The insurance industry has been fighting to turn back Obama-era housing regulations meant to reduce discrimination in housing access. If successful, sweeping away these regulations would put minorities at further risk of housing discrimination and increase segregation.
Spurred by Martin Luther King Jr.’s assassination just days before, Congress enacted and President Lyndon Johnson signed the Fair Housing Act in April 1968 in an effort to desegregate the country: to prevent housing sales, rentals, and financing policies that discriminated against minorities. The law was imperfect– the Department of Housing and Urban Development was hamstrung in its ability to chase down cases of discrimination in housing practice– and discriminatory practices continued in a number of sectors related to housing. Even today, many racial minorities and people with disabilities still face discrimination in the housing market, according to the Urban Institute.
One of the ways in which discrimination continued unchecked is through housing policies that didn’t have a clear discriminatory intent, but whose outcomes disproportionately affected protected groups — a problem that can be remedied through ‘disparate impact’ lawsuits. Beginning in the 1970s, federal courts determined that the Fair House Act permits such suits, and these courts’ determination was codified into a regulation in February 2013. Under the authority of the Fair Housing Act, HUD adopted a series of anti-discrimination rules under the disparate impact understanding of law — the “Discriminatory Effects Rule.”
Insurance companies quickly sued HUD that June, challenging the legality of the rules: why should they have to take into consideration homeowners’ race, they claimed, when pricing an insurance policy? Why should they have to offer insurance policies to higher-risk groups, who tended to cluster in minority neighborhoods, at the same rate as they would lower-risk groups, disproportionately found in white or affluent neighborhoods? HUD hit back, defending enforcement of the rule as it applied to insurance companies and everyone else — it would be unlawful to price up plans in a way that would disproportionately impact minority renters or homeowners, even if that pricing were determined by an algorithm or other ‘big data’ method.
The U.S. Supreme Court backed the Obama administration’s interpretation of the law in June 2015, prompting the insurance industry to change their suit, now arguing that they should be get a special exemption from the disparate impact rules.
A coalition of legal, housing, and poverty organizations forcefully opposed such an exemption, noting in a court brief that the insurance industry has historically implemented policies and practices that unnecessarily attempt to lower their risk but created unfair barriers to homeownership.
HUD also rejected the argument and, at a U.S. District Court hearing in February, less than a month after Trump was inaugurated into office, was prepared to defend the rules. But the judge overseeing the case, Richard Leon, who previously ruled against the legality of the disparate impact rules, wanted to wait for the confirmation of Trump’s pick for HUD Secretary, Ben Carson, and a pair of top legal positions at the department and the Department of Justice to be filled.
Leon said he wanted to give Carson, who had been outspoken in his opposition to disparate impact rules, time to consult with those still yet-to-be confirmed attorneys, one of which is also opposed to the rules, and reconsider whether HUD wanted to continue defending itself against the insurance industry.
And today, the case that could make it more difficult for racial and religious minorities, women, and disabled people to obtain homeowner’s insurance, still remains on Judge Leon’s docket, facing an uncertain fate. Representatives from HUD declined comment and Leon did not return calls.
“The outcome of these cases can be very important in determining if there will be fair access to insurance policies going forward,” said Gregory Squires, a professor of sociology, public policy, and public administration at George Washington University.
A controversial judge
Judge Richard Leon was confirmed by the Senate in February 2002 and served as U.S. District Judge for the District of Columbia until December 31, 2016. Since then, he has continued to hear a smaller number of cases under “senior status.” Over his tenure on the federal bench, he has earned a reputation as a quixotic opponent of government and received criticism for his judgments.
In the Washington, D.C. metro area, Leon is best known for a pair of rulings in 2016 and 2017 that put on hold a proposed light-rail system known as the “Purple Line.” Gov. Larry Hogan (R-MD) publicly accused Leon of having a conflict of interest (an allegation others have disputed) and an appeals court overturned one of his rulings in July — a decision that the local county president called a “stunning rebuke of Judge Leon [and] one that many of us predicted because he had so overreached, he had so abused his limited authority.”
Leon has issued notable rulings against workers, government, and consumers before. In 2014, he struck down a Department of Labor rule that would have provided home care workers with minimum wage and overtime pay protections — though he was unanimously overturned on appeal. In 2015, he offered the novel view that employers who object to contraception can refuse to include it in their coverage plan, even if their objection has nothing to do with religion. He was overturned on appeal again in 2016 after refusing to approve a Department of Justice deferred prosecution agreement with a company accused of illegally shipping aircraft technology and parts to Iran, Sudan, and Burma — he did not think it was tough enough. And in April 2016, he ruled against the Consumer Financial Protection Bureau’s attempt to investigate the organization that provides accreditation for for-profit colleges saying it had “plowed headlong into fields not clearly ceded to it by Congress.” (An appeals court affirmed the decision, albeit on narrower grounds.)
Perhaps his most stinging rebuke came from the United States Supreme Court, just months after his November 2014 ruling that federal housing law allows lawsuits based on “disparate impact” against a protected class of people. In that case, Leon accused the Obama administration’s Department of Housing and Urban Development of “calculatingly’ scheming to creating a regulation, but the U.S. Supreme Court upheld the approach in a similar case in June 2015.
Among those who had challenged the validity of those rules: the trade associations for the insurance industry. They had argued that the disparate impact rules were a “dubious legal standard” that should not be applied to “an industry that is well-regulated for consumer protections.”
