On January 14, 2026, the U.S. Department of Housing and Urban Development (HUD) issued a proposed rule to “remove its discriminatory effects regulations and [leave] to courts questions related to interpretations of disparate impact liability under the Fair Housing Act.” The proposed rule follows President Trump’s executive orders, along with intervening Supreme Court decisions signaling a reassessment of the role of disparate impact theory in the federal landscape.

The Fair Housing Act was passed into law by Congress in 1968 and prohibits discrimination in the sale, rental, and financing of housing based on race or color, religion, sex, national origin, familial status, or disability. Under this backdrop, the act gives HUD the authority and responsibility for administering and enforcing the act, including the authority to develop rules to interpret and carry out the act. Pursuant to this authority, since 2013, HUD has issued three final rules for determining whether a given practice with a discriminatory effect violates the act.

In February 2013, HUD first formalized its approach to disparate impact and published “Implementation of the Fair Housing Act’s Discriminatory Effects Standard” (or “the 2013 rule”). The 2013 rule formally established a three-part, burden-shifting test for determining when a practice with a discriminatory effect violates the act. Specifically, under the 2013 rule, the challenging party or plaintiff first bore the burden of proving that a challenged practice resulted in a discriminatory effect based on a protected characteristic. If the plaintiff was able to meet this burden, the burden of proof shifted to the defendant to prove that the challenged practice was necessary to achieve one or more of its substantial, legitimate, nondiscriminatory interests. If the defendant satisfied this burden, then the plaintiff was still able to establish liability by proving that the substantial, legitimate, nondiscriminatory interest could be served by a practice that had a less discriminatory effect.

In 2015, the United States Supreme Court addressed disparate impact under the act in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. In particular, the Supreme Court held that “[r]ecognition of disparate-impact claims is consistent with the FHA’s central purpose” and held that disparate impact claims are cognizable under the act (see Texas Dep’t of Hous. & Cmty. Affs. v. Inclusive Communities Project, Inc., 576 U.S. 519, 539, 135 S. Ct. 2507, 2521, 192 L. Ed. 2d 514 (2015)). The Supreme Court nonetheless emphasized important limiting principles, including the need for a robust casual connection between a challenged policy and the alleged disparity at issue.  

Following the Supreme Court’s decision, HUD issued another final rule in 2020 that sought to recalibrate the disparate impact standard in light of Inclusive Communities — “HUD’s Implementation of the Fair Housing Act’s Disparate Impact Standard” (or the “2020 rule”). The 2020 rule introduced heightened pleading requirements for the challenging party or plaintiff to establish a case of a discriminatory effect under the FHA. For instance, the plaintiff had to prove that the challenged policy was unnecessary to achieve a legitimate objective; the policy created a disproportionate adverse effect on a protected class; there was a causal link between the policy and the adverse effect; the adverse effect was significant; and there was a direct relation between the claimed injury and the policy. According to HUD, the 2020 rule amended the 2013 rule “to better reflect the Supreme Court’s 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc.”

In 2023, HUD again revised its disparate impact regulations, issuing a final rule that largely restored the 2013 framework. The 2023 rule has remained in effect until the issuance of HUD’s current proposed rule – which would rescind HUD’s discriminatory effects regulations in their entirety.

Chief among HUD’s grounds in reconsidering its discriminatory effects regulations is Executive Order 14281. Issued in April 2025, Executive Order 14281, titled Restoring Equality of Opportunity and Meritocracy, announced “the policy of the United States to eliminate the use of disparate-impact liability in all contexts to the maximum degree possible to avoid violating the Constitution, Federal civil rights laws, and basic American ideals.” In this regard, the executive order directs federal agencies to review existing regulations and guidance to determine whether they rely on disparate impact standards, and where appropriate, to take steps to rescind or revise such measure. As such, HUD reviewed its disparate impact regulations “and determined they are unnecessary.”

In deciding to remove disparate impact regulations, HUD also relied on intervening Supreme Court precedent, particularly Loper Bright Enterprises v. Raimondo, which eliminated “Chevron deference” and clarified that courts may not defer to an agency’s interpretation of a statute based solely on statutory ambiguity. According to HUD, “[i]t is appropriate for courts, not a Federal agency, to make determinations related to the interpretation of disparate impact liability under the Fair Housing Act.”

Even more, the proposed rule follows concerns raised by trade associations relating to conflicts between the 2023 rule, Executive Order 14281, and recent Supreme Court decisions. For instance, in May 2025, a month after Executive Order 14281 was issued, the American Bankers Association sent a letter to HUD noting that “the 2023 rule is not consistent with legal precedents and Administration policy, and should be rescinded and replaced.” Under this backdrop, the proposed rule represents a consequential shift in how HUD approaches implementation of the Fair Housing Act.

If finalized, the proposed rule would remove HUD’s disparate impact regulations in their entirety, leaving interpretation of the act to the statutory text and judicial precedent. For regulated entities, this would arguably eliminate a uniform federal framework for assessing discriminatory effects. However, recission may not foreclose disparate impact claims altogether as federal courts may continue to recognize such claims consistent with Inclusive Communities. Further, state fair housing laws, including those that expressly authorize disparate impact liability, would remain unaffected.

Comments to the proposed rule are due on February 13, 2026.