Disparate Impact Heads to Supreme Court Again

The U.S. Supreme Court includes, back row (left to right): Sonia Sotomayor, Stephen G. Breyer, Samuel A. Alito and Elena Kagan. Front row (left to right): Clarence Thomas, Antonin Scalia, Chief Justice John Roberts, Anthony Kennedy and Ruth Bader Ginsburg.

The U.S. Supreme Court has agreed to resolve a case that could end the use of disparate impact in fair housing evaluation.

Disparate impact allows plaintiffs bringing a complaint over an alleged discriminatory housing practice to rely on statistical analysis and show a policy or law has a disproportionately adverse effect for minorities. This method, generally opposed by lenders, allows plaintiffs to show discrimination without proving intent.

The Department of Justice has used disparate impact claims under the Fair Housing Act to go after banks and lenders for racially discriminatory lending practices, particularly during the sub-prime mortgage boom and bust.

The Supreme Court announced Oct. 3 it will hear Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, which addresses subsidized low-income housing policies in Dallas. Plaintiffs claim the TDHCA approved tax credits only in low-income and minority-heavy neighborhoods, while denying similar tax credit applications in majority-white and majority-Hispanic neighborhoods.

It would be the third disparate impact case the Supreme Court has agreed to resolve. The court was forced to drop the first two cases after they were settled out of court.

The NCUA conducted fair housing exams at 26 credit unions in 2013, according to its annual report for that year, and has said it will consider scheduling future exams if the numbers collected under the Home Mortgage Disclosure Act appear merit an exam.

“If a review of the HMDA report indicates that the federal credit union’s lending practices fall outside the normal range for pricing, denials, withdrawals or lending terms when compared to other financial institutions, the federal credit union is considered a HMDA outlier,” the agency wrote in a March 2013 letter.

The most recent release of HMDA data found Navy Federal Credit Union appearing to have made a great number of higher priced mortgage loans, but the credit union said those numbers  merely represent its zero down, no mortgage insurance loans that carry a higher interest rate because of greater risk.