“Judge Leon rightly noted that the Fair Housing Act prohibits disparate treatment only, not disparate impact,” Charles M. Chamness, president and CEO of the National Association of Mutual Insurance Companies, had cheered prior to the Supreme Court’s opposite ruling.
Another vocal critic of the rules was an Alabama financial services attorney and affordable housing advocate named Paul Compton.“Disparate impact claims in the mortgage market have resulted in much more rigid underwriting standards, potentially inhibiting originations. These claims are also one of many factors damping private-label mortgage securitization,” he said in December 2014.
But with Justice Anthony Kennedy casting the deciding vote, the high court allowed the standards against which Leon, the industry, and Compton had railed.
Rather than accept defeat, the mortgage insurers instead decided to try Plan B: arguing that the rules do not apply to mortgage insurers.
In the spring of 2016, the American Insurance Association and the National Association of Mutual Insurance Companies amended their complaint, still pending before Leon.
Acknowledging that that Supreme Court had upheld the disparate-impact regulations, the filing observed that the ruling had noted some limits, including governmental and private policies that are not “artificial, arbitrary, and unnecessary barriers.”
As such, the groups claimed, “applying disparate-impact liability to the provision and pricing of homeowner’s insurance is contrary to law.” They asked Leon to declare applying disparate impact rules to them “unlawful.” To follow the law, they argued, they’d have to begin to “collect data on protected characteristics such as race, consider that data, and make classification and rating decisions that take into account membership in protected groups.”
Nonsense, answered the Obama administration in a August 30, 2016 response. The rule, “does not require that race or other protected characteristics be used and considered in a pervasive way,” the Department of Justice’s brief on behalf of HUD noted, and it “does not require insurers to collect data concerning membership in protected classes” in a manner inconsistent with legal limits. Instead, the defendants argued, the court should throw out the amended complaint without even holding a trial.
And that might have been the end of it. But the January 2017 inauguration of Donald Trump, who vowed to get rid of 75 percent of government regulations, left many — including Judge Leon — wondering what the fate of the disparate impact rules might be under a new administration.
“We’re ready to proceed if your Honor is ready”
Judge Leon has been stalling the hearing as long as possible, according to court transcripts.
During a February 13 hearing, Brian Kennedy, an attorney for the DOJ civil division told the court HUD wanted to continue moving forward with the case under new legal leadership outside the civil division. Even the insurance trade groups argued against an indefinite delay because their clients want “certainty” on the case.
“[I]t seems to me that if there were a realistic possibility, either that the Justice Department would decide that it’s no longer going to defend the regulation or that the regulation might be amended, that would be one thing. As of now, of course, we have no indication of that,” said Kannon Shanmugam, an attorney with the law firm Williams and Connolly, representing the insurance trade groups.
But Leon pushed back on Kennedy’s request, suggesting they delay the case until Ben Carson was confirmed as HUD secretary and was able to give his guidance on the case. He noted that Carson would likely need to seek guidance from HUD’s general counsel, since the secretary is a neurosurgeon and not a lawyer.
Leon predicted that the future assistant attorney general of the civil division would probably “be a person who is, A, familiar with the concept of disparate impact liability, at least in general terms, and might have very strong opinions one way or the other about it.”
He then continued the case for about 90 days, with the hope that all three positions would be confirmed and would have had the chance to discuss HUD’s position by then. By the next hearing on May 16, only Carson had been approved — neither of the other two positions even had a nominee. Leon again suggested continuing the case until the assistant attorney general of DOJ’s civil division and general counsel positions are filled, despite Kennedy’s assertion that HUD is ready to move forward.
“What political leadership there is in the agencies have been advised of this case, and we’re ready to proceed if Your Honor is ready,” Kennedy said.
But since there are not a lot of ongoing disparate impact cases pending and not a lot of discussion surrounding the issues, it would not harm the government to continue the case, Leon said in response. Plus, he said, he was tied up with several cases including a case deciding whether Maryland’s purple train line should be constructed. So he continued to delay the case with the expectation that the White House and Attorney General Jeff Sessions would want to get those positions filled soon.
Nominated but not confirmed; selected but not nominated
“strive each day of my tenure to ensure that the Department and its 8,000 dedicated employees operate in a legal and ethical manner [and] work to apply the law thoughtfully, vigorously and as Congress intended,” the Committee on Banking, Housing, & Urban Affairs recommended his nomination to the full U.S. Senate. He did not receive much grilling on his views on disparate impact or much of anything else; each senator had just five minutes total to question Compton and five other nominees for positions at HUD, Commerce, and Treasury who were shoehorned into the same hearing. He awaits a confirmation vote.
It took much longer for the administration to pick someone for the other slot. On September 15, the administration finally announced that it settled on Sessions’ current chief of staff Joseph Hunt to be the assistant attorney general for the civil division. As of October 30, it does not appear his nomination has yet been officially made, nor sent to the senate.
If HUD decides to go forward with the case, it does not appear that support would come from the current administration. Secretary Carson in a 2015 Washington Times column said the Obama-era disparate impact rules “fundamentally change the nature of some communities from primarily single-family to largely apartment-based areas by encouraging municipalities to strike down housing ordinances that have no overtly (or even intended) discriminatory purpose — including race-neutral zoning restrictions on lot sizes and limits on multi-unit dwellings, all in the name of promoting diversity.”
On October 30, Judge Leon again kicked the can down the road and pushed a scheduled October 31 hearing back to December 15, citing allowing the positions to go through the confirmation process. It was HUD that requested the latest delay.