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A GENERAL OVERVIEW OF 

DISPARATE IMPACT THEORY 

HEARING 

BEFORE THE

SUBCOMMITTEE ON OVERSIGHT 

AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

NOVEMBER 19, 2013 

Printed for the use of the Committee on Financial Services 

Serial No. 113–51 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

GARY G. MILLER, California, Vice Chairman 

SPENCER BACHUS, Alabama, Chairman 

Emeritus 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

MICHAEL G. GRIMM, New York 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

TOM COTTON, Arkansas 

KEITH J. ROTHFUS, Pennsylvania 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

PATRICK T. MCHENRY, North Carolina, Chairman 

MICHAEL G. FITZPATRICK, Pennsylvania, 

Vice Chairman 

PETER T. KING, New York 

MICHELE BACHMANN, Minnesota 

SEAN P. DUFFY, Wisconsin 

MICHAEL G. GRIMM, New York 

STEPHEN LEE FINCHER, Tennessee 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

AL GREEN, Texas, Ranking Member 

EMANUEL CLEAVER, Missouri 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

CAROLYN B. MALONEY, New York 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

November 19, 2013 ........................................................................................... 1 

Appendix: 

November 19, 2013 ........................................................................................... 33 

WITNESSES 

TUESDAY, NOVEMBER 19, 2013 

Kirsanow, Peter N., Commissioner, U.S. Commission on Civil Rights, and 

Partner, Benesch, Friedlander, Coplan & Arnoff .............................................. 5 

Marcus, Kenneth L., President and General Counsel, Louis D. Brandeis Center for Human Rights Under Law ...................................................................... 7 

Parker, Dennis D., Director, Racial Justice Program, American Civil Liberties 

Union ..................................................................................................................... 8 

APPENDIX 

Prepared statements: 

Kirsanow, Peter N. ........................................................................................... 34 

Marcus, Kenneth L. .......................................................................................... 39 

Parker, Dennis D. ............................................................................................. 46 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

McHenry, Hon. Patrick: 

Written statement of the National Association of Mutual Insurance Companies (NAMIC) ............................................................................................ 110 

Ellison, Hon. Keith: 

Written responses to questions submitted to Dennis Parker ....................... 134 

(1) 

A GENERAL OVERVIEW OF 

DISPARATE IMPACT THEORY 

Tuesday, November 19, 2013 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:06 a.m., in room 

2128, Rayburn House Office Building, Hon. Patrick McHenry 

[chairman of the subcommittee] presiding. 

Members present: Representatives McHenry, Duffy, Fincher, 

Hultgren, Barr, Rothfus; Green, Cleaver, Ellison, Maloney, 

Delaney, Beatty, and Heck. 

Ex officio present: Representatives Hensarling and Waters. 

Also present: Representative Garrett. 

Chairman MCHENRY. The Subcommittee on Oversight and Investigations will come to order. Without objection, the Chair is authorized to declare a recess of the subcommittee at any time. 

Today’s hearing is entitled, ‘‘A General Overview of Disparate 

Impact Theory.’’ 

I will now recognize myself for 5 minutes for an opening statement. 

Fairness, fundamental fairness, ensures that those who must enforce the law, know the law. Fairness, fundamental fairness, also 

says that those who are under the law will understand the law. 

Those who benefit from the law should have a level of understanding of what the rules of the game are as well. 

Discrimination based on race, sex, or other prohibitive factors is 

destructive and morally repugnant. More specific to the jurisdiction 

of this committee, discrimination in housing and in lending is unfair and unjust and has no place in the American marketplace. Unfortunately, discrimination still exists. 

For this reason, the protections afforded by the Federal Civil 

Rights Statutes remain important and necessary. These statutes, 

like the Fair Housing Act and the Equal Credit Opportunity Act, 

obligate the government to investigate allegations of discrimination, and to take appropriate action to end discriminatory practices 

and provide relief to victims. 

According to the legal theory of disparate impact, the government or private litigants can bring discrimination claims based 

solely on statistics that suggest an otherwise neutral policy disparately impacts protected classes. While I believe data can be helpful 

in better understanding the roots of disparity, it is disconcerting 

2 

that unlike other illegal discrimination claims, disparate impact 

claims do not require the government or a private plaintiff to provide intent to discriminate. 

It is important to remember that resources to fight discrimination are not unlimited. I believe our witnesses today make a strong 

argument that precious resources to fight discrimination are needlessly diluted when agencies with civil rights missions attack disparities that arise for reasons other than discrimination. 

This is a timely hearing, as the Department of Housing and 

Urban Development (HUD) and the Consumer Financial Protection 

Bureau (CFPB) are considering disparate impact in their regulatory writing and the issuing of guidance. And up until a few days 

ago, the Supreme Court was planning to address the legitimacy of 

disparate impact claims under the Fair Housing Act this term. 

That, as has been covered in the press, is no longer the case. 

In front of us today, we have an expert panel of witnesses who 

have spent their careers fighting illegal discrimination. In the 

course of this hearing, I hope to gain a better understanding of the 

challenges facing those seeking fair treatment under the law and 

the best way to protect minorities and the most vulnerable in our 

society from illegal discrimination. 

And with that, I yield 5 minutes for an opening statement to the 

ranking member of the subcommittee, Mr. Green of Texas. 

Mr. GREEN. Thank you, Mr. Chairman. 

And I would like to thank you for acknowledging that we still 

have invidious discrimination, that the battle to end invidious discrimination is not yet over. 

I am also appreciative that you have embraced this hearing with 

an open mind so that we can come to conclusions about a long settled standard of disparate impact. 

It is my belief that this hearing will be about whether discrimination has to have intention to be harmful. It will be about whether good people can make bad policy. It will be about whether or not 

a financial institution can charge African Americans $2,937 more 

than similarly situated White customers for their loans, and charge 

Hispanics $2,187 more for their loans. 

I mention these specific examples because these are examples of 

how the disparate impact standard, well-settled standard, has had 

a positive impact on our society and especially on people in certain 

classes. 

I would like to hearken back, if I may, to 1968, because it was 

the death of Dr. King that allowed or caused, if you will, this Congress, meaning the Congress of the United States of America, to 

pass the Civil Rights Act of 1968, which has Title VIII within it, 

the Fair Housing Act. 

And it was not an easy time for us in this country. There was 

invidious discrimination. But there was also covert discrimination. 

And the Civil Rights Act of 1968 allows us to fight both overt and 

covert discrimination. 

It is great to be able to prove intentionality, that there was intent to do harm. But there are many cases wherein the intent is 

well-concealed, and the law allows us to use the disparate impact 

standard to get to that intent that is well-concealed. 

3 

We would not be here today, in my opinion, debating an issue of 

whether or not you have to have intent to do harm to me, if you 

should hit me with your car. And I am someplace that I lawfully 

should be. I am not in any way negligent. 

You don’t have to have intent to harm me. And you don’t have 

to have intent to be liable for the harm that you cause. 

Intentionality is obviously an element that, if proven, is beneficial. But there are other ways, there are other circumstances that 

allow us to prove harm. 

And this harm has been shown to be proven with the disparate 

impact theory. 

My hope, Mr. Chairman, is that after today’s hearing, we will not 

find law being promulgated, legislation being promulgated to eliminate or limit what we have had for more than 40 years now as good 

standing law. My hope is that as we move forward, we may do 

some things to improve upon what was done in 1968, but not limit 

it and not circumvent what we have found to be a means by which 

we can continue to combat invidious discrimination. 

Finally, Mr. Chairman, let me say this: This has been a continuing fight to eradicate discrimination. The law in 1968 was not 

passed unanimously. And since its passage, we have had many efforts to try to limit it, or eliminate it. We have had litigation. And 

some of the litigation has been settled. 

I think that this litigation has been settled had many aspects to 

it that we may discuss today. But I do believe that the courts, all 

of the courts that have taken up these issues which have walked 

away with the notion that it is a legitimate standard which can be 

used to help eliminate invidious discrimination. 

We have come a long way, but we are not there yet. And my hope 

is that we won’t today or at some point in the near future decide 

that we are going to turn back the clock to a pre-1968 era. 

I yield back the balance of my time. 

Chairman MCHENRY. And under prior agreement with the ranking member, Mrs. Beatty is recognized for 2 minutes. 

Mrs. BEATTY. Thank you, Mr. Chairman, and Mr. Ranking Member, for holding this hearing today. I think it is very timely. 

Let me also thank you for being here as witnesses for something 

which is very difficult and painful for me, as I reflect back to growing up in 1968, and to being discriminated against in the housing 

market because of the color of my skin. 

Mr. Chairman, it was very welcoming to hear your opening remarks and also the remarks of Ranking Member Green. 

I will use your words, Mr. Chairman, throughout my conversation and dialogue with the witnesses today, that discrimination has 

no place in the American marketplace. 

And so, as we later question and have dialogue with the witnesses, you will hear those comments from me. 

Let me just say that today’s hearing comes at a very interesting 

time, coming 1 week after the notice of the settlement in the Mount 

Holly case. Certainly, we all are familiar with that case, and this 

settlement seems to finally conclude the decade-long dispute regarding the use of disparate impact theory in the context of housing policy. 

4 

Certainly, you know that this case was scheduled for argument 

before the Supreme Court, and was expected to be a landmark 

case, which would have given the highest court in the land the opportunity to evaluate the applicability and future of the legal theory of disparate impact in the housing market. 

And certainly, we know it was never argued before the Supreme 

Court, and the disparate impact clause of the Fair Housing Act has 

consistently been held up 11 different times in the court of appeals 

over the last 4 years. 

I think I will leave you with this thought: Has discrimination 

been so institutionalized that we don’t know the difference between 

intentional and unintentional discrimination? 

Thank you, Mr. Chairman. 

Chairman MCHENRY. Thank you, Mrs. Beatty. 

We will now recognize our distinguished panel of witnesses. 

First, Peter N. Kirsanow, is a Commissioner on the United 

States Commission on Civil Rights, where he is currently serving 

his second 6-year term. From 2006 to 2008, Commissioner 

Kirsanow also served as a member of the National Labor Relations 

Board. 

He was appointed to both positions by President George W. 

Bush, and is a partner with the law firm of Benesch, Friedlander, 

Coplan & Arnoff, as part of its Labor Employment Practices Group, 

and is also a member of the firm’s Diversity and Inclusion Committee. 

Commissioner Kirsanow received his B.A. in 1976 from Cornell 

University, and his J.D. with honors in 1979 from Cleveland State 

University, where he served as articles editor of the Cleveland 

State Law Review. 

Second, Kenneth L. Marcus is the President and General Counsel of the Louis D. Brandeis Center for Human Rights Under Law. 

Mr. Marcus founded the Brandeis Center in 2011 to combat the resurgence of anti-Semitism in American higher education. 

He is the author of the award-winning book, ‘‘Jewish Identity 

and Civil Rights in America,’’ and previously held the Lillie and 

Nathan Ackerman Chair in Equality and Justice in America at the 

Baruch School of Public Affairs at the City University of New York. 

Mr. Marcus served in the George W. Bush Administration as the 

Staff Director of the United States Commission on Civil Rights, 

and as the General Deputy Assistant Secretary of Housing and 

Urban Development for Fair Housing and Equal Opportunity. 

Mr. Marcus is a magna cum laude graduate of Williams College, 

and is also a graduate of the Boalt Hall School of Law at Berkeley. 

And finally, Dennis Parker is the Director of Civil Justice Programs with the American Civil Liberties Union. In that position, 

Mr. Parker focuses on combating discrimination and addressing 

other related issues. 

Prior to joining the ACLU, Mr. Parker was the Chief of the Civil 

Rights Bureau in the Office of the New York State Attorney General under Eliot Spitzer. 

Mr. Parker previously served for 14 years at the NAACP Legal 

Defense and Education Fund, and teaches race, poverty and constitutional law at the Columbia University School of Law Institute. 

5 

And Mr. Parker is a graduate of Harvard Law School and 

Middlebury College. 

The witnesses will now be recognized for 5 minutes for an oral 

presentation of their testimony. 

And, without objection, the witnesses’ written statements will be 

made a part of the record, and the witnesses will have until close 

of business Friday to revise and extend their witness testimony. 

On your tables, there are lights—red, yellow, and green—and I 

don’t have to explain the meaning of those. Even Members of Congress mostly understand that. The microphone is also very sensitive, so make sure it is directed towards your mouth. And dealing 

with the technology as we are, I have to say those things. 

So, with that, we will now recognize Commissioner Kirsanow for 

5 minutes. 

STATEMENT OF PETER N. KIRSANOW, COMMISSIONER, U.S. 

COMMISSION ON CIVIL RIGHTS, AND PARTNER, BENESCH, 

FRIEDLANDER, COPLAN & ARNOFF 

Mr. KIRSANOW. Thank you, Chairman McHenry, Ranking Member Green, and members of the subcommittee. 

I am a member of the U.S. Commission on Civil Rights. And as 

you know, the Civil Rights Commission was created by the 1957 

Civil Rights Act to, among other things, investigate denials of 

equal protection and discrimination on the basis of race and other 

protected classifications. 

In furtherance of the Commission’s objective to investigate denials of equal protection and discrimination on the basis of race and 

other protected classifications, we have held a number of hearings 

over the years related to disparate impact, either directly or indirectly. And the last such hearing occurred in December of 2012. 

There are four broad concepts or conclusions that can be drawn 

from those hearings. First, the doctrine of disparate impact is at 

least of dubious legality and provenance under the Equal Protection Clause. 

