In a Fair Housing Act (FHA) case we have been watching for some time, the federal district court in Washington, D.C., recently issued an opinion vacating the U.S. Department of Housing and Urban Development’s (HUD’s) disparate impact rule on the ground that "the FHA prohibits disparate treatment only, and that the defendants, therefore, exceeded their authority" under the Administrative Procedure Act (APA). The court’s concluding admonition— "This is yet another example of an Administrative Agency trying desperately to write into law that which Congress never intended to sanction."— could just as easily have been directed to the Consumer Financial Protection Bureau’s assertion in Bulletin 2013-02 that disparate impact claims are cognizable under the Equal Credit Opportunity Act (ECOA).

The case, American Insurance Association v. U.S. Department of Housing and Urban Development, was brought by two industry trade associations whose members sell homeowners’ insurance. During the HUD rulemaking procedure, the associations voiced their members’ concerns when the proposed rule identified the provision and pricing of homeowners’ insurance as potentially having a disparate impact. When those concerns were not addressed in the final rule, the trade associations sued HUD for exceeding its statutory authority, in violation of the APA, by adopting the disparate impact rule. They argued, as they had in the rulemaking proceeding, that the disparate impact rule was inconsistent with the FHA and was prohibited, as applied to homeowners’ insurance, by the McCarran-Ferguson Act, which generally confines the regulation of the insurance business to the states.

The court agreed wholeheartedly. Examining the operative verbs in the FHA (refuse, deny, and discriminate), the court noted the conspicuous absence of any language directed to the results or effect of conduct. Rejecting HUD’s contention that the phrase "otherwise make unavailable or deny" is so directed, the court found nothing analogous to the effects-based language in the Age Discrimination in Employment Act or in Title VII that the U.S. Supreme Court has interpreted to cover disparate impact.

Likewise, the court found no evidence of a congressional intent to expand the scope of the FHA when it was amended in 1988, not even in the safe harbor provisions, added at that time, that HUD had argued presupposed the availability of disparate impact claims. The court found more persuasive evidence of congressional intent in the subsequent enactment of the Americans with Disabilities Act in 1990, and the Civil Rights Act in 1991. Specifically, the court noted that those laws underscored the point that Congress knows how to "explicitly provide for disparate-impact claims by using clear effects-based language" when it wishes to do so. In contrast, the court noted that "[w]hen Congress amended the FHA in 1988, it did not make any changes to the operative language of §§ 3604 and 3606."

Moreover, the court found in the McCarran-Ferguson Act further support for its conclusion that Congress had not intended to expand the FHA to cover disparate impact. The court concurred with the trade associations that such an expansion of the FHA would: (i) have a wide-ranging and disruptive effect on the delivery of homeowners’ insurance; (ii) require insurers to gather data on the race of their customers, in violation of many state laws, to determine whether their facially neutral practices might have a disparate impact; and (iii) force insurers ultimately to abandon established actuarial practices in favor of race-based insurance decisions, to "ensure that their facially [ ] neutral underwriting practices do not result in any disparate outcomes amongst protected groups." Not only would regulation of this nature intrude on the primacy of state law concerning the business of insurance in contravention of the McCarran-Ferguson Act, but it would require insurers "to collect and evaluate race-based data, thereby engaging in conduct expressly proscribed by state law."

HUD’s request that the court follow the decisions in other circuits was similarly unavailing. Emphasizing that those decisions were not binding authority, the court noted that they were, for the most part, rendered before the sea change in the law that occurred when the United States Supreme Court, in Smith v. City of Jackson, made it crystal clear that effects-based language is the key to determining whether disparate impact claims are cognizable under a discrimination statute.

The court likewise found the disparate impact precedent in other circuits unpersuasive because "none of the Circuit Courts that have recognized claims of disparate impact subsequent to the Supreme Court's decision in Smith have either discussed Smith in any detail, or reconsidered their Circuit precedent in light of its holding." In that regard, the court quoted with approval the words of Judge Steven Colloton of the U.S. Court of Appeals for the Eighth Circuit. In dissenting from a denial of a request for rehearing en banc in Magner v. Gallagher, Judge Colloton observed that "there has been little consideration … and virtually no discussion of [the textual basis for disparate impact liability under the FHA] since the [Supreme] Court in Smith explained how the text in Title VII justified the decision in Griggs" and "recent developments in the law suggest that the issue is appropriate for careful review."

Lest there be any doubt, the court in American Insurance Association made clear that those developments now include the recent grant of the certiorari petition in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc., where the U.S. Supreme Court, should it get the opportunity to rule on the merits, is widely expected to reach the same conclusion as that reached by the district court in American Insurance Association.

Ballard Spahr’s Consumer Financial Services and Mortgage Banking Groups have created a Fair Lending Task Force that brings together regulatory attorneys who deal with fair lending law compliance (including the preparation of fair lending assessments in advance of Consumer Financial Protection Bureau examinations), litigators who defend against claims of fair lending violations, and attorneys who understand the statistical analyses that underlie fair lending assessments and discrimination claims. The firm’s Housing Group is nationally recognized for its leadership in the development and financing of housing, community development, energy, public/private partnerships, and transportation projects.

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or, Mortgage Banking Practice Leader Richard J. Andreano, Jr., at 202.661.2271 or, Fair Lending Task Force Leader Christopher J. Willis at 678.420.9436 or, or John L. Culhane, Jr., at 215.864.8535 or


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