Justice

The Supreme Court Is Poised To Cripple The Federal Ban On Housing Discrimination

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The U.S. Supreme Court agreed to take a case Thursday morning that is expected to demolish a crucial legal protection against racial discrimination in housing. The case concerns how plaintiffs can prove that governments and developers are discriminating.

Over the course of many years, discrimination by race has become increasingly subtle because almost everybody knows better than to overtly announce racial intent. Nonetheless, data shows that racial discrimination clearly persists. In the housing sphere, a recent study on behalf of the Department of Housing and Urban Development found that black and Asian homeseekers are shown or told about 15 to 19 percent fewer homes than whites with similar credit qualifications and housing interests. During the subprime lending boom, African Americans with good credit scores were 3.5 times as likely as whites with good credit scores to receive higher-interest-rate loans, and Latinos were 3.1 times as likely to receive such loans. And the Federal Reserve found that in 2009, African Americans were twice as likely to be denied a loan, even controlling for income and other qualifying criteria.

In order to prove this discrimination, nine federal appeals courts to consider the standard for discrimination under the Fair Housing Act have permitted plaintiffs to show what is known as “disparate impact” — statistical evidence that shows a policy yields a disproportionate adverse outcome for minorities, without requiring plaintiffs to meet the exceedingly high bar of proving discriminatory intent. Last year, HUD even issued a regulation interpreting the Fair Housing Act as allowing claims of disparate racial impact. This standard has been the bread and butter of racial discrimination claims for years under the Fair Housing Act, which forbids racial discrimination by landlords, homeowners, state housing authorities, and others.

The Justice Department has wielded this disparate impact theory to win expensive settlements against banks accused of race discrimination in lending. In one suit, for example, the mortgage lender Countrywide agreed to a $335 million settlement due to allegations that Countrywide “charged higher fees and rates to more than 200,000 minority borrowers across the country than to white borrowers who posed the same credit risk.” DOJ discovered that in one year, for example, “Countrywide employees charged Hispanic applicants in Los Angeles an average of $545 more in fees for a $200,000 loan than they charged non-Hispanic white applicants with similar credit histories.” Because the law permits disparate impact litigation, DOJ was able to use this pattern of discrimination to win a settlement. Without disparate impact litigation, it is much less likely that DOJ could have prevailed without a smoking gun document where Countrywide’s management confessed to racial discrimination.

Nevertheless, a five-justice majority on the Roberts Court is not expected to look as kindly on “disparate impact,” given its eagerness to review an issue on which all lower courts have agreed, and its hostility to the Voting Rights Act, affirmative action, and other means for rooting out racial discrimination.

That’s why civil rights groups have been glad to avoid Supreme Court review in the past. In each of the last two Supreme Court terms, the justices agreed to hear a case reviewing the “disparate impact” standard. But each of these cases settled before the cases were decided, averting a high court ruling on the issue. As corporate lawyer John Culhane told Forbes last year after the Supreme Court agreed to hear another case on this question that later settled, “The perception is the Supreme Court has taken this case because it feels there is no disparate-impact theory of liability, and is prepared to rule to that effect.”

This time, the government party in the case is the state of Texas’s Department of Housing and Community Affairs. And the Lone Star State is not likely at all to back down with a settlement. That means the question may at long last see resolution at the high court this term.

The litigation in this case, Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc. concerns the placement of subsidized low-income housing in Dallas. A community group that connects individuals with this housing under the federal Section 8 program for housing subsidies argued in a lawsuit that the state was approving developer tax credits for such housing only in low-income and minority-heavy neighborhoods, while denying Low-Income Housing Tax Credit applications in majority-white and majority-Hispanic neighborhoods. The plaintiffs, Inclusive Communities Project, Inc., note that this has perpetuated and actually exacerbated the city’s racial segregation before 1955, which a federal appeals court called “a sordid tale of overt and covert racial discrimination and segregation.”

Both lower courts agreed that the Inclusive Communities Project had proved discrimination by showing disparate impact, and Texas seeks to win the case not by arguing the facts of the case, but by seeking to obliterate the disparate impact standard.