Second, in many respects, the implementation of disparate impact has been profoundly misguided and elevates equal outcomes 

over equal opportunity. 

Third, although in some respects it has definitely been well-intended, as we have seen in a number of Civil Rights Commission 

hearings, it has a tendency to harm its purported intended beneficiary. 

And finally, it is antithetical to the proposition that individuals 

are supposed to be judged by the content of their character, versus 

the color of their skin, because the qualifications standards test devices, policies, dealing with or that purportedly result in disparate 

impact reveal character—and that may reveal character—often are 

subordinated to raw color calculations. 

Expanding for a moment on the dubious legality of disparate impact, disparate impact emerged from the 1964 Civil Rights Act. If 

you take a look at the Floor debate among Floor managers of the 

1964 Civil Rights Act, disparate impact was not contemplated as 

a doctrine to prove discrimination or any form of discrimination, as 

the 1964 Civil Rights Act, but the theoretical framework for disparate impact was already being developed by attorneys for the 

6 

EEOC. And when the Fair Housing Act was adopted in 1968, disparate impact had not yet been adopted as a doctrine for demonstrating some type of discrimination under the 1964 Civil Rights 

Act. 

It wasn’t until 1971, when the Supreme Court did adopt disparate impact under Griggs v. Duke Power, that it did become a 

doctrine with respect to employment law, with respect to Title VII. 

What is interesting about Griggs v. Duke Power is, you may recall, 

there was the requirement that was applied only after job positions 

were opened up to everybody, that everyone have a high school diploma, among other things, and that had disparate impact among 

Black employees. 

The Supreme Court indicated that it had to have some type of 

job relatedness or business necessity to be justified. What is often 

forgotten is that standard device test qualification was adopted 

with a discriminatory intent. 

After the 1971 decision in Griggs v. Duke Power, disparate impact metasticized into a number of other areas that there hadn’t 

been up to that point any prediction that it would be expanded to 

other areas. Disparate impact necessarily classifies on the basis of 

race, and to that extent, unless it meets the strict scrutiny standard which is the highest standard of our Nation’s juris prudence, 

it violates the equal protection clause unless it serves the compelling governmental interest or is nearly tailored to serve that interest. 

And that is of dubious probability given the Seattle case, the 

Louisville case, and even Grutter v. Bollinger. 

In terms of its misguidedness, any classification, any type of 

standard, any type of test will necessarily have a disparate impact, 

because we judge people on the basis of individuality and not race. 

Famously, one of my colleagues, during a debate, said that she 

would write a check for $10,000 to anyone who could identify any 

standard, any device, any policy, any practice that did not yield a 

disparate impact. I would never make such an offer, maybe $10, 

but I nonetheless go along with the proposition that it would be extremely difficult to find anything that didn’t yield a disparate impact. With respect to housing criteria, and loan criteria for example, almost any qualification would yield a disparate impact on the 

basis of race, sex, national origin—maybe color—almost any protected class. Employment rates, income, assets, criminal history, 

family structure—each one of those has different yields depending 

upon which class someone belongs to. 

Finally, with respect to whether or not it has universally broadly—universal good effects, it has a tendency to harm its beneficiaries—I see my time is up. I would be glad to expand on these 

remarks in the question-and-answer period. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Kirsanow can be found on page 

34 of the appendix.] 

Chairman MCHENRY. Mr. Marcus? 

7 

STATEMENT OF KENNETH L. MARCUS, PRESIDENT AND GENERAL COUNSEL, LOUIS D. BRANDEIS CENTER FOR HUMAN 

RIGHTS UNDER LAW 

Mr. MARCUS. Thank you, Chairman McHenry, Ranking Member 

Green, and distinguished members of the subcommittee. I am honored to appear again before this committee. At the same time I confess to being somewhat mortified to have to be discussing this particular topic. 

I don’t think any of us is pleased by the obligation to be fighting 

discrimination in this day and age. And yet, we are continually reminded that discrimination persists despite the progress that we 

have made over the decades. 

When I was in the civil rights enforcement area within government, and even today in the public interest advocacy realm, I have 

found numerous instances of intentional discrimination and bigotry 

including in the housing realm in which, even nowadays, African 

Americans, Hispanics, and others are often faced with a situation 

in which renters do not want them, lenders do not want them, and 

so on and so forth, and I believe this to be one of the greatest evils 

that we face to this day. 

In my written testimony, I give a couple of examples from very 

recently in which HUD found blatant intentional discrimination, in 

one case against Burmese immigrants where renters simply did not 

want them on their premises. And in another instance, in which 

renters not only did not want African Americans in their mobile 

home community, but also didn’t want anyone who would date an 

African American. 

We have these blatant cases, and it is my feeling that the scarce 

resources of the Federal civil rights agencies are seldom sufficient 

to deal with them. 

And one of the challenges that we have is that our governmental 

agencies are often dividing their resources between cases involving 

blatant intentional discrimination and other things. 

Now, it is my view that disparities are important to observe. As 

a civil rights enforcement official, I was certainly on the lookout for 

racial and ethnic disparities. 

For instance, at the Department of Education, I was continually 

sifting through data to see whether there were disparate rates of 

minorities being either subjected to discipline or to 

misidentification for special education. 

The reason I did that is because I have always considered disparities to be a kind of smoke. And where there is smoke, there is 

sometimes fire. And when there is smoke, a good fire department 

sends a truck to see what is going on. But, I also believe that it 

is possible to confuse the smoke and the fire. And I think too much 

of the time we say that the disparate impact is the problem when 

in fact it is in fact sometimes a symptom of the problem or a sign 

of the problem. 

Now, when we do that, when we say, we are not going to look 

for intentional discrimination, we are simply going to look for disparities, there are several different kinds of problems that arise. 

One is the diversion of resources that I mentioned. And I think 

that if you go through the most recent charges by the Office of Fair 

Housing and Equal Opportunity, you will find that there are some 

8 

charges that appear to be based on actual discrimination. And, 

there are other charges where you would probably agree that they 

are not of the sort of severity that you would want them clogging 

up the system. 

So I think it is a real problem when our scarce resources are diverted into things other than discrimination. There is also a problem of equal protection. And Commissioner Kirsanow averred to 

that somewhat. 

One of the challenges with disparate impact is that virtually— 

I would say that when income and wealth are unevenly distributed 

in society, virtually any standard for underwriting or for determining who to rent to will have a disparate impact. 

And so that pushes people into an untenable situation: either be 

subject to potential liability for violation of Title VIII or other discrimination laws, even if there is no intent to discriminate or no 

unconscious discrimination; or try to eliminate that disparity in a 

way that may require race-conscious action that will violate the 

equal protection clause. 

So in many cases, attempts to comply with disparate impact will 

run the risk of violating the equal protection clause, which is why 

Justice Scalia indicated in the Ricci v. DeStefano case that the day 

will come in which the conflict becomes unavoidable between those 

provisions. 

And finally, in many cases, there is a pressure to impose some 

sort of quota or other artificial means of eliminating a disparity 

rather than simply saying, we will use purely race-neutral means. 

So what I would say is that while we need to push as hard as 

we can to eliminate intentional and even unconscious discrimination, disparate impact, as it has been applied, is often counterproductive towards those efforts. 

[The prepared statement of Mr. Marcus can be found on page 39 

of the appendix.] 

Chairman MCHENRY. Mr. Parker? 

STATEMENT OF DENNIS D. PARKER, DIRECTOR, RACIAL 

JUSTICE PROGRAM, AMERICAN CIVIL LIBERTIES UNION 

Mr. PARKER. Good morning, Chairman McHenry, Ranking Member Green, and members of the subcommittee. 

My name is Dennis Parker, and I am the director of the Racial 

Justice Program of the American Civil Liberties Union. Our charge 

is to eliminate barriers to full participation in civic society. And in 

the name of full disclosure, I am one of the attorneys on the Atkins 

v. Morgan Stanley case, a case that relies on disparate impact to 

prove the devastating impact of unfair lending practices on people 

of color in Detroit. 

The Fair Housing Act was passed nearly 50 years ago to address 

problems of residential segregation and conditions of poverty which 

had blocked access to opportunity to communities of color and led 

to civil unrest. 

From the outset, the bipartisan sponsors and supporters of the 

Fair Housing Act recognized that it was necessary to prohibit all 

forms of discrimination—both acts resulting from discriminatory 

intent as well as acts neutral on their face, which had an unjustified discriminatory effect. 

9 

In order to achieve the broad antidiscrimination goals of the Act, 

Congress, the government agencies charged with enforcing the Act, 

and each of the courts which had interpreted the Act have recognized that the disparate impact standard is a necessary tool in 

fighting discrimination in all of its forms, and that without the 

standard practices which have the same discriminatory consequences as intentional discrimination would be shielded from the 

reach of the law. 

Both at the time that the statute was passed, and on subsequent 

occasions, Congress has resisted attempts to limit the application 

of the law to instances of intentional discrimination. 

Between the enactment of the Fair Housing Act in 1968 and the 

time when Congress made significant changes to the Act in 1988, 

all nine courts of appeals which considered the issue concluded that 

the Fair Housing Act permitted the use of disparate impact claims 

to fight discrimination in all of its forms. 

In 1988, against the backdrop of the unanimous approval of disparate impact claims by all courts of appeals, Congress extended 

the coverage of the Act to prohibit discrimination based on familial 

status and disability, added specific exemptions to the Act which 

would only make sense in light of a continuing disparate impact 

standard, and enhanced the Department of Housing and Urban Development’s authority to interpret the Fair Housing Act. 

In the years following the amendments, HUD, the Justice Department, and the agencies charged with enforcing the fair housing 

and fair lending laws have interpreted the fair housing laws to permit disparate impact claims; have trained their employees to use 

disparate impact analysis, and have brought enforcement actions 

relying on disparate impact. 

During that same period, the two circuit courts which had not 

previously addressed the question of the validity of the disparate 

impact statement, joined the other nine circuits in approving it. On 

February 15th of this year, HUD reaffirmed the decades-long recognition of the availability of the standard after going through a 

period of formal notice and comment. 

The need for the disparate impact standard as a tool in fighting 

discrimination is as great or greater now than it has ever been. 

Problems of residential segregation and the accompanying limitation on access to fine schools, transportation, healthy environments, and employment opportunities continue to plague the Nation. 

One striking example of the continuing need for an effective way 

of addressing the increasingly subtle way in which protected classes are denied fair housing can be seen in the wake of the economic 

crisis of 2008. Discriminatory lending practices, which included 

providing high-risk subprime loans to members of communities of 

color, communities which had previously experienced a long history 

of intentional discrimination in the form of racial steering, redlining, and lack of access to financial institutions. The combination 

of the abusive lending practices and the history of discrimination 

resulted in a foreclosure crisis which had a particularly serious impact on communities of color. And I would point out that the impact of these loans extended to people who had good credit. An African American or a Latino person with a high credit rating was 

10 

more likely to get an abusive subprime loan than a White similarly-situated person. 

The impact was serious on the communities of color and it reversed many of the gains that were made over the past 50 years. 

I notice that my time is up and so I will just say that the disparate impact standard permits the defendant in the case to show 

that there was a justification for the policy and practice that is 

being challenged. By permitting the balance between impact goals 

and the means of achieving those goals, the disparate impact 

standard permits challenges to barriers which prohibit equal opportunity to fair housing. 

It is common sense that any policy which unnecessarily excludes 

people from housing because of their race, gender, ethnicity or any 

other protected class should be set aside for one which asserts everyone’s needs fairly, effectively, and without discrimination. 

Disparate impact is a commonsense way, and we urge that its 

continued use be permitted. 

[The prepared statement of Mr. Parker can be found on page 46 

of the appendix.] 

Chairman MCHENRY. I will now recognize myself for 5 minutes 

for questioning. 

Commissioner Kirsanow, what is disparate impact? 

Mr. KIRSANOW. Disparate impact is the result of any type of 

standard, test, qualification, policy, or practice which yields a disproportionate outcome for members of a protected class. At least, 

that is the colloquial definition of it. 

Now, disparate impact obviously deals with outcome. It is not 

necessarily anything to do with opportunity and input. In addition 

to that, disparate impact has no bearing on whether or not some 

type of device, policy, or practice is intentionally adopted in order 

to discriminate on the basis of a protected class. 

Chairman MCHENRY. I am not a lawyer, so how does disparate 

impact differ from disparate treatment discrimination? 

Mr. KIRSANOW. Right. Disparate treatment presumes some type 

of intentional treatment, disparate treatment. That is, you take a 

Black applicant and a White applicant and you consciously and intentionally—because you can have unconscious discrimination 

also—or unconsciously and intentionally discriminate against 

someone on the basis of their protected class, the Black applicant 

for example. 

Disparate impact is where there was no intent necessarily to discriminate, yet because of a qualification standard—let’s say, for example, in Griggs v. Duke Power, that you have a requirement that 

everybody who obtains a particular employment position have a 

high school diploma. At least in that area, North Carolina—I’m 

sorry, South Carolina at the time—the number of Black applicants 

for a position who had a high school diploma would be far below 

that of Whites. The outcome therefore would be that more Whites 

would get that position. That would be disparate impact. 

In Griggs v. Duke Power, that was done intentionally. In many 

disparate impact cases, there has been no proof of discrimination 

as the motivating factor for that particular qualification or standard. 

11 

Chairman MCHENRY. So, Mr. Marcus, is disparate impact fair? 

The use of disparate impact as a legal theory, is it fair? 

