Letter to HUD on Disparate Impact under the Fair Housing Act

Dear Secretary Turner,

The American Bankers Association (ABA) appreciates the opportunity to comment on the Department of Housing and Urban Development's (HUD) proposal to rescind its 2023 disparate impact rule under the Fair Housing Act (FHA). ABA and its members have long supported the fair and even-handed enforcement of laws prohibiting discrimination in lending, including the FHA and implementing regulations. Banks spend significant resources on fair lending compliance and on outreach to increase access to home ownership. However, the past tug-of-war between administrations over the rule's text has been disruptive to banks' efforts to maintain strong fair lending compliance management systems.

Our members welcome clear rules that are grounded in the law and provide certainty to all stakeholders. In contrast, the 2023 rule creates confusion, as it is not aligned with the Supreme Court's reasoning in Texas Department of Housing and Community Affairs v. Inclusive Communities Project. While the Court found in Inclusive Communities that the FHA authorizes disparate impact liability, it also stated that courts must apply procedural safeguards to avoid raising constitutional concerns. HUD’s 2023 rule does not contain the safeguards, and under these circumstances, we support rescission of the rule.

HUD initially promulgated the rule in 2013, interpreting the FHA to support disparate impact liability and setting forth a three-step burden shifting approach to establishing a violation of the FHA. Two years later, the United States Supreme Court issued a decision in Texas Department of Housing & Community Affairs vs. Inclusive Communities Project, Inc., (Inclusive Communities), recognizing disparate-impact liability under the FHA and articulating legal requirements applicable to such claims. Those legal requirements are not included in HUD’s 2013 rule. ABA provided comments to HUD in 2021, when HUD proposed to recodify the 2013 rule, that explained how the 2013 rule was not aligned with Inclusive Communities. We have attached our 2021 letter for HUD’s consideration, and we briefly outline below three major inconsistencies between the rule and Inclusive Communities.

First, Inclusive Communities held that "a disparate-impact claim that relies on a statistical disparity must fail if the plaintiff cannot point to a defendant’s policy or policies causing that disparity. A robust causality requirement … protects defendants from being held liable for racial disparities they did not create." Two years later, the Supreme Court addressed causation in the FHA context for the second time in Bank of America v. City of Miami, 581 U.S. 189 (2017), and held that foreseeability alone is not sufficient to establish proximate cause under the FHA. Instead, the Court held that all claims under the FHA require “direct” proximate cause between the defendant’s challenged conduct and the plaintiff’s asserted injury. The 2013 rule predates both of these cases. HUD recodified the 2013 rule in 2023, without adding any reference to causation or proximate cause.

Second, Inclusive Communities held that "[g]overnmental or private policies are not contrary to the disparate-impact requirement unless they are 'artificial, arbitrary, and unnecessary barriers.'" The Court also held that "[d]isparate-impact liability mandates the 'removal of artificial, arbitrary, and unnecessary barriers'" to "avoid the serious constitutional questions that might arise under the FHA, for instance, if such liability were imposed based solely on a showing of a statistical disparity." HUD's 2023 rule is silent about this necessary limitation on disparate impact claims.

In addition, we note that Inclusive Communities held that, in a disparate impact case,  a "plaintiff who fails to allege facts at the pleading stage or produce statistical evidence demonstrating a causal connection cannot make out a prima facie case of disparate impact" and directed courts to "examine with care whether a plaintiff has made out a prima facie case of disparate impact, noting that "prompt resolution of these cases is important." In its 2023 rule, however, HUD insisted that the Court never "intended" to address pleading standards. Yet, the Court emphasized that the "limitations on disparate-impact liability discussed here are also necessary to protect potential defendants against abusive disparate-impact claims" because if defendants "are subject to challenge without adequate safeguards, then there is a danger that potential defendants may adopt racial quotas—a circumstance that itself raises serious constitutional concerns." The 2023 rule’s failure to acknowledge the Court’s statements about safeguards at the pleading stage is a critical omission.

As HUD notes, in 2013, HUD asserted that the rule was necessary to provide clarity and predictability to all stakeholders. HUD now correctly observes that the rule is not necessary and has not kept up with case law. These case law developments were discussed in detail in ABA’s May 2025 letter to HUD, which is attached to this letter. In brief, although HUD claimed in its 2023 preamble that courts have endorsed the 2013 rule's framework (citing Mhany Mgmt. v. City of Nassau, 2d Cir. 2016), that case only addressed burden placement on plaintiffs and did not adopt HUD's relaxed standards. Similarly, Reyes v. Waples Mobile Home Park (4th Cir. 2018) prioritized the Inclusive Communities decision over HUD's rule;  and in 2019, Inclusive Communities Project, Inc. v. Lincoln Properties (5th Cir.) held that HUD's rule lacks required safeguards. Given these precedents, we agree with HUD that the rule is not necessary and fails to provide clarity or predictability.

For the reasons discussed above, ABA supports rescission of the rule. The rule has not provided clarity and has been the subject of an unhelpful back-and-forth between administrations. In 2015, the Supreme Court ruled on disparate impact and announced the safeguards necessary to ensure that constitutional problems do not arise from disparate impact claims. Courts will continue to apply these standards to disparate impact claims, and those judicial interpretations will provide the needed clarity and predictability. 

Sincerely,

Kathleen C. Ryan
Senior Vice President
Fair and Responsible Banking
Regulatory Compliance and Policy

Enclosure:

Combined document containing:
• 2021 Joint Trades Comment to HUD on Recodification of the 2013 Rule
• May 29, 2025 ABA Letter to HUD Urging Rescission of the 2023 Rule