engineered by civil rights advocates. With no accord in sight this time, the court now has a clean shot at the issue in a Texas case that will be decided by June.

“Without question, the court is poised to do damage to a key means of vindicating claims under the Fair Housing Act,” said Sherrilyn Ifill, president of the NAACP Legal Defense & Educational Fund.

The court under Chief Justice John Roberts has cut back legal protections for racial minorities, most notably by overturning a pivotal section of the Voting Rights Act on a 5-4 vote.

By all indications, that same majority is eager to interpret the Fair Housing Act as precluding what is known as “disparate impact” liability. The court agreed to review the law even though all 11 federal appeals courts to rule on the issue had backed those types of claims. Normally, the Supreme Court stands aside when appeals courts agree on a statute’s meaning.

The justices dropped a similar hint about their likely intentions when they said they wouldn’t consider a second question Texas presented in its appeal: what standards should apply to disparate-impact claims. That issue will be irrelevant if the court abolishes disparate-impact altogether.

“I don’t think we can kid ourselves that the court is not aggressively interested in this issue,” Ifill said.

Supporters of the disparate-impact approach have been trying to keep the issue out of the Supreme Court’s grasp. In 2012 the Obama administration persuaded St. Paul, Minnesota, to drop its appeal and scuttle the first case that raised the issue. A year later, the court accepted a similar New Jersey case only to have a settlement end that case as well.

In the latest case, Texas is fighting a lawsuit by the Inclusive Communities Project, a Dallas-based group that advocates for racially integrated housing. The organization accuses state officials of allocating a disproportionate number of federal low-income housing tax credits to minority neighborhoods.

The Texas appeal has an ideological edge that makes a settlement highly unlikely. The state has been led in the fight by its former attorney general, Greg Abbott, a Republican who is being sworn in as governor on Tuesday in Austin. Abbott says he has filed 30 lawsuits against the Obama administration.

A federal appeals court said the lawsuit could go forward. The Obama administration is backing the community group and defending the disparate-impact approach.

The case could also affect the Equal Credit Opportunity Act, a second law invoked by the Obama administration against Bank of America and Wells Fargo. The Consumer Financial Protection Bureau has relied on the disparate-impact doctrine in enforcing that law, which contains language similar to that in the Fair Housing Act. ECOA, as the law is known, covers auto lending as well as mortgages.

Opponents say disparate-impact liability puts lenders, insurers and other potential defendants in a vise. Factors that indicate an ability to repay a loan – like a credit score – might correlate with race, said Roger Clegg, the president of the Center for Equal Opportunity, a conservative research group.

Disparate-impact liability “encourages potential defendants to get rid of selection criteria that are perfectly valid,” Clegg said.

“You’re telling people if they can’t get their numbers right, they can be sued,” he said. “And, of course, what that encourages them to do is to get their numbers right by choosing criteria that have politically correct results.”

Civil rights advocates say winning a disparate-impact case requires more than just statistics. A plaintiff must show that a company or government agency has other means to accomplish its legitimate goals, says John Relman, a Washington lawyer who represents the National Fair Housing Alliance.

“If there’s a fairer way of doing it, then you need to do it,” he said. “If there isn’t a fairer way of doing it that achieves the same goal, then you don’t.”

The case is Texas Department of Housing v. Inclusive Communities Project, 13-1371.