Mr. MARCUS. In my view, some uses are fair. Some may not be. 

I would say there are two ways of looking at disparate impact. For 

some, disparate impact is a way of smoking out intentional discrimination that cannot be demonstrated through other ways. So 

we say, there may not be evidence of intentional discrimination, 

and yet we think it is there. So we create an analytical device that 

will help us to find it. 

The other approach is to say, no, disparate impact has nothing 

to do with intent. It is all about the effect. It is a way of eliminating certain effects on minorities that cannot be justified by business necessity. 

I believe that there may be ways of using disparate impact to 

find intentional discrimination, and perhaps the courts will even 

narrow disparate impact doctrine in order to do that. But where 

disparate impact becomes detached from discrimination, where it is 

no longer about intentional discrimination, it has all kinds of unfair ramifications. 

One is that it prevents agencies and lawyers from focusing on 

real intentional or even unconscious discrimination. And another is 

that it treats employers or lenders or others as if they were bigots, 

as if they were discriminators when they have no conscious or even 

unconscious intent to discriminate against anybody. 

So by lumping real bigots in with people who develop policies 

that have no conscious or unconscious animus, I think it can be unfair. 

Chairman MCHENRY. So, Commissioner Kirsanow, was disparate 

impact discrimination prohibited under the Civil Rights Act of 

1964? 

Mr. KIRSANOW. The intent in 1964, if you look at what the Floor 

managers were talking about, Congressman McCullough for example and others, there was no intent to use disparate impact, that 

is to have equality of outcomes. There was considerable debate 

about that. Clearly, there was an element within Congress that 

wanted to use that as a tool or device, as Ken indicated, but the 

outcome of all that was that it would—that is, the 1964 Civil 

Rights Act, would be calculated to address, as Ranking Member 

Green talked about, invidious discrimination; an intent to discriminate on the basis of, back in 1964, race and all the other protected 

classes. 

Chairman MCHENRY. My time is short. So was disparate impact 

addressed in the original Fair Housing Act of 1968? 

Mr. KIRSANOW. Not specifically. There was considerable debate 

about that, and disparate impact first came to fruition in 1971 with 

Griggs v. Duke Power. 

Chairman MCHENRY. Okay. We will now recognize Mr. Cleaver 

for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

And to the ranking member, thank you for the hearing. 

Mr. Marcus, let us assume that in 1984, a certain neighborhood 

had filed a covenant with the mortgages of the land involved in a 

subdivision. And the covenant prohibited selling your home to an 

African American. And then they put a list together of individuals 

12 

who wanted to buy in that area, but since African Americans could 

not buy based on the covenant, the list was non-African American 

or predominantly Anglo Whites. 

And then we then have people filing a lawsuit based on exclusion 

because they are Black and they can’t move in. There is a list of 

people who can move in. And everybody who lives there is White. 

How do we deal with that kind of an issue? 

Mr. MARCUS. That is an interesting hypothetical, Congressman 

Cleaver. 

Mr. CLEAVER. It may not be that hypothetical. I am just creating 

something, but it may not be that hypothetical. 

Mr. MARCUS. Either way, it is an interesting one. I do think that 

racially restrictive covenants are repugnant. Now, I have argued in 

my written testimony and elsewhere that disparate impact can 

avert a conflict with the equal protection clause if the courts allow 

a good faith affirmative defense. In my view, that is a way of separating out disparate impact cases that are based on intentional or 

unconscious discrimination from those that are not. 

Now, if a court were to apply the sort of standard that I have 

suggested, then they would look at this list, which appears facially 

neutral. If they find that there is this sort of impact, that is to say, 

all of the names are White names, then one would look at why is 

that; why are all of the names White names? Is there some entirely 

good faith reason? Maybe they are all family members. Or maybe 

there is some legitimate reason. 

But if it turns out that there is no good-faith reason, and that 

it was intended as a way of excluding numbers of a particular racial group, then I think that it is discriminatory and should be considered discriminatory. 

Mr. CLEAVER. Okay. 

Mr. Parker, I want to stay on this. 

Mr. PARKER. Yes. 

And I would also—because there are actually concrete examples 

of exactly what you are talking about. Towns which have restrictions, or that give advantages to current residents of that town, 

that can have the impact of excluding people of color if the town 

is a single-race town. 

There is no allegation of intentional discrimination or a hatred 

toward people of color, but the effect is the same. And the Fair 

Housing Act looks at the consequence. If you are excluded from 

property, if your house is foreclosed on and it is because of disparate impact, it is little consolation that it is not the result of 

some intentional discrimination. 

But the consequences are still there. And it is important that the 

law recognize the fact that those consequences have occurred and 

continue to occur. 

Mr. CLEAVER. Now, we still have racial covenants—on the books 

all over the country, just to my knowledge, they are not being enforced. The Civil Rights Act said you can’t do that, so public accommodation in most cities eliminated that. 

But there are still administered, nobody bothered to clean it up. 

So if you go in the courthouses you are going to find this. 

I guess my issue is—in 2013, nobody, nobody is going to admit 

discrimination. I mean, nobody. I am talking about nobody and so, 

13 

if nobody admits it then they are either unintentionally committing 

discriminatory acts or they are denying that what they are doing 

is in fact discriminatory. 

So I am always concerned about this issue because I think at this 

moment in time, we are having some—it is a weird moment in history. And I am not sure that we need to take too many steps away 

from the Civil Rights Acts that have been passed in the past. 

I have gone over my time, Mr. Chairman. I apologize, and I yield 

back. 

Chairman MCHENRY. I thank my colleague. 

We will now recognize Mr. Duffy for 5 minutes. 

Mr. DUFFY. Thank you, Mr. Chairman, and I appreciate the witnesses’ testimony this morning and the conversation we are having 

on what I think is a very important topic. 

I would agree, I think, with everyone today that discrimination 

still exists in America. It hasn’t been rooted out, and I think it is 

incumbent upon the Congress and the country to do all we can to 

make sure we do root it out and make sure it doesn’t exist. 

But we are not at that point today. 

But I do want to have a more in-depth conversation on disparate 

impact, and Mr. Kirsanow, I think in your opening statement, you 

had indicated that there were potential unintentional consequences 

that would negatively affect those whom you think would be beneficiaries of disparate impact. 

And I think you were running out of time, so I wanted to ask 

you a follow-up to give you an opportunity to explain that further, 

how people could actually be hurt under this theory who were supposed to be benefited. 

Mr. KIRSANOW. Yes, thank you, Congressman. 

There are a number of examples, but I would like to limit them 

to the area which I know best, and that is with respect to employment law, where you see the greatest amount of litigation with respect to disparate impact. 

We had a hearing just recently at the Civil Rights Commission 

against—with respect to the EEOC’s relatively new criminal background check policy, which makes it a little bit more difficult than 

it had in the past for employers to conduct criminal background 

checks on applicants. 

I will cut right to the chase on this. It is well-intended, it is designed to increase the reentry of felons into the workplace, something that needs to be done. It is based on the presumption, the 

realistic presumption that Black and Hispanic applicants are more 

likely to be screened out as the result of criminal background 

checks. 

But as well-intended as it may be, in many respects it may be 

misguided. 

I will just give you a little bit of information with respect to how 

it harms the intended beneficiaries. The presumption was that it 

would increase the probability that Blacks and Hispanics would be 

hired because the rigorous nature of the background check that is 

employing what is known as the green standards based on the 11th 

Circuit, I think it was, case outlying under what circumstances a 

criminal background check would be permissible. 

14 

That is, what type of offense was it? Which job are you applying 

for? How long ago was the offense? It made the green standards 

a little bit more stringent. But at the same time what happened 

is, employers, because it was so difficult to implement the background checks, would abandon their use and resort to impermissible criteria with which to make hiring decisions. 

There have been several studies that show that where employers 

are allowed or have less of a burden, in terms of having criminal 

background checks, and use background checks robustly, they are 

more likely to hire Black and Hispanic applicants rather than resort to impermissible stereotypes and thereby exclude them. 

In one study, employers were 4 times more likely—4 is not a 

minor matter—to do so. And in another State, 10.7—I will strike 

that. Employers who used criminal background checks were 10.7 

percent more likely to have recently hired a Black applicant than 

those who did not. 

And the reason, obviously, is because employers are—they make 

judgments and they have to make judgments with respect to who 

they are hiring. And they prefer not to have felons, if they don’t 

know what kind of felony it is. 

Mr. DUFFY. All right. And I thank you for expanding upon that. 

Taking intentional discrimination and setting that aside for a moment, I would—they exist, and I want to move it over. 

But I want to look at the unintentional discrimination, if you 

want to call it disparate impact. 

If there is no intentional discrimination and we find there is disparate impact, in the end is the consequence that we have now different standards for different people? Different standards if it is 

based on race or color or sex or national origin that we will have 

different standards for different people, if we find disparate impact 

in a certain space? Or am I wrong on that? 

Mr. KIRSANOW. It is more likely that you have no or lowered 

standards. It is— 

Mr. DUFFY. What was that? 

Mr. KIRSANOW. It is more likely that rather than having different 

standards, you will have lowered standards or no standards whatsoever. 

So that you tend to eliminate the impact as much as possible. 

That won’t happen, however. In some cases you will have some 

slightly different standards, at least that are unconsciously applied 

to different protected classes. But what we have seen, and especially in the employment context is, an abandonment of standards 

so that you don’t get hit with the disparate impact liability. 

You may see that, kind of the reverse of that in the Richard— 

Mr. DUFFY. What is the consequence of far lower standards? 

Mr. KIRSANOW. The consequence is, in an employment context for 

example, you will hire employees who may not make the grade. 

They come in, can’t make the grade, then get fired. Then the employer gets sued for disparate treatment, based on that. 

Or you get individuals who are not eligible for a particular loan, 

they cannot make the payments, or the monthly payments, and are 

more likely to be foreclosed upon. So there are unintended consequences that harm the intended beneficiaries. 

Chairman MCHENRY. The gentleman’s time has expired. 

15 

Mr. DUFFY. I yield back. 

Chairman MCHENRY. Thank you. We will now recognize Mrs. 

Maloney for 5 minutes. 

Mrs. MALONEY. I would like to thank the chairman and the ranking member for holding this hearing and really focusing on this important issue. 

The purpose of the Fair Housing Act of 1968 was to reverse what 

Bobby Kennedy described as the insidious effect of racial segregation in housing. And to accomplish this goal, the Fair Housing Act 

prohibits housing providers from discriminating on the basis of 

race, color, religion, sex, disability, family status, and national origin. 

Earlier this year, HUD issued a final rule stating that a housingrelated practice is discriminatory if it has a so-called disparate impact on one of those protected classes and does not serve a legitimate business purpose. 

Opponents of this rule argue that it creates too much uncertainty 

for lenders. However, it is important to note that HUD’s rule did 

not change the law in any way, shape, or form; it just formalized 

the disparate impact test that HUD and the Department of Justice 

had been using for over 40 years. 

More importantly, the disparate impact test, contrary to popular 

belief, does not punish sound business decisions. All a housing 

lender has to do to avoid liability for a business practice that has 

a discriminatory effect is show that the practice serves an important business purpose, and there aren’t less discriminatory ways to 

serve that same important business service. 

So, I would just call that common sense, and if the end result of 

the disparate impact rule is that it forces lenders to think twice 

about whether or not there are less discriminatory ways to accomplish its business objectives, then I say this is all the better for our 

country. 

I would like to ask Mr. Parker, do the same types of problems 

exist, the entrenched residential segregation that drove Congress to 

enact the Landmark Fair Housing Act back in 1968, does that still 

exist today? 

Mr. PARKER. Many of the problems that existed then continue to 

exist. As has been mentioned, there are still instances of intentional discrimination. But there are also a web of practices that 

working together, tend to deprive protected classes of equal opportunity in housing. 

And the example that I gave of the lending market of the mortgages that were given in the run up to 2008, is a perfect example 

that it had a disparate impact on particular communities and it is 

an impact that could only be gotten at by using the disparate impacts standard, because there aren’t individuals whom you can 

show acted intentionally to discriminate. 

You rely on the statistical evidence to show that there is a difference in treatment that would result in highly qualified people of 

color being denied mortgages or being given mortgages with terms 

that are detrimental. 

Mrs. MALONEY. So you still believe the disparate impact rule is 

necessary, and it is necessary as an appropriate remedy, and you 

16 

can’t get to this determination without the disparate impact, is 

that correct? 

Mr. PARKER. I believe it is at least as necessary as it was at the 

time when the Fair Housing Act was passed. 

Mrs. MALONEY. Given that HUD and the courts have been enforcing the disparate impact rule for over 40 years now, Mr. 

Parker, do you think that lenders and other housing providers have 

had sufficient time to adjust and be aware of the rule and the 

standards? 

Mr. PARKER. I think they certainly have. 

And, as you pointed out, the disparate impact standard creates 

a structure that permits them to assert a legitimate business interest. 

And unless there is a finding that either that interest is not legitimate or that there is no other way to serve the goals, then it 

will stand. 

Mrs. MALONEY. I am looking at the successful cases that the Justice Department has brought, using the disparate impact theory 

after the financial crisis, and particularly the Countrywide case 

that they brought. 

Do you think that these cases will have a positive impact by deterring other lenders from engaging in the same kinds of practices 

that Countrywide engaged in, in their lending practices? 

Mr. PARKER. Yes, I think it will. And I think it serves the Nation 

as a whole because it eliminates the sort of practices that led to 

the economic disaster that we had in 2008. 

