Supreme Court Rules on Disparate Impact

If otherwise unbiased policies result in unequal outcomes, they can be considered discriminatory according to a 5-4 decision.

PALM COAST, FL – June 25, 2015 – Overshadowed by the Supreme Court’s Obamacare decision is another, more closely linked to housing and finance. Ruling 5-4 on a Texas case, the court tells us that even though a policy is non-discriminatory in intent, it can still be determined to be discriminatory if the results of the policy include unequal outcomes.

On one side of the public debate are those that worry about “Section 8 housing” and urban dwellers invading their quiet suburban lives. They will argue that expected new regulations spawned by the ruling will trample on property rights and home rule; that Washington is least equipped to make decisions best left for state and local governments. As an admitted Libertarian, I agree.

Flagler County’s short-term vacation rental issue spotlighted the unintended consequences of local control being usurped by a higher level of government. Those who think that we haven’t made enough progress in providing fair housing are looking at symptoms, not causes. There are already plenty of fair housing rules on the books. Federal bureaucrats too often use their power to push social engineering agendas without regard to the underlying issues. 

Laurie Goodman, Director of the Housing Finance Policy Center, writes in a piece published by the typically liberal think tank, Urban Institute says, “the disparate impact doctrine…could hold the private sector guilty of discrimination if their policies resulted in a differential impact on different racial and ethnic groups, despite the fact that these groups have differences in income, wealth and credit experience.” 

David Stevens, President and CEO of the Mortgage Bankers Association says in the same publication, “The concern with applying disparate impact theory to mortgage lending is that it allows the mere existence of a statistical variance to make a discrimination claim, exposing every lending decision to a legal challenge, even if that lending decision is based on sound underwriting and/or compliance with federal regulations.”

Excerpts from Justice Alito’s dissenting opinion:

The effect of these regulations, not surprisingly, is to confer enormous discretion on HUD—without actually solving the problem. What is a “substantial” interest? Is there a difference between a “legitimate” interest and a “nondiscriminatory” interest? To what degree must an interest be met for a practice to be “necessary”? How are parties and courts to measure “discriminatory effect”?

Certainly Congress did not intend to “engage the federal courts in an endless exercise of second-guessing” local programs…. This is not the Fair Housing Act that Congress enacted.

We agree that all Americans should be able “to buy decent houses without discrimination …. But this Court has no license to expand the scope of the FHA to beyond what Congress enacted.

Here, privileging purpose over text also creates constitutional uncertainty. The Court acknowledges the risk that disparate impact may be used to “perpetuate race-based considerations rather than move beyond them.” And it agrees that “racial quotas . . . rais[e] serious constitutional concerns.” Yet it still reads the FHA to authorize disparate-impact claims. We should avoid, rather than invite, such “difficult constitutional questions.” By any measure, the Court today makes a serious mistake.

Clearly, with a little help from lawyers, dsparate Impact will be found (alleged) around every corner. This ruling will certainly have a negative impact on the housing and lending industries and will, most probably, end up hurting those who are supposed to be protected.