Roughly three months ago, President Biden signed an executive order that, among other things, directed HUD to reevaluate earlier agency decisions perceived to weaken the Fair Housing Act. In response to this directive, HUD has submitted draft rules to the Office of Management and Budget that would roll back two significant changes made by the Trump-era HUD. First, HUD has submitted a proposed rule aimed at reinstating its previous standard for disparate impact discrimination claims. Second, HUD has submitted an interim final rule related to the Affirmatively Furthering Fair Housing (AFFH) rule, an Obama-era regulation requiring that certain municipalities perform assessments related to desegregation. The review period for the two rules is limited to 90 days by executive order, so the substance of these rules should be made public by July of this year.

Disparate Impact

HUD’s first proposed rule relates to the Trump administration’s October 2020 final rule implementing a revised standard for disparate impact discrimination claims. This rule, which we discussed in this space, eliminated a 2013 regulation codifying HUD’s long-standing view that the Fair Housing Act banned housing practices that disparately impact protected classes of individuals. Additionally, the 2013 rule established a three-part burden shifting test in order to establish a housing discrimination claim.

The Trump administration’s 2020 disparate impact rule replaced this three-part test with a new burden-shifting framework where a plaintiff must establish, as a threshold matter, that a specific policy or practice caused the discriminatory effect, and that the policy or practice was “arbitrary, artificial, and unnecessary to achieve a valid interest or legitimate objective.” Once the plaintiff meets this threshold, the burden then shifts to the defendant to “identify a valid interest or interests which the challenged policy or practice serves…” Once the defendant makes that identification, the burden shifts back to the plaintiff to establish four additional elements.

The more stringent 2020 burden-shifting framework was never to be realized: The day after HUD issued its final disparate impact rule, the United States District Court for the District of Massachusetts entered a preliminary injunction staying the final rule and enjoining its enforcement. Although HUD’s current proposal is not yet public, we anticipate that the Biden administration will seek to reinstate the three-part burden-shifting analysis from HUD’s 2013 final rule.

Affirmatively Furthering Fair Housing

HUD’s second proposed rule – an interim final rule that will take effect once published in the Federal Register – relates to the Obama-era AFFH rule. Specifically, AFFH required cities and towns to analyze local housing data for discriminatory patterns and submit to HUD plans to address those patterns in order to continue receiving federal funds.

In January 2018, HUD effectively suspended AFFH by issuing a notice delaying the requirement that municipalities submit to proposed plans to HUD until after October 31, 2020. Then, in mid-2020, HUD replaced AFFH with the “Preserving Community and Neighborhood Choice” rule, which defined fair housing much more broadly as “affordable, safe, decent, free of unlawful discrimination, and accessible under civil rights laws.” Moreover, and perhaps more importantly, this new rule allowed affected municipalities to self-certify compliance.

As is the case with the HUD’s new disparate impact proposed rule, HUD’s new AFFH rule is not yet public. However, we anticipate that the new provision will represent a return to HUD’s 2015 iteration of AFFH. We will continue to monitor HUD for developments related to these two proposed rules or any additional rules or guidance.

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Photo of James W. Wright Jr. James W. Wright Jr.

Jay Wright is a partner in the firm’s Banking and Financial Services and Litigation practice groups. Jay has earned his Accredited Mortgage Professional (AMP) designation through the Mortgage Bankers Association (MBA), and is one of a small number of lawyers who have achieved…

Jay Wright is a partner in the firm’s Banking and Financial Services and Litigation practice groups. Jay has earned his Accredited Mortgage Professional (AMP) designation through the Mortgage Bankers Association (MBA), and is one of a small number of lawyers who have achieved this status.

Jay’s practice focuses on financial services litigation and regulation, and he is actively involved in lawsuits and disputes across the country representing companies involved in a wide array of state and federal law claims. His representation includes general defense of various claims against financial institutions, mortgage companies, and other commercial entities. Many of these claims involve allegations of wrongful foreclosure proceedings or violations of the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and Federal Housing Administration (FHA) regulations, as well as various deceptive trade practices claims under state law.

Photo of Christopher K. Friedman Christopher K. Friedman

Chris Friedman is a regulatory compliance attorney and litigator who focuses on helping consumer finance companies and small business lenders, as well as banks, fintech companies, and other participants in the financial services industry, address the challenges of operating in a highly regulated…

Chris Friedman is a regulatory compliance attorney and litigator who focuses on helping consumer finance companies and small business lenders, as well as banks, fintech companies, and other participants in the financial services industry, address the challenges of operating in a highly regulated sector. Chris focuses on both small business lenders and alternative business finance products and has helped non-bank small business lenders, banks who make small business loans, commercial credit counselors, lead generators, and others in the industry. He helps clients launch new products, conduct due diligence, engage in compliance reviews, evaluate litigation risk, and solve some of the unique legal problems faced by companies who work with small businesses. In that vein, Chris has written extensively about the upcoming rulemaking related to Dodd-Frank 1071, which will require data collection and reporting by companies making loans to certain small businesses.

Photo of Austin Holland Austin Holland

Austin Holland’s practice focuses on regulatory compliance matters, government enforcement actions, and financial services litigation. He has represented clients in a variety of matters, but his practice is particularly focused on issues with an emphasis on matters related to housing.

Prior to…

Austin Holland’s practice focuses on regulatory compliance matters, government enforcement actions, and financial services litigation. He has represented clients in a variety of matters, but his practice is particularly focused on issues with an emphasis on matters related to housing.

Prior to joining Bradley, Austin worked for the U.S. Department of Housing and Urban Development in the Office of Litigation, where he handled matters related to affordable housing, reverse mortgages, fair housing, bankruptcy, foreclosures, grant recaptures, rulemaking, religious discrimination, and the Appointments Clause of the U.S. Constitution.