Mrs. MALONEY. My time has expired. Thank you very much. 

Chairman MCHENRY. The gentlelady’s time has expired. 

The gentleman from Illinois, Mr. Hultgren, is recognized for 5 

minutes. 

Mr. HULTGREN. Thank you, Mr. Chairman. 

And thank you all so much for being here today to discuss a very 

important topic. I wonder if I could address this first question to 

follow up on some of the discussion that my colleague from Wisconsin, Mr. Duffy, had started. I wanted to follow up a little bit 

more, go a little deeper on that. 

Commissioner Kirsanow, and Mr. Marcus, I wonder if you could 

talk briefly—are neutral practices with the disparate impact on 

protected groups necessarily indicative of intentional discrimination? 

Mr. KIRSANOW. No, they are not necessarily indicative of intentional discrimination. 

One of the reasons under Griggs v. Duke Power that scholars say 

the Supreme Court had adopted the disparate impact standard was 

the difficulty in many occasions in proving intentional disparate 

treatment, as opposed to disparate outcomes. 

Disparate outcomes, you can see, it is quite simple. 

Is that necessarily evidence of disparate treatment or intentional 

discrimination? Sometimes, as Ken indicated? Yes, it is. It is 

smoke, but there is not always fire where there is smoke. 

Mr. HULTGREN. Mr. Marcus, any thoughts? 

Mr. MARCUS. No, it isn’t. 

I have spent countless hours identifying disparities, especially in 

education, to ask the question, is there a reason, in a particular 

17 

school district, that certain minorities have been designated for this 

or not designated for that, is there a reason? 

And over and over again, I would find legitimate, nondiscriminatory reasons for it, and then move on. 

Once in a while you can’t find a legitimate reason, and you have 

to conclude at the end of the day, that it was based on discrimination. 

In my view, we need a better test for separating the wheat from 

the chaff. The current tests used by HUD, EEOC, and others don’t 

really do that, in part, I think because they are not just looking for 

intentional discrimination, but they are also looking for other kinds 

of effects. 

And unless we say we are focused on discrimination, on intentional or even unconscious discrimination, we are going to pull 

them all in together. We are going to pull in both discrimination 

and also nondiscriminatory effects, and we will end up with the 

sorts of consequences that Commissioner Kirsanow described. 

Mr. HULTGREN. Mr. Marcus, digging a little deeper on that, will 

the Obama Administration’s embrace of disparate impact divert 

government resources away from combating intentional discrimination? 

Mr. MARCUS. It can’t help but do that. It is not as if our civil 

rights enforcement agencies have so much in the way of excessive 

funds that they can look for exotic or extraneous forms of cases. 

When you have to divide the work between as many different 

kinds of statutes as they do, and then you are looking not just for 

intentional and conscious discrimination, but also other nondiscriminatory effects, it means at the end of the day you are not 

able to do an effective job at enforcing any of the civil rights statutes. 

Mr. HULTGREN. Mr. Marcus, based on your experience working 

in civil rights enforcement at the Department of Education, the Department of Housing and Urban Development, and also the Civil 

Rights Commission, do you believe using government resources to 

fight and overturn neutral practices that have a disparate impact 

on minorities, but are not rooted in intentional discrimination, is 

the best way to fight discrimination? 

Mr. MARCUS. No, but I would make one distinction that I think 

that Commissioner Kirsanow did as well; there is intentional discrimination, and there is unconscious discrimination. And I think 

both need to be combated. 

If someone is intentionally trying to exclude minorities, we need 

to fight that. Even if they don’t know that is what they are doing, 

but they are doing it, we need to fight that, too. 

But if neither exists, then there might be unfortunate policies, 

there might be policies that we want to speak out against because 

of inequities that we perceive, but if it is not discrimination, I don’t 

think that we should be focusing our scarce civil rights resources 

on them. 

Mr. HULTGREN. I have less than a minute left. If I can direct this 

to Commissioner Kirsanow and Mr. Marcus, if we have time, will 

the Obama Administration’s insistence on pursuing disparate impact claims allow cases of intentional discrimination to go 

18 

unpunished? And does pursuing disparate impact make society 

more vulnerable to intentional discrimination? 

Mr. KIRSANOW. It could, because as Mr. Marcus indicated, when 

you have limited resources, you have to decide where you are going 

to direct those resources. 

And when you are talking about disparate impact claims, I don’t 

want to overstate this, but it is in some respects easier to make out 

a case of disparate impact than it is intentional discrimination. So 

you go where the money is; you go where you are more likely to 

achieve a desired result. 

Whether or not—we have a multi-billion dollar apparatus designed to address discrimination in this country. Even that may be 

insufficient. But if you are going to focus on something that arguably could be in violation of the Equal Protection Clause, you are 

diverting resources away from intentional discrimination, where 

there is no dispute that we need robust enforcement activities. 

Chairman MCHENRY. I will now recognize— 

Mr. HULTGREN. Thanks very much, Commissioner. 

I yield back. 

Chairman MCHENRY. We will now recognize the ranking member 

of the full Financial Services Committee, Ms. Waters. 

Ms. WATERS. Thank you very much. 

I am sorry that I was not here for the opening of this hearing. 

However, it is extremely important that we understand that the 

Fair Housing Act established a framework for rooting out both intentionally discriminatory acts and seemingly neutral policies that 

produce a disparate impact on discriminatory effects on certain 

groups or populations. 

Let me just ask our representative here from the ACLU about the Department of Justice, which reached a $335 million settlement with Countrywide, a now defunct mortgage company owned 

by Bank of America, the largest fair lending settlement on record 

in the United States. 

In that case, the Justice Department alleged that more than 

200,000 African-American and Hispanic borrowers who qualified 

for loans were charged higher fees or placed into subprime loans 

while prime loans were provided for White borrowers with similar 

financial situations. 

As I look through all of the information, I see that similar actions by lenders such as Wells Fargo and others have taken place. 

Now, in African-American and Latino communities, we have had 

foreclosures which have basically caused great harm and pain in 

these communities, and we have been struggling trying to get corrections. We have been struggling trying to make sure that we give 

support to the communities, because when they do these foreclosures, it causes the value of other houses in the community to 

go down, et cetera, et cetera. 

It has been very harmful, and very painful. How was the disparate impact legal theory applied in these cases that I am talking 

about, in Countrywide in particular? How may the outcome in the 

Countrywide case have differed if the victims were unable to use 

the disparate impact doctrine? 

Mr. PARKER. The Countrywide case and similar cases are perfect 

examples of the utility of the disparate impact standard. 

19 

It is a perfect example of how the resources that were expended 

pursuing that case had an impact that, as you suggested, affects 

tens of thousands of African Americans. It had a profound effect on 

a large population of people. It permitted the court to address practices that cost these communities enormous sums of money. 

And all of it was made possible by a standard that could only— 

or by a case that could only have been brought using a disparate 

impact standard. It would have been impossible for individuals to 

show that they were the victims of intentional discrimination, but 

they were victims. And the communities of color have been victims 

of practices to the tune of tens of billions of dollars that have been 

lost to the— 

Ms. WATERS. If I may, I have a few minutes here. 

Mr. PARKER. Sorry. 

Ms. WATERS. This is true of the case against Wells Fargo, Morgan Stanley, Sun Trust, C&F Mortgage, and even HUD. 

And so, the question becomes whether it is intentional or not, the 

harm that can be caused, such as we see in these cases, is significant. And if we did not have disparate impact to bring these cases, 

what would happen? 

Mr. PARKER. We would lose the opportunity to address some of 

the biggest problems that are facing our protected classes. We 

would deny opportunity to fair housing to a significant part of the 

population. 

Ms. WATERS. Thank you, Mr. Chairman. I yield back the balance 

of my time. 

Chairman MCHENRY. I thank the ranking member. 

We will now recognize Mr. Barr for 5 minutes. 

Mr. BARR. Thank you, Mr. Chairman. 

Commissioner Kirsanow, I wanted to explore with you what the 

meaning of some of these Federal civil rights statutes actually is, 

specifically the statutory authority that some of these enforcement 

agencies actually have with respect to applying the disparate impact theory. 

So, what is the meaning of these statutes? Are these statutes designed to remedy intentional discrimination, disparate impact, or 

both? 

Mr. KIRSANOW. With the exception of the 1991 Civil Rights Act, 

which was passed in large measure to address Ward’s Cove Packing, all the other civil rights statutes were designed to address intentional discrimination, not disparate impact. 

Mr. BARR. Okay. And so the statutory language of, for example, 

the Fair Housing Act, and the statutory language of the Equal 

Credit Opportunity Act, is there any statutory language that mentions disparate impact? 

Mr. KIRSANOW. There are rules that mention it or at least allude 

to it. But I would have to think about whether or not there is any 

statutory language that mentions disparate impact per se. 

Mr. BARR. So putting aside administrative regulations or 

rulemakings, does the statutory language authorize these enforcement agencies to apply disparate impact theory? 

Mr. KIRSANOW. No, that has been an administrative prerogative. 

Mr. BARR. Okay. So under the Chevron doctrine, which grants to 

administrative agencies the ability to issue rules or interpretations 

20 

based on a reasonable construction of an ambiguous statute, are 

these statutes sufficiently ambiguous—in your judgment, are these 

statutes sufficiently ambiguous to confer the authority upon these 

agencies to apply disparate impact theory under Chevron, and are 

those rulemakings enforceable under the Chevron deference standard? 

Mr. KIRSANOW. Right. I believe both under Chevron I and Chevron II, they would not be. However, having said that, as was stated 

in the concurring opinion Ricci v. DeStefano, the Supreme Court 

has not yet pronounced on that. 

Mr. BARR. So that is an unsettled question? 

Mr. KIRSANOW. I would say it is still unsettled, but in my judgment, if you take a critical look, a rigorous look at Chevron I or 

Chevron II, the agencies go beyond the statutory authority in determining their authority under their governing statute. 

Mr. BARR. So the bottom line is that the statutes themselves do 

not authorize these agencies to apply disparate impact, at least not 

explicitly. 

Mr. KIRSANOW. Not explicitly. 

Mr. BARR. Okay. With respect to the equal protection arguments 

and Scalia’s concurring opinion in Ricci where he talks about the 

fact that there could be a war between disparate impact and equal 

protection, would the race-conscious decision-making that would 

naturally result from the application of disparate impact theory 

survive strict scrutiny under current Supreme Court precedent? 

Mr. KIRSANOW. No. 

Mr. BARR. Okay. Would application—and let me ask Mr. Marcus 

the same question. Would you concur with the Commissioner’s assessment of that, based on current Supreme Court precedent? 

Mr. MARCUS. I would agree based on current Supreme Court 

precedent and based on the conception of disparate impact that is 

in all of the regulatory schemas that you described. I think it is 

possible to narrowly construe disparate impact in a way that saves 

it, but as currently written, I believe these disparate impact provisions violate equal protection. 

Mr. BARR. And Mr. Marcus, just a follow-up question. My time 

is expiring. I have about a minute left, so maybe you could take 

the remainder of the time and answer this question about your earlier testimony. Amplify your earlier testimony, when you discussed 

how application of disparate impact theory could very well harm 

the intended beneficiaries. 

Obviously, the objective of this hearing is to make sure we don’t 

have discrimination in lending practices in this country. So, aside 

from diversion of scarce resources away from enforcement of intentional discrimination, could there be—or could you discuss the possibility of denying minorities or protected classes of people from 

credit because of application of disparate impact. Could this have 

a negative impact on access to credit for protected classes? And if 

so, how? How would application of disparate impact theory harm 

those intended beneficiaries, particularly in the way of access to 

credit? 

Mr. MARCUS. It could, and along the lines that Commissioner 

Kirsanow also described. I think the problem is that virtually any 

21 

facially-neutral standards that are effective for underwriting are 

going to create disparate impacts. 

So, if a lending institution wants to avoid liability, there are various things that it could do. One is to introduce a greater subjective 

component to eliminate the standards in question. In the event 

that it uses a more subjective approach, there is a greater likelihood of invidious discrimination. To the extent that it dilutes the 

criteria, this has the potential also of undermining the safety and 

soundness of the institution and the resulting potential instability 

certainly harms everyone. 

Chairman MCHENRY. The gentleman’s time has expired. And we 

will have to move on here. Thank you, though. 

I will now recognize Mr. Ellison for 5 minutes. 

Mr. ELLISON. Thank you, Mr. Chairman. 

And I thank the ranking member. 

I am really pleased that we are having this hearing because 

there is not enough discussion around civil rights, inclusion at all. 

And even if it is cast in this light, we still need to talk about civil 

and human rights. 

I just want to say, though, that I do find it amusing even that 

somebody would suggest that if we try to protect people from the 

discrimination that comes in the form of a statistical imbalance or 

disparate impact, that could undermine the effort to stop discrimination. 

Nobody who is a victim of discrimination or potentially is one 

would ever say such a ridiculous thing. That is the position of a 

privileged, comfortable person who really wants to discriminate, 

but wants to look good and feel good as they do it. 

This country of ours had legally sanctioned—you could legally 

discriminate against somebody because they were Black for about 

346 years in the United States, from 1619 to 1965. You could say, 

‘‘You are Black; you are not allowed to be here.’’ And yet not even, 

I don’t know, not even 60 years pass, and all of a sudden we are 

just beyond that, even though we have disparities in everything. 

And of course, we have disparities in everything. If somebody 

were to restrict your legal right to freely exercise your rights for 

11 hours, 15 minutes after they stopped saying they were doing it, 

admitting they were doing it, you still would be feeling the effects 

of it, of course. 

