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Disparate Impact: Use of Criminal Records

Neil Garfinkel
May 05, 2016

Question: I understand that the U.S. Department of Housing & Urban Development (HUD) recently released “Guidance on the Application of the Fair Housing Act Standards to the Use of Criminal Records by Providers of Housing and Real Estate-Related Transactions." Can you please provide an FAQ on the content of the HUD Guidance?

The following are some important FAQs.

Q: What does the HUD Guidance address?
A: The HUD Guidance addresses how the “disparate impa ct”theory of liability applies “in Fair Housing Act cases in which a housing provider justifies an adverse housing action–such as a refusal to rent or renew a lease–based on an individual’s criminal history.”

Q: What is the “disparate impact” theory of liability?  
A: “Disparate impact” occurs when a housing or lending policy, which appears facially neutral or seemingly non-discriminatory, has a disproportionate adverse effect or impact on members of a protected category under the Fair Housing Act and there is no legitimate, non-discriminatory business need for the policy or practice. The United States Supreme Court (the “Supreme Court”) in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (the “Texas Dep’t of Housing”) upheld “disparate impact” as a viable theory of liability under the Fair Housing Act.

Q: Are persons with a criminal history a protected category under the Fair Housing Act?
A: No, persons with a criminal history are not a protected category under the Fair Housing Act. Rather, race is the relevant protected category addressed in the HUD Guidance. This is because certain racial groups are “arrested, convicted and incarcerated at rates disproportionate to their share of the general population.” Thus, “criminal records-based barriers to housing are likely to have a [disparate] impact” on these racial groups.

Q: Must there be intent to discriminate in order for a court to impose liability under the Fair Housing Act based on a “disparate impact”?
A: No. In Texas Dep’t of Housing, the Supreme Court ruled that a consumer may bring an action claiming fair housing discrimination based on “disparate impact” even if no intent to discriminate exists.  Further, the Supreme Court upheld that liability may be found where a legitimate business interest for the policy or practice exists but there was a less discriminatory option available. Thus, a housing provider may violate the Fair Housing Act if his or her “policy or practice has an unjustified discriminatory effect, even when the provider had no intent to discriminate.”

Q: Does the Fair Housing Act completely prohibit housing providers from considering an individual’s criminal history?
A: No. The Fair Housing Act only prohibits arbitrary and over-broad bans related to criminal history. Thus, housing providers should revise the policies they have in place in order to undertake a holistic approach to evaluating candidates. Any policy that prescribes for an absolute ban on applicants with a criminal history will violate the Fair Housing Act. According to the HUD Guidance, “Policies that exclude persons based on criminal history must be tailored to serve the housing provider’s substantial, legitimate, nondiscriminatory interest and take into consideration such factors as the type of the crime and the length of the time since conviction.”

Q: What must a housing provider show in order to establish that its policy does not violate the Fair Housing Act?
A: The HUD Guidance explains that there is a three-step framework used to judge claims against a housing provider’s allegedly discriminatory policy. Within this framework, the housing provider only has the burden of proving the second step. In the first step, the claimant must show that a disparate impact has actually resulted from the policy. Then, in the second step, “the housing provider must be able to provide evidence proving both that the housing provider has a substantial, legitimate, nondiscriminatory interest supporting the challenged policy and that the challenged policy actually achieves that interest.” Finally, “In the third step, the burden shifts back to the [claimant] to prove that such interest could be served by another practice that has a less discriminatory effect.”

Q: Does the HUD Guidance make a distinction between policies that impose restrictions based on arrests versus those that impose restrictions based on convictions?
A: Yes. The HUD Guidance explains that a housing policy which excludes individuals because of an arrest history is never “necessary to achieve a substantial, legitimate, nondiscriminatory interest.” Thus, housing providers may not use prior arrest history as a proper basis for denying an individual access to housing.

Neil Garfinkel is executive director of Realty Compliance Group and Title Services Compliance Group; and director of Legal & Regulatory Compliance for Lenders Compliance Group.

May 05, 2016