The U.S. Supreme Court’s Decision in Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc.

FILE - In this Aug. 30, 2014 file photo, the Texas Department of Housing and Community Affairs is seen in Austin, Texas. The Supreme Court handed a major victory to the Obama administration and civil rights groups on Thursday when it upheld a key tool used for more than four decades to fight housing discrimination. The justices ruled 5-4 that federal housing laws prohibit seemingly neutral practices that harm minorities, even without proof of intentional discrimination.  The case involved an appeal from Texas officials accused of accused of violating the Fair Housing Act by awarding federal tax credits in a way that kept low-income housing out of white neighborhoods. (AP Photo/Eric Gay, File)

The U.S. Supreme Court’s Decision in Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc.

SUMMARY. In Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc., 576 U.S. ___, 2015 WL 2473449 (Jun. 25, 2015), the U.S. Supreme Court, in a 5-4 decision, held that disparate impact discrimination claims are cognizable under the Fair Housing Act, 82 Stat. 81, as amended, 42 U.S.C. § 3601 et seq. (the “FHA”).  A disparate impact claim posits that a defendant’s policies or practices, while not intentionally discriminatory, have a “disproportionately adverse effect on minorities,” and are “otherwise unjustified by a legitimate rationale.”  See Inclusive Communs., 2015 WL 2473449, at *3.  A disparate impact claim typically is grounded in statistical evidence regarding the effects of the defendant’s policies or practices on a protected class.  Id. at *15.

In prior decisions, the Court had found that disparate impact liability was contemplated in the area of employment discrimination under Title VII of the Civil Rights Act of 1964 (“Title VII”) and the Age Discrimination in Employment Act of 1967 (“ADEA”).  The Court now has extended this reasoning to housing discrimination claims under the FHA.  The decision is particularly relevant to the residential mortgage industry, where the FHA – along with the Equal Credit Opportunity Act, 15 U.S.C. 1691 et seq. (the “ECOA”) – are the basis for discrimination claims under federal law.  TheInclusive Communities decision did not address the question of whether the ECOA similarly permits disparate impact claims.  The decision could, however, support the conclusion that disparate impact claims may be brought under the ECOA as well.

Prior to the Inclusive Communities decision, every federal court of appeals to address the issue had found that the FHA was intended to open the door to claims based upon the use of disparate impact evidence.  Thus, while disappointing to the industry, the Court’s decision does not change the existing law in this area.  At the same time, the opinion includes a number of statements regarding the dangers of improper disparate impact litigation and the need for special vigilance by lower courts in guarding against such abuses.  These statements can potentially aid defendants.

Read the full article here.

Joe Lynyak

Joe is a partner in the Firm’s Finance & Restructuring Group and a member of the Banking Industry Group. He practices in both the Firm’s Washington, D.C. and Southern California offices.Joe possesses a broad knowledge base regarding foreign banks and domestic banks, savings associations, bank holding companies, finance companies, mortgage banking companies and their subsidiaries and affiliates. His practice includes providing financial intermediaries advice in the areas of regulatory and strategic planning, application and licensing, legislative strategy, commercial and consumer lending, examination, supervision and enforcement, and general corporate matters.Joe’s FDIC-insured financial institution clients benefit from his experience in the special state and federal statutory and regulatory requirements—including safety and soundness issues—that apply to regulated financial intermediaries. He regularly counsels clients on matters such as retail operations, privacy, identity theft, consumer compliance, application and underwriting, payments systems, Internet, electronic commerce, examination, supervision and enforcement, operational and strategic planning matters.Joe is a frequent lecturer on legal topics involving the operation and regulation of financial service companies. Specific regulatory topics upon which Joe has advised clients and spoken at conferences include the Dodd-Frank Act, prudential regulation, the Volcker Rule, the Bank Secrecy Act (and other anti-money laundering provisions), mortgage lending and the CFPB.

David Scheffel

David has extensive experience in consumer financial services litigation and co-chairs Dorsey’s Consumer Financial Services practice. He defends financial institutions against individual and class action claims alleging discrimination, predatory lending, violations of the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Fair Housing Act, the Equal Credit Opportunity Act, and disputes between lenders and securitization trusts.

Nicholas Vlietstra

Nick Vlietstra is a Partner in Dorsey’s Finance & Restructuring Group. Nick has expertise in consumer law and regulation, government investigations and inquiries, workplace investigations, and working with regulators, including the Federal Reserve, the OCC, and the CFPB. He also has extensive experience in advising banks and their executive management on a wide range of high-stakes and sensitive legal issues involving legal and reputational risk, complex litigation, and nuanced business and consumer disputes.

Brent Ylvisaker

As an associate in Dorsey’s Finance & Restructuring Group, the types of areas in which he works include: banking regulations (e.g., affiliate transaction rules), consumer financial protection laws, Bank Secrecy Act and anti-money laundering regulations, financial data privacy and protection, state financial laws (including lending license requirements and usury laws) and e-commerce (e.g., E-SIGN and virtual currency).

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