Now, this whole conversation I think just is evidence that people 

who believe in civil and human rights of all colors better really get 

busy because the people who want to recreate American apartheid 

are busy, active, and absolutely committed to reinstituting racial 

subordination in America. 

But you know what? People of all colors oppose the efforts that 

some are engaged in. And I think that they need to have as much 

vigor as the people who want to recreate a pre-civil rights America. 

So with that, that is just my candid views. 

Let me ask this question. I am curious to ask you a question, Mr. 

Parker. The disparity in subprime lending and foreclosure rates 

among minority communities is indisputable. According to a 2009 

report by the Center for Responsible Lending, African Americans 

and Latinos are 47 percent and 45 percent more likely to face foreVerDate Nov 24 2008 18:20 Apr 17, 2014 Jkt 086686 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\86686.TXT TERRI
22 

closure than Whites. What role has disparate impact doctrine had 

in fighting lending discrimination since the financial crisis? 

Mr. PARKER. Disparate impact is the main tool for fighting it. 

And I think it is important, as you pointed out, to recognize that 

in those cases, in the analyses that were done, they showed that 

employing correct underwriting standards, that African Americans 

and Latinos were still more likely to get risky subprime loans, in 

spite of their own creditworthiness. 

So all of this discussion about doing things that undercut credit 

examinations is completely counter to the reality of what is happening to communities of color. 

Mr. ELLISON. Mr. Parker, if—let’s just say we didn’t have disparate impact and you had to prove case-by-case that the people involved in putting together those loans were intentionally discriminating because of race bias. Would there be any chance to try to 

counteract the overall effect of racial disparity? 

Mr. PARKER. It would be virtually impossible for a number of 

reasons. One is the complexity of the lending process. One is that 

you don’t know how similarly-situated people are treated unless 

you have access to that overall data. So that, yes, it would be virtually impossible to prove that. 

Mr. ELLISON. Now, we live in 2013. How many mortgage lenders 

do you know who are going to say, ‘‘You are Black; I don’t like you; 

I don’t think you ought to own a home, or if you do, you ought to 

have a higher-price mortgage.’’ How many people are saying that? 

Is that a commonly done thing? 

Mr. PARKER. It is not commonly done, but I think it is also necessary to recognize that the disparate impact standard, as has been 

suggested, makes it possible to ferret out intentional discrimination. But more importantly, it makes it possible to address unjustified practices that have a discriminatory impact on the basis of a 

protected category. 

Mr. ELLISON. But may be arbitrary? 

Mr. PARKER. That are arbitrary, and as I said, unjustified or not 

justified by either business necessity or any other acceptable goal. 

And the idea that you would permit that to continue operating 

when it serves no legitimate purpose at the expense of protected 

classes is completely counter to the intent of the Fair Housing Act. 

Mr. ELLISON. Thank you, Mr. Parker. Keep up the good work. 

Chairman MCHENRY. We will now recognize Mr. Rothfus for 5 

minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Mr. Marcus, could you provide your insight on the impact of disparate impact and how it affects the availability of mortgages? 

Mr. MARCUS. Now, that is a very, very, hard question. I will take 

a very broad look at it. And what I would say it this. To the extent 

that lending institutions are dissuaded from using nondiscriminatory facially neutral underwriting standards simply because 

they have a particular effect that could create legal liability, they 

will need to use other kinds of standards which may be less effective in determining a credit risk. 

And so what that does is ultimately create a weakening of the 

financial system. 

23 

Mr. ROTHFUS. We are having this debate right now about Qualified Mortgages and the ability-to-repay rules that the Consumer Financial Protection Bureau has come out with. If an entity like the 

CFPB were, say, a private sector association that lending institutions had joined and the CFPB came up with some guidelines on 

lending such as the debt-to-income ratio at 43 percent for what is 

going to be a Qualified Mortgage, and it were determined under a 

disparate impact theory that would be found to disproportionately 

affect a protected class, might there be liability for such an association? 

Mr. MARCUS. There could be. And it seems to me that there are 

legitimate enforcement methods of finding intentional discrimination that don’t require any of that. What we found indication of at 

HUD is that there are many cases where minorities are treated 

less well when they walk into a lending institution. 

It is not as if someone will say, point blank, ‘‘We don’t want to 

lend to African Americans.’’ Of course, that doesn’t happen. But, 

there are certainly plenty of instances where you can find that the 

White person who walks in will be given information and encouragement, and the minority will be given discouragement and made 

to wait. 

There are lots of cases in which one can find different treatment. 

It is not easy. It often requires very patient enforcement activity, 

perhaps with pair testers, but there are ways of getting at different 

kinds of discrimination faced by minorities that don’t create this 

unintended consequence. 

Mr. ROTHFUS. Is it more difficult than to find evidence of intentional discrimination? 

Mr. MARCUS. It depends on the particular case, of course. There 

are cases in which intentional discrimination is fairly easy to find. 

And there are some cases in which people do explicitly state their 

prejudice, but they don’t— 

Mr. ROTHFUS. If you are observing a practice, for example, where 

they are giving more information to White people and less information to people of color, that is going to be evidence that you are 

going to be taking to determine whether there is a discriminatory 

intent there. 

Mr. MARCUS. Yes. 

Mr. ROTHFUS. And it takes some time to do that? 

Mr. MARCUS. Yes, it takes some time. It takes training and pair 

testers or something of that sort, but— 

Mr. ROTHFUS. And resources to do that— 

Mr. MARCUS. Yes, yes— 

Mr. ROTHFUS. —and to go after individuals like that? 

Mr. MARCUS. Yes. 

Mr. ROTHFUS. Mr. Kirsanow, how would the defendant assert a 

legitimate business interest in the context of defending a claim rising under disparate impact? 

Mr. KIRSANOW. One of the problems that any defendant has 

whether it is the employment context, the credit context, the housing context is you don’t know going in. It is like the Laritzen case 

where I think it was Judge Easterbrook who said, ‘‘You are going 

into litigation not knowing what standard is going to apply to you.’’ 

24 

It is the standard that the EEOC establishes for housing—the 

HUD establishes or some other entity establishes. 

And to go for a moment back to the unintended consequences 

and the potential harms to the intended beneficiaries, I think Congressman Ellison cited the fact that Blacks have a 47 percent to 

45 percent greater foreclosure rate. 

One of the things that lenders or employers—whoever the potential charged party does is, they change their standards to avoid disparate impact liability. And in the context of changing that standard, what happens then is loans may be let to people who may not 

be able to pay those loans back. If it was a level playing field in 

terms of the administration of loans, that is if there were no intentional discrimination you would think—and on a regression analysis—that Blacks, Hispanics and Whites would all have the same 

foreclosure rates. 

But that is not the case, which suggests that the changing or 

lowering of standards actually has a deleterious impact on the intended beneficiaries. 

Mr. ROTHFUS. I see my time has expired. 

Thank you, Mr. Chairman. 

Chairman MCHENRY. We will now recognize Mrs. Beatty for 5 

minutes. 

Mrs. BEATTY. Thank you so much, Mr. Chairman, and Mr. Ranking Member. 

I have two questions for the witnesses. 

Mr. Parker, the Federal courts and the U.S. Government have 

applied the disparate impact standards since the 1970s. And the financial services industry has had very clear guidance, I have been 

told, as to the application of the standard since at least 1994 when 

the Federal agencies with jurisdiction for lending discrimination 

issued interagency guidances. 

In other words, the industry has known for decades that they 

had to conform their businesses with the disparate impact standards. 

Can you point to any evidence whatsoever that the disparate impact standard has had negative effects on the lending industry? 

Mr. PARKER. I can point to no such evidence. 

And there are two things I would like to say. 

First, the question of the legality of disparate impact is not unsettled. Every circuit court in the country has upheld the practice. 

And so it is the law in every circuit court in the country. 

Second, I would take vigorous exception to the idea that the financial collapse was due to overregulation or enforcement of our 

fair housing laws. 

The abandonment of the usual underwriting standards for a 

loan-to-value or debt-to-income were not abandoned because people 

were afraid that the law would be enforced against them. It was 

abandoned because of greed. It was abandoned because there was 

a way to make money, and it was money that was made at the expense of the communities that the laws were designed to protect. 

And to suggest that it was the law that was responsible for this 

is outrageous. 

Mrs. BEATTY. Thank you so much. 

25 

Mr. Commissioner, in reading your testimony—and let me 

quote—‘‘The Supreme Court originally approved the use of disparate impact theory in the employment context. Unfortunately, 

the theory has metasticized and is being used in an area of law for 

which it was never intended. Rather than being used as a way to 

prove disparate treatment in cases where there is no smoking gun, 

it is now being used in a way to achieve racial balancing across society...’’ 

I find it amazing, and in light of our history of disparate treatment in policies and the impact and what we just heard from Mr. 

Parker somewhat inappropriate, when I think of the word 

‘‘metasticize.’’ Deadly cancer. Something that spreads, which is 

negative. 

And I guess, I am curious as to why you would use a term to 

say this is equivalent now to a deadly cancer that we are looking 

in this, especially when our chairman and others have said there 

is no place in the marketplace for discrimination. 

He didn’t say intentional, unintentional, or as a result of disparate impact. We have come a long way from red-lining and from 

the prejudices, and it also made me think—and you can respond 

to this—that when you said there is no smoking gun. 

I think for many of us who grew up during this era or time, I 

don’t care if it is the little lady with gloves and a purse who is 

standing there and denying me a right because of my skin color, 

versus a big smoking gun. 

Could you express to us why you chose those words? 

Mr. KIRSANOW. Absolutely, thank you very much for that question. 

I do think that it is invidious to insist upon outcomes. Forty 

years ago—prior to 40 years ago, 50 years ago, 70 years ago, the 

outcome was that Whites would be advantaged. That was the desired outcome. It was wrong then. It is wrong now to seek a desired 

outcome on the basis of race. That is clearly in violation of the 

equal protection clause. 

Today, it may not be as big a problem as it was before, because 

maybe the right people are in charge. It all depends on where you 

sit. But to make determinations on the basis of race is antithetical 

to how this country is supposed to be governed. It is not a function 

of equal outcome; it is a function of equal opportunity. 

Mrs. BEATTY. Well, unfortunately, some of us don’t sit on that 

side. And certainly I hope you are not expecting me to believe that 

we live in a world that is fair no matter where you sit. 

We wouldn’t be having this discussion, in my opinion, if there 

was still not discrimination and if there was not an impact from 

disparate impact treatment. 

Mr. KIRSANOW. And Congresswoman, thank you very much for 

that, because in fact we have copious mechanisms for dealing with 

that. No one at this table is suggesting that intentional discrimination, disparate treatment not be addressed in a robust fashion. 

What we are talking about here is whether or not designing a 

process to yield a specific outcome is what this country should 

have. And I would suggest to you that the 14th Amendment says, 

no. 

26 

Mrs. BEATTY. We probably just have a little difference of opinion 

and I notice I only have—I am over. 

So maybe off-line, we can have another discussion. Thank you, 

Mr. Chairman. 

Chairman MCHENRY. I thank my colleague. 

Without objection, Mr. Garrett, a member of the full Financial 

Services Committee but not a member of the subcommittee, will 

have 5 minutes to ask his questions. 

Mr. GARRETT. I thank the Chair. 

And I thank the panel. 

So at the end of the day, we are trying to achieve that goal of 

fair treatment for everyone. Let me start then with Mr. Marcus. 

You write in your testimony that, ‘‘Potential defendants would be 

forced to demonstrate a business necessity for a policy, and that 

might not have nondiscriminatory rationales, but adverse impacts 

on some groups.’’ 

By doing that, of course, you shift the burden of proof from the 

prosecutor to the defendant, which effectively erases our system in 

this government of innocent until proven guilty standard, I would 

suggest. 

Can you tell me how you think this burden shifting will affect 

the housing industry per se, and business practices as well as our 

judiciary system as a whole? 

Mr. MARCUS. Their effects are already there. In terms of the judicial system as a whole—and I might add the civil rights enforcement system in particular—it shifts our focus away from where, I 

believe it should be, which is treating people differently based on 

their race, color, ethnicity so on and so forth. 

In terms of the housing market, again, it takes the focus away 

from nondiscrimination and towards eliminating disparities that 

may have other reasons whatsoever. 

Mr. MARCUS. With due respect, I don’t think I would say for me 

that the goal should be fair treatment for everyone, if we are talking about anti-discrimination laws. There are lots of ways in which 

practices may be fair or unfair, but not necessarily illegal and not 

necessarily discriminatory. And given the peculiar evils of discrimination, and given the narrow resources, I believe that those who 

are combating discrimination should be focused on discrimination, 

and the goal of eliminating bias, animus, things of that sort. 

Mr. GARRETT. So, the answer to my question is that the burden 

is shifted then in this situation from who is actually trying to prove 

it to who is actually having to defend it. 

So the burden is no longer on the State or the prosecutor, if you 

will, in order to prove that there was this wrong being done. Now 

it is on the business entity or the individuals to prove that it was 

done right. 

Isn’t that an unfair shifting of that burden? And how do you 

prove that, if you are in that entity? 

Mr. MARCUS. It may be, but then it may be— 

Mr. GARRETT. Yes, yes, true, but you have to prove a business’s 

necessity, I think is— 

Mr. MARCUS. Yes. To me the concern is not just a shifting of the 

burden, but also that the way in which the burden is defined may 

27 

make it difficult or impossible, even for innocent, nondiscriminatory entities to defend themselves. 

Mr. GARRETT. But is—and that is interesting, that is why it is 

interesting, because does that mean because there is not an identifiable standard as to what the adverse impact effect would be? 

Mr. MARCUS. The standards differ slightly. But if the entity has 

to show that there wasn’t a nondiscriminatory alternative that lack 

the same disparities— 

Mr. GARRETT. Yes. 

Mr. MARCUS. —then they simply—they are put in a position 

where they are not even allowed to demonstrate their innocence. 

Mr. GARRETT. Right. 

Mr. MARCUS. The question isn’t innocence or guilt, the question 

isn’t discrimination or nondiscrimination, the question is whether 

there is simply a different process that could have led to a different 

outcome. 

Mr. GARRETT. Exactly. I think that is important. 

Mr. Kirsanow, you were just getting into the end of Mr. Rothfus’ 

questions, here, that the impact—that the goal—that the laudable 

goal that we may all have here, on both sides of the aisle, may not 

actually be achieved at the end of the day by the intentions that 

some Members may have here. 

You were just getting that at the end of Mr. Rothfus’ questions, 

when you said, if you do a regression analysis and you could see 

how it actually does impact upon certain groups of people. Can you 

just elaborate on that— 

Mr. KIRSANOW. It is the law of unintended consequences. And 

what we found at the Civil Rights Commission— 

Mr. GARRETT. Law of unintended consequences, right. 

Mr. KIRSANOW. Right, if you take a look at a number of the studies out there, again, these may be well-intended initiatives. But 

good intentions are not necessarily good results. 

Mr. GARRETT. Okay. 

Mr. KIRSANOW. And when you look at some of the results, both 

in terms of mortgage lending, credit, and in terms of employment, 

what happens when the potential charged party attempts to avoid 

liability by getting numbers right, and thereby possibly changing 

or lowering standards is, that it can have a negative outcome at 

the back end. 

That minorities are the ones actually holding the bucket at the 

end. Where you have greater number of minorities who are fired, 

because they have been hired under standards for which necessarily under that particular job, they couldn’t comply with, or 

credit histories, where they couldn’t necessarily sustain a particular mortgage. 

One of the reasons—one of the reasons, not the exclusive, you 

may have a higher foreclosure rate or a higher default rate, is because standards were changed or modified to avoid disparate impact liability. 

Mr. GARRETT. So, we are hurting the people we are trying to help 

eventually. Thank you. 

Chairman MCHENRY. We will now recognize Mr. Heck for 5 minutes. 

28 

Mr. HECK. Thank you, Mr. Chairman, and I hope to not use all 

5 minutes. 

Is any one of you arguing that there is a material difference to 

the victim between intentional discrimination or unconscious discrimination, or discrimination that is the consequence of ‘‘unfortunate policies?’’ 

Does any one of you believe that the material impact to the victim is different? 

Mr. KIRSANOW. Yes. 

I do believe there is a significant material impact to the— 

Mr. HECK. No, no, no. That wasn’t my question, sir. My question 

is, do you believe there is a material difference to the victim— 

Mr. KIRSANOW. Yes. 

Mr. HECK. —between these forms of discrimination? 

Mr. KIRSANOW. Absolutely. Because where a victim is living in 

a country where outcomes are determined by race, there is a material difference. Where you have a disparate impact standard, or 

any other kind of standard that yields outcome, based not on content of character, based not on neutral characteristics, but on race, 

then you have a real impact. 

Mr. HECK. I feel like we are speaking different languages. My 

question is if I am, for example, a person of color, and I am unable 

to procure the housing because I am a person of color, whether that 

is the lenders’ intent or not, it seems to me the impact on me is 

the same. 

Mr. KIRSANOW. I would disagree. Again, if you are living in a 

country that doesn’t honor the equal protection clause, the impact 

on you is different. 

Mr. PARKER. May I interject? 

Mr. HECK. Absolutely, please. 

Mr. PARKER. If you are a single woman who is evicted from your 

apartment because there is a policy of evicting someone who is the 

victim of a crime, or there is a crime in the apartment, spousal 

abuse, it doesn’t matter that the policy was not implemented out 

of animus. 

The fact is that single mother, who is the victim of abuse, is now 

homeless. And the idea that the Fair Housing Laws would not be 

able to assist that woman, would not be able to assist a veteran 

who is not able to meet a full-time employment status, but could 

afford to live in an apartment, the idea that they are unprotected 

by the Fair Housing Act is a serious undercutting of that Act. 

Mr. HECK. Mr. Marcus, here is part of what I have heard you 

say. You have decried discrimination, evidently, especially the blatant and intentional forms, those are quotes. I have heard you discount the use of disparate impacts, either from some legal question, 

which I don’t understand, given the cumulative case law. 

And that, if unfortunate policies or unconscious discrimination 

yield disparate impacts, it is harder to determine and therefore we 

shouldn’t use scarce resources to prosecute or litigate? 

Mr. MARCUS. Yes. I think that there is a huge difference between 

being told you can’t live here because I don’t like people like you, 

versus being told you can’t live here because the apartment is unavailable. 

29 

I think that there is a very distinct and peculiar harm that one 

faces if one is the subject of discrimination. 

To amplify, yes, I have argued that civil rights enforcement 

should focus on intentional and even unconscious discrimination. 

Mr. HECK. But not unfortunate policies that yield disparate impacts, and therefore may be, in fact, discriminatory, because we 

have scarce resources? 

Mr. MARCUS. No, the latter, I would—the latter I would go after 

if they are discriminatory, meaning that they are motivated by intentional discrimination or unconscious discrimination. 

And I think that there are times when it is difficult to ferret it 

out, the discrimination, using different treatment. And that is why 

I have indicated that I think that disparate impact theories could 

be used, but I have argued for an affirmative defense of good faith. 

Mr. HECK. In which case, in my 10 seconds remaining, I wish to 

strongly associate myself with the comments of Mrs. Beatty and to 

suggest, sir, that if you believe that as deep down as we who are 

asking questions of this nature do, then I would have thought that 

you would have led and ended all of your comments with an argument for increased resources to ferret out discrimination, which 

should not exist in this country. 

I yield back the balance of my time, which I don’t have. 

Chairman MCHENRY. We will now recognize the ranking member 

of the subcommittee, Mr. Green, for the final questioning of the 

day. 

Mr. GREEN. Thank you, Mr. Chairman, and let me move quickly 

to this notion that you have to have explicit authorization for a law 

or a standard to be implemented. 

My suspicion is that you would all agree that the Constitution 

of the United States of America does not call for judicial review. 

Is there anyone who differs with me in terms of judicial review 

that is not explicitly mentioned in the Constitution? And we all 

know, as first-year law students, that it is in the case of what? 

Marbury v. Madison. That is where it comes from. 

So you don’t have to have explicit language for a court to recognize that a standard can be established. 

Next point, let’s talk about this whole notion, it seems to me, 

from some of you, that courts are granting summary judgments, 

based upon numbers that are presented. 

There are no summary judgments being presented on some sort 

of regular basis, with reference to disparate impact. 

Mr. Parker, you are a practitioner, how many years you have 

been practicing law? 

Mr. PARKER. Thirty-three. 

Mr. GREEN. And have you handled few or many cases of this 

type? 

Mr. PARKER. Many cases. 

Mr. GREEN. Do you find that summary judgment is the usual circumstance wherein a defendant has given an affirmative defense 

by way of answer? 

Mr. PARKER. No, I find that, in fact, that the plaintiff is at a disadvantage in many cases, that it is very difficult to bring and to 

prove these cases. 

30 

Mr. GREEN. And do you also find that after disparate impact has 

been presented, a defendant still has the opportunity to refute the 

evidence that has been shown, such that the defendant can still 

prevail? 

Mr. PARKER. They do have that opportunity, at least once. 

Mr. GREEN. And do you find that—at least once? 

Mr. PARKER. Yes. 

Mr. GREEN. Do you find that even if the plaintiff then, the moving party presents additional evidence, the defendant still has an 

additional opportunity to refute the last evidence presented? 

Mr. PARKER. That is correct. 

Mr. GREEN. So there is a system in place that the courts have 

recognized now for some 40 years, working efficaciously that there 

seems to be a desire to overturn. Can you quickly tell me, one more 

time, because you have said it to others, what would be the implications of eliminating the disparate impact standard, not theory, 

because it is now a standard? 

Mr. PARKER. The impact of eliminating what has been a longstanding practice in the courts, in the agencies that enforce the 

law, would be to make it difficult, if not impossible, to show that 

policies which are unnecessary and unjustified have an impact on 

protected classes to the detriment of those classes. 

It would eliminate a whole class of cases, which affect an enormous number of people. 

Mr. GREEN. I marvel at how a good many people who are opposed to disparate impact also oppose testing. Testing is the methodology by which we can ascertain whether or not discrimination 

exists also. It seems that I am seeing a lot of consistency here. Opposed to testing, opposed to disparate impact, but opposed to invidious discrimination. 

How do you prove invidious discrimination other than a guy 

shows up with a white cape and a hood? How do you prove it? 

You have to have some tools available to you to deal with people 

who are intelligent. These people are not idiots. They understand 

the consequences of their actions. And many of them disguise their 

actions with clever policies. 

But the law wasn’t intended just to deal with people who make 

intentional, overt manifestations. The law is also designed to deal 

with good people who set bad policies. Can you give an example of 

a good person who may have had a bad policy? Quickly, because 

I have a closing statement, Mr. Parker. 

Mr. PARKER. Yes. One such policy might be, as I mentioned before, the policy that says you have to be employed in a full-time job 

to get an apartment. That would have an impact on someone who, 

because of disability— 

Mr. GREEN. A veteran, for example. 

Mr. PARKER. Right. 

Mr. GREEN. A veteran who has other sources of income. You 

should consider all sources of income in deciding to rent, not just 

a person having a full-time job. Because there are people who don’t 

have full-time jobs who can afford the apartment that you are leasing. 

Mr. PARKER. And everyone’s interest is protected in that case. 

Mr. GREEN. Thank you. 

31 

My closing comment is this. It has always been the intelligentsia 

that perpetrates. The ignorant may perpetuate, but it is the intelligentsia that perpetrates. It was the intelligentsia that gave us 

Dred Scott. It was the intelligentsia that gave us a lot of these laws 

that we find ourselves having to overturn. And in fact, we have 

overcome. 

So I would hope that this hearing will not allow us to find ourselves having to combat some rule or some law that eventually 

could overturn 40 years of progress. 

I yield back. 

Chairman MCHENRY. The gentleman yields back. 

I would like to thank our witnesses today. This hearing was very 

informative. Thank you for your time. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

This hearing is adjourned. 

[Whereupon, at 11:50 a.m., the hearing was adjourned.] 

(33) 

A P P E N D I X 

November 19, 2013 

34 


86686.001

Testimony of Peter N. Kirsanow before the Honse Committee on Financial Services, 

November 19,2013 

Mr. Chairman, thank you for inviting me to testify today. My name is Peter Kirsanow. I 

am a partner at the law firm of Benesch, Friedlander, Coplan & Aronoff, a former member of the 

National Labor Relations Board, and am presently a member of the U.S. Commission on Civil 

Rights. Although I have been asked to testify here because of the expertise I have gained in the 

area of disparate impact from my work at the Commission, I am testifying only regarding my 

own opinion regarding disparate impact, not on behalf of the Commission as a whole. 

The Supreme Court originally approved the use of disparate impact theory in the 

employment context. Unfortunately, the theory has metastasized and is being used in areas of 

law for which it was never intended. Rather than being used as a way to prove disparate 

treatment in cases where there is no smoking gun, it is now being used as a way to achieve racial 

balancing across society. Disparate impact is a legal theory of dubious provenance and legality. 

Its expansion threatens to harm not only those who are members of what are considered 

disfavored groups, but also the purported beneficiaries. 

To illustrate the metastasization of disparate impact, I would like to begin by discussing a 

rule HUD recently proposed, which is entitled "Affirmatively Furthering Fair Housing." The rule 

is based on disparate impact theory. My testimony draws upon a comment I and two of my 

colleagues submitted to HUD regarding this rule, in addition to an amicus brief we submitted in 

the Mt. Holly case. 

I realize that last February HUD promulgated a rule enshrining disparate impact theory in 

its regulations. I However, that does not change the fact that disparate impact claims are not 

cognizable under the Fair Housing Act. 2 

Despite others' protestations, it simply is not the case that Congress intended the Fair 

Housing Act to include disparate impact. To elaborate upon this point, let us look at the seminal 

civil rights statute, the Civil Rights Act of 1964. The Civil Rights Act of 1964 did not include 

disparate impact. When the Fair Housing Act was passed, the Supreme Court's Griggs decision 

allowing the use of disparate impact in employment was still three years away. 

If disparate impact had not been recognized even in the employment context in 1968, 

Congress certainly did not intend to include it in the Fair Housing Act. In fact, the legislative 

history surrounding the adoption of the Civil Rights Act of 1964 suggests that Congress's intent 

was very dissimilar to that adopted by the Court in Griggs.} The floor managers of the Senate 

bill stressed that employers would continue to be free to adopt "bona fide" ~ualification tests, 

even if those tests disproportionately affected members of minority groups. 

I Docket No. FR-5508-F-02, "Implementation ofthe Fair Housing Act's Discriminatory Effects Standard," (Feb. IS, 

2013). 

2 Brief Amici Curiae of Gail Heriot, Peter Kirsanow, and Todd Gaziano in Support of Petitioner at 2, Mount Holly v. 

Mount Holly Gardens Citizens in Action (No. 11-1507)("No inference can be drawn that when Congress passed the 

Fair Housing Act of 1968 it was kindly disposed toward disparate impact liability."). 

J See id at 5-11. 

4 Clark and Case Memorandum, 110 Congo Rec. 7213. 
35 


86686.002

When Congress amended the Fair Housing Act in 1988, it did not include a disparate 

impact requirement. To argue that Congress felt no need to include a disparate impact provision 

in the 1988 amendments because of the Griggs decision proves nothing. Griggs dealt only with 

the use of disparate impact in the employment context. Even though appellate courts had 

recognized the use of disparate impact in the housing context, the lack of Supreme Court 

precedent on the point indicated to Congress that the issue was not settled, and therefore they 

would have included a disparate impact provision in the Fair Housing Act if such was their 

intent. 

Furthermore, if the use of disparate impact in the fair housing context is as widely 

accepted as is claimed, HUD would not have felt the need to issue a rule adopting disparate 

impact. If there was a statutory basis in the Fair Housing Act, such a rule would have been 

unnecessary and superfluous. And ifHUD and 001 were confident in the statutory basis and 

constitutionality of the use of disparate impact in regard to housing, they would not have bent 

over backwards to engage in a quid pro quo to settle the Magner v. Gallagher case, rather than 

letting the Supreme Court decide the issue.6 

As a result ofHUD's regrettable arrogation of power, the "Affirmatively Furthering Fair 

Housing" proposed rule is built upon sand. Rather than focusing on incidents of disparate 

treatment against members of protected classes, the proposed rule transforms people with 

middle-income levels or below into a protected class based simply on disparate impact. 7 I 

certainly oppose disparate treatment in housing because of membership in a protected class. 

However, the proposed rule's focus on disparate impact and the almost complete absence of a 

discussion of disparate treatment suggests that people are being discriminated against on the 

basis of their pocketbooks. To argue that housing discrimination is pervasive because members 

of a protected class are less likely to be able to afford housing that is the size they want or in a 

more genteel area is bizarre. 

The proposed rule's focus on scrutinizing housing patterns based on race and ethnicity is 

concerning. The rule does not suggest that people tend to live in racial and ethnic clusters 

because of disparate treatment or because of an entrenched system of segregation enshrined in 

law. Indeed, if the latter were true forty-five years after passage of the Fair Housing Act, the 

FHA and HUD would have to be judged abysmal failures. Rather, the proposed rule is premised 

on a disparate impact theory of discrimination in housing. 8 

S Brief Amici Curiae of Current and Fonner Members of Congress at 3, Mount Holly v. Mount Holly Gardens 

Citizens in Action (No. 11-1507). 

6 The Talented Mr. Perez, THE WALL STREET J., March 21, 2013, available at 

http://online.wsj.com/news/articies/SB 1 000 1424127887324281 004578356581889324790. 

7 Docket No. FR-5173-P-0 1, "Affirmatively Furthering Fair Housing," § 5.152. 

Disproportionate housing needs exists [sic] when the percentage of extremely low-income, low-income, 

moderate-income, and middle-income families in a category of housing need who are members of a 

protected class is at least 10 percent higher than the percentage of persons in the category as a whole. 

S Docket No. FR-5173-P-01, "Affirmatively Furthering Fair Housing," § 5.152. 

Affirmatively fiirlheringfair housing means taking proactive steps beyond simply combating discrimination 

to foster more inclusive communities and access to community assets for all persons protected by the Fair 

Housing Act. More specifically, it means taking steps proactively to address significant disparities in access 

to community assets .... 
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The underlying flaw in this proposed rule lies in its repeated use of the term 

"segregation" to describe housing patterns in which members of racial or ethnic groups are 

concentrated in particular areas. Legal segregation has been dead for over forty years. 

Geographic clustering of racial and ethnic groups is not in and of itself an invidious 

phenomenon. Referring to contemporary housing patterns as "segregation" trivializes the horror 

oflegal segregation that existed in the United States for over half a century. "[R]acial imbalance 

without intentional state action to separate the races does not amount to segregation.,,9 I suspect 

that the rule dubs racial imbalances in housing patterns "segregation" in order to invest a 

sweeping rule of dubious constitutionality with moral authority. Referring to freely-chosen 

housing patterns as "segregation" also gives a Manichean cast to what is in reality a complex 

situation. 

The proposed rule contemplates that HUD will provide housing authorities with data on 

so-called "integration and segre~ation" of housing patterns and "racially and ethnically 

concentrated areas of poverty." I In order to provide this data, the agency will have to classify 

Americans on the basis of race. Such a classification is likely unconstitutional. The Supreme 

Court has repeatedly said that racial classifications are inherently suspect. "This Court has 

recently reiterated, however, that 'all racial classifications [imposed by government] ... must be 

analyzed by a reviewing court under strict scrutiny, '" II and "all governmental action based on 

race-a group classification long recognized as 'in most circumstances irrelevant and therefore 

prohibited,' -should be subjected to detailed judicial inquiry to ensure that the personal right to 

equal protection of the laws has not been infringed [citations omitted] [citation marks 

omitted]." 12 

Not only does HUD intend to track the racial concentration of American neighborhoods, 

but it expects local housing authorities to engage in racial balancing. The proposed rule states 

that local housing plans "should be designed to reduce racial and national origin concentrations, 

including racially or ethnically concentrated areas of poverty, and to reduce segregation and 

promote integration." 13 This is disparate treatment on the basis of race, which is racial 

discrimination, plain and simple. 

The proposed rule's assumption that it is particularly noxious if minorities live in areas of 

concentrated poverty displays a mindless preference for racial balancing. 14 Given the demise of 

legal segregation, this definition ignores the possibility that at least some of these "racially or 

ethnically concentrated areas of poverty" exist because these members of racial and ethnic 

minorities prefer to live in communities predominantly peopled by fellow members of their own 

racial or ethnic group. Surely they should have the right to choose to live where and near whom 

9 Parents Involved in Community Schools v. Seattle School District No. 1,551 U.S. 701, at 750 (Thomas, ]., 

concurring) (2007). 

10 Docket No. FR-5173-P-01, "Affirmatively Furthering Fair Housing," § 5.154(c). 

11 ld at 741 [citations omitted]. 

12 Adarand Constructors, Inc. v. Pena, 515 U.S. 200, 227 (1995). 

IJ Docket No. FR-5173-P-OI, ;'Affirmatively Furthering Fair Housing," § 903.2(a)(3). 

14 Docket No. FR-5173-P-OI, "Affirmatively Furthering Fair Housing," § 5.152. 

Racially or ethnically concentrated area of poverty (RCAP or ECAP) means a geographic area based on the 

most recent decennial Census and other data to be statistically valid, with significant concentrations of 

extreme poverty and minority popUlations. 
37 


86686.004

they prefer. It is hardly surprising that many people have family and friendship networks 

primarily comprised of one ethnic group or another and would prefer to live near their family and 

friends. History suggests this is particularly likely in communities primarily comprised of recent 

immigrants. I suggest that individuals are the ones best suited to determine where they prefer to 

live, and that adults are generally capable of determining where to live without a government 

bureaucrat counseling them that Housing Option A is 75% black, 20% Hispanic, and 5% white, 

but Option B is a better choice because it is 75% white, 20% Hispanic, and 5% black. IS 

No one wants to live in an area of concentrated poverty. But why is it inherently worse to 

live in a predominantly Hispanic inner-city slum than in a predominantly white poverty-stricken 

Appalachian county?16 For that matter, would either the predominantly Hispanic or white area be 

a less miserable place to live if it were more diverse? These areas are miserable because they are 

poor, not because most people have the same skin color. This assumption also seems patronizing 

to racial and ethnic minorities, as if their communities are inferior and their situations will be 

improved if they are living next to white neighbors. 

It is particularly insidious that the proposed rule attempts to give a sinister sheen to 

voluntary housing choices. The proposed rule is intended to benefit non-whites. Yet the 

discriminatory provisions of the proposed rule will harm both whites and non-whites. 17 In fact, if 

the proposed rule is correct that housing prices have a disparate impact on minorities, and 

therefore non-whites are less likely to be able to afford housing without government assistance, 

the proposed rule will likely harm non-whites more than whites. The former will more often be 

subject to a bureaucrat's whims regarding his housing. Why should an African-American person 

be less preferred under a tenant selection policy than a white person simply because a particular 

apartment is in a predominantly African-American area? 18 

"Docket No. FR-5173-P-OI, "Affirmatively Furthering Fair Housing," § 903.2 ("(3) In accordance with the PHA's 

obligation to affirmatively further fair housing, ... the PHA Plan should be designed to reduce racial and ethnic 

concentrations, including racially or ethnically concentrated areas of poverty, and to reduce segregation and promote 

integration."). 

16 Kelvin Pollard and Linda A. Jacobsen, The Appalachian Region: A Data Overview from the 2007-20 II American 

Community Survey, Appalachian Regional Commission, at 14,41 (Feb. 2013), 

http://www .arc.gov lassetslresearch _reportslPRB DataOverviewReport2007 -20 II. pdf. 

The Appalachian region is significantly less diverse racially and ethnically diverse than the United 

States as a whole, and most parts of the region have remained far below the national average in 

their minority populations. In two-thirds of Appalachian counties, minorities (defined as anyone 

who identifies with a racial or ethnic group other than "white alone, not Hispanic") made up less 

than 10 percent of the population during the 2007-2011 period .... 

In 23 Appalachian counties, per capita income was less than $15,000 .... Indeed, per capita 

income in the 2007-2011 period was just $18,720 in rural Appalachian counties as a whole, and 

just $18,197 in central Appalachia. 

\7 I do not intend to suggest that discrimination against whites is permissible. 

18 Docket No. FR-5173-P-Ol, "Affirmatively Furthering Fair Housing," § 903.2(a)(3) ("In accordance with the 

PHA's obligation to affirmatively further fair housing, the PHA's policies that govern its 'development related 

activities' including affirmative marketing; tenant selection and assignment policies ... should be designed to 

reduce racial and national origin concentrations .... "). 
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86686.005

It is sadly ironic that the proposed rule engages in disparate treatment on the basis of race 

while attempting to combat disparate impact. Many government entities make this error. 19 It is 

less expensive and embarrassing to quietly "get your numbers right" than to face public charges 

of racial discrimination. Nonetheless, disparate treatment on the basis of race is racial 

discrimination. I believe that the Supreme Court will eventually be forced to rule whether 

discriminatory actions taken to avoid disparate impact can be reconciled with the Fourteenth 

Amendment's guarantee of equal protection. 2o I hope this day will come sooner rather than later, 

but until then HUD should respect the limits of its statute and refrain from engaging in racial 

discrimination. 

One last point I would like to make is that disparate impact often winds up harming the 

very people intended to benefit. For example, my colleague Gail Heriot has written extensively 

on the problems caused by affirmative action "mismatch" in academia, which is a sort of less 

formal application of disparate impact theory. Less-prepared students who are admitted to 

selective institutions of higher learning in the interests of racial balancing often find themselves 

struggling to keep up with the material, which can negatively affect their future careers. 21 In the 

employment context, the EEOC has issued new guidance that attempts to discourage the use of 

criminal background checks in hiring. Why? Because African-American and Hispanic men are 

more likely to have criminal records than are white and Asian men, so the use of criminal 

background checks in hiring has a disparate impact on African-American and Hispanic men. Yet 

serious social science studies have shown that the use of criminal background checks in hiring 

actually increases the employment of African-American men overall because employers 

overestimate the number of African-American men with criminal records. 22 When employers can 

know that that a particular applicant does not have a criminal record, he can hire him without 

worrying about all the problems that may arise as a result of hiring an ex-criminal. I cannot 

predict what the consequences will be for the intended beneficiaries of disparate impact in 

housing, but the track record of using disparate impact as a social engineering tool suggests the 

consequences will not be good. 

Thank you again for asking me to speak today. I look forward to your questions. 

19 Ricci v. DeStefano, 557 U.S. 557, 563 (2009) ("We conclude that race-based action like the City's in this case is 

impermissible under Title VI! unless the employer can demonstrate a strong basis in evidence that, had it not taken 

the action, it would have been liable under the disparate-impact statute."). 

20 See id. at 594 (Scalia, J., concurring ("resolution oflhis dispute merely postpones the evil day on which the Court 

will have to confront the question: Whether, or to what extent, are the disparate-impact provisions of Tille VII of the 

Civil Rights Act of 1964 consistent with the Constitution's guarantee of equal protection?"). 

21 See Gail Heriot, The Sad Irony of Affirmative Action, NATIONAL AFFAIRS (Winter 2013), available a/ 

http://www.nationalaffairs.com/publications/detaililhe-sad-irony-of-affirmative-action. 

22 See Harry J. Holzer et al., Perceived Criminality. Criminal Background Checks. and the Racial Hiring Practices 

of Employers, 49 1. L. & ECON. 451 (2006). 
39 


86686.006

Testimony before the U.S. House of Representatives 

Committee on Financial Services 

Subcommittee on Oversight and Investigations 

Hearing on "General Overview of Disparate Impact Theory" 

November 19,2013 

Hon. Kenneth L. Marcus 1 

Chairman McHenry, Ranking Member Green, Distinguished Committee 

Members, I am honored to appear before this committee again today. My name is 

Kenneth L. Marcus. I am the President and General Counsel of the Louis D. Brandeis 

Center for Human Rights Under Law. In addition, I am a former Staff Director of the 

U.S. Commission on Civil Rights and former General Deputy Assistant Secretary of 

Housing and Urban Development for Fair Housing and Equal Opportunity. The pursuit of 

fair housing for all Americans is a matter of serious concern, and I commend this 

subcommittee for its continuing oversight to ensure that the duty to secure fair housing is 

honored by this administration, by state and local governments, and by the whole housing 

community. The use of disparate impact theories to enforce fair housing laws is 

sometimes promoted as a means of accomplishing this goal. In my view, as I will further 

explain below, the use of disparate impact in fair housing has risks as well as benefits and 

carries significant legal and policy disadvantages when misapplied. 

I President and General Counsel, The Louis D. Brandeis Center for Human Rights Under Law 

(www.brandeiscenter.com); former Staff Director, U.S. Commission on Civil Rights; author, Jewish 

Identity and Civil Rights in America (Cambridge University Press, 2010). Mr. Marcus submits this 

testimony on his own behalf. It may not represent the views of the Louis D. Brandeis Center. 
40 


86686.007

The Continuing Evil of Housing Discrimination 

The issue of housing discrimination remains a serious problem in the United 

States, although we have made dramatic and significant progress against it over the years. 

This is also true of discrimination in other areas, such as the workplace and education. At 

its worst, however, housing discrimination is uniquely harmful, since it literally hits its 

victims where they live. That is to say, housing discrimination harms people in a place of 

peculiar vulnerability, where whole families rather than just particular individuals are at 

risk. When I had the privilege of directing the U.S. Department of Housing and Urban 

Development's (HUD) Office ofFair Housing and Equal Opportunity, we faced 

deplorable cases of conscious, intentional discrimination and bigotry. Sad to say, these 

cases continue to arise, and it is vital that civil rights enforcement officials pursue them 

vigorously. 

Just last year, HUD settled Fair Housing Act claims against the Ecklin Group, a 

Lancaster, Pennsylvania real estate development group that they found had refused to 

rent to Burmese refugee families. The agreement came about after company staff 

allegedly refused to renew the leases of three Burmese families because of their national 

origin, and told various people that the group would no longer accept rental referrals for 

refugees referred by Lutheran Refugee Services. Needless to say, the company denied 

the allegation, which is not unusual in such settlements. In the twenty-first century, it is 

sobering to think that such blatant national origin discrimination persists. Unfortunately, 

this Lancaster case was not the only such case of blatant alleged discrimination. 

2 
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86686.008

The year before, a HUD Administrative Law Judge found that Phillip and Opal 

Maze, respectively the rental manager and owner of a Marshall County, Alabama mobile 

home, had unlawfully discriminated against a white family and an African American man 

because one of the family members was dating the African American man. Phillip Maze 

had kicked the African American man off of the premises because of his race. According 

to HUD, Maze actually told the woman who was dating the African American man that 

they would have to move out because he did not believe in interracial dating. He then 

turned off the water to the family's home after observing the African American visitor. 

When the white female tenant asked what she would have to do to have the water turned 

back on, Mr. Maze told her to "get rid of the black boyfriend." 

Subtle, Covert Discrimination and Disparate Impacts 

We know, however, that in the twenty-first century, those who harbor racial bias 

are seldom so explicit about it. As racism has become socially stigmatized and legally 

barred, most people who harbor racial prejudice have learned to conceal their bias in 

ways that are difficult to identify or to prove in a court oflaw. The disparate impact 

doctrine can be used to identify intentional discrimination that is hard to demonstrate 

under the doctrine of differential treatment. Used judiciously, disparate impact can be a 

useful enforcement tool for identifying intentional or unconscious discrimination in 

circumstances where the discriminators' motivations are otherwise difficult to ascertain. 

Used improperly, however, it creates real problems oflaw and public policy and may 

3 
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86686.009

entail violations of the Equal Protection Clause of the Fourteenth Amendment to the U.S. 

Constitution. 

In the fair housing context, the most obvious problem is that the applicable statute 

does not explicitly authorize it. The Fair Housing Act, unlike Title VII of the Civil 

Rights Act of 1964, does not expressly provide a disparate impact cause of action. Nor 

does it contain language regarding "adverse affects" of the sort that has bolstered a 

disparate impact claim in other statutory contexts. Instead, its statutory language speaks 

in terms of discrimination "because of," "based on," or "on account of" various 

enumerated classifications. The Supreme Court has previously interpreted such terms as 

providing an intent requirement. In this sense, reliance upon HUD's fair housing 

regulations unavoidably raises the prospect - absent legislation to incorporate a disparate 

impact theory - that its prosecutions exceed its statutory mandate. Indeed, President 

Ronald Reagan's signing statement for the 1988 Amendments insists "that this bill does 

not represent any congressional or executive branch endorsement of the notion, expressed 

in some judicial opinions, that Title 8 violations may be established by a showing of 

disparate impact or discriminatory effects of a practice that is taken without 

discriminatory intent." In short, President Reagan admonished, "Title 8 speaks only to 

intentional discrimination." While HUD has long pursued disparate impact claims under 

Title VIII, the Supreme Court has not yet evaluated the conformity of those regulations 

with the underlying legislation. Several federal circuit courts have found disparate 

impact claims to be viable under the Fair Housing Act, but their determinations must be 

considered provisional until the Supreme Court settles the matter. Recent judicial 

challenges to the regulations have been settled out of court. If Congress believes that 

4 
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86686.010

Title VIII should cover disparate impact, and wants to protect government officials from 

accusations that their prosecutions are ultra vires, it can of course amend the statute to 

provide an explicit basis for the use of this doctrine. If it chooses to do so, however, it 

should beware the broader risks posed by misuse of this doctrine. 

The Supreme Court's decision in the so-called New Haven firefighters' case, 

Ricci v. DeStefano, raises the deeper problem that current disparate impact doctrine may 

violate the Equal Protection Clause of the U.S. Constitution. In that case, Justice Scalia 

observed that the Court's narrow opinion "merely postpones the evil day" the Court will 

have to decide the central, looming question: "Whether, or to what extent, are the 

disparate impact provisions of Title VII of the Civil Rights Act of 1964 consistent with 

the Constitution's guarantee of equal protection?" The same question arises with respect 

to the Fair Housing Act to the extent that it is interpreted to support disparate impact 

claims. In a nutshell, the problem is that disparate impact doctrine, as it has evolved over 

the years, has come to encompass more than just intentional and unconscious 

discrimination. This broad doctrine has come to include a wide range of actions which 

have unintended adverse impacts on certain groups which are merely difficult to explain 

on non-racial grounds. This can lead housing providers or lenders to avoid legitimate 

criteria such as credit-worthiness or employment status which have legitimate (if 

difticult~to-prove) non-discriminatory rationales but adverse impacts on some racial 

groups. These potential defendants would be forced to demonstrate a business 

"necessity" for the policy, and such demonstrations are hard to mount even when their 

validity is intuitively obvious. Some have argued that this has had a destabilizing 

influence on certain markets. Worse, the doctrine is sometimes used to pressure 

5 
44 


86686.011

regulated entities - employers, for example, but perhaps also lenders or housing providers 

- to engage in quota-like behavior to avoid the prospect of disparate impact liability. In 

other words, they are forced to use surreptitious means to 'get their numbers right" in 

order to avoid disparate impact liability. 

To the extent that any version of the disparate impact doctrine either constitutes or 

mandates race-conscious governmental actions for reasons other than the elimination of 

intentional or unconscious discrimination, I would submit that it is vulnerable to 

challenge under the Equal Protection Clause. As Justice Scalia's Ricci opinion 

acknowledges, "The question is not an easy one." It is not, however, an avoidable one. 

As Scalia observed, "the war between disparate impact and equal protection will be 

waged sooner or later ... [and] it behooves us to begin thinking about how - and on what 

terms to make peace between them." For this reason, I would urge that any disparate 

impact provision adopted by this Congress be drafted in a manner that would shield it 

from constitutional challenge. Mr. Chairman, I ask that my article on this topic, "The 

War between Disparate Impact and Equal Opportunity," 2008-2009 Cato Supreme Court 

Review 53-83, be included with and incorporated into my testimony. In that article, I 

have argued that a "good-faith" defense, if adopted by this Congress, could save disparate 

impact provisions from the constitutional challenges that might otherwise lead to their 

judicial invalidation. 

While I have framed my remarks largely in terms of legal considerations, I should 

also observe that there are questions of equity and policy that also constrain proper uses 

of the disparate impact doctrine. As I have noted, the problem of actual, intentional 

discrimination remains a pressing one even today. It is my belief that the civil rights 

6 
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86686.012

enforcement agencies of the United States, including the Office of Fair Housing and 

Equal Opportunity, have a duty to spend their scarce precious resources pursuing 

precisely these forms of bigotry. To the extent that they may pursue more marginal 

cases, based on aggressive interpretations of law, to target disparities that are not based 

on either intentional or unconscious discrimination, they dilute their strength, divide their 

focus, and misuse their scarce precious taxpayer funds. People of good will may debate 

the wisdom or justice of governmental attempts to level disparities that do not arise from 

intentional or unconscious discrimination. Whatever their value, however, they are a 

different project from combating discrimination. Given the seriousness of racism, ethnic 

bias, and other forms of bigotry, it behooves civil rights enforcement agencies to focus 

their energies on their core mission of eliminating discrimination. This subcommittee 

can advance that mission by ensuring that legitimate law enforcement tools, including the 

disparate impact doctrine, are crafted and applied in a manner which focuses them on 

actual discrimination and shields them from legal challenge. 

7 
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86686.013

AMERICAN CIVIL LIBERTIES UNION 

Written Statement of 

Dennis D. Parker, Director 

Racial Justice Program 

American Civil Liberties Union 

Submitted to the Subcommittee on Oversight and Investigations 

of the U.S. House of Representatives Committee on Financial Services 

For a Hearing on 

"A General Overview of Disparate Impact Theory" 

November 19,2013 
47 


86686.014

Good morning Chairman McHenry, Ranking Member Green and distinguished members 

of the Subcommittee. My name is Dennis Parker, and I am the Director of the Racial Justice 

Program of the American Civil Liberties Union. By way of disclosure, I am also one of the 

lawyers in the Adkins v. Morgan Stanley case, a case brought under the Fair Housing Act 

charging Morgan Stanley with practices connected with its role in encouraging the creation of 

toxic, highly risky mortgages which resulted in disparate rates of foreclosure for African 

Americans in Detroit. 

Congress passed the Fair Housing Act nearly fifty years ago to address problems of 

residential segregation and conditions of poverty which blocked access to opportunity to 

communities of color and led to bitterness, frustration and civil unrest. 

From the outset, the bipartisan sponsors and supporters of the Fair Housing Act 

recognized that, given the pervasiveness and complexity of housing discrimination, it was 

necessary to prohibit all forms of discrimination including that resulting from discriminatory 

intent, as well as acts neutral on their face which had a discriminatory effectl

. 

In order to achieve the broad anti-discrimination goals of the act, Congress, the 

government agencies charged with enforcing the act, and each of the courts which have 

interpreted the act have recognized that the disparate impact standard is a necessary tool in 

fighting discrimination in all of its forms and that, without the disparate impact standard, 

practices that have the same discriminatory consequences as intentional discrimination would be 

shielded from the reach of the law. That recognition was so strong that both at the time that the 

statute was passed and on subsequent occasions, Congress has resisted attempts to limit the 

application of the law only to instances of intentional discrimination. 

Further evidence of the legality and the efficacy of the disparate impact standard can be 

seen in the fact that between the enactment of the Fair Housing Act in 1968 and the time when 

Congress made significant amendments to the act in 1988, all nine courts of appeals which 

considered the issue, concluded that the act permitted the use of disparate impact claims to fight 

discrimination in all of its forms. 

In 1988, against the backdrop of the unanimous approval of disparate impact claims by 

all courts, Congress extended the coverage of the act to prohibit discrimination based on familial 

status and disability. At the same time, Congress added specific exemptions relating to 

convictions for certain narcotics offenses, regarding the maximum number of occupants 

permitted to occupy a dwelling and an exemption specifying that nothing in the act prohibits 

appraisers from taking factors into consideration other than race, color, religion, national origin, 

sex, handicap, or familial status. Given the absence of any language in the statute that would 

1 Senator Edward W. Brook, a co-sponsor of the Fair Housing Act observed that the Act "recognize[d] the manifold 

and insidious ways in which discrimination works its terrible effects," and aimed to undo the "practical result" of 

discriminatory policies and break the "dreary cycle of the middle-class exodus to the suburbs and the rapid 

deterioration of the central city." 114 Congo Rec. 2085 (1968) at 2279-80. For a detailed discussion of the legislative 

history of the Act, see Brief of Current and Former Members of Congress as Amici Curiae in Support of 

Respondents, Township ofv. Mt. Holly Garden Citizens in Action, Inc., (2013) (No.1 1-1507), available at: 

https:llwww.aclu.orglracial-justice-womens-rightsltownship-mt-holly-v-mt-holly-gardens-citizens-action-incam iClls-brief. 

2 
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86686.015

prohibit discrimination for any of the actions covered by the exemptions, the inclusion of the 

language specifying the exemptions would only make sense if those actions would otherwise be 

barred on a disparate-impact theory. Congress also enhanced the Department of Housing and 

Urban Development's authority to interpret the Fair Housing Act by giving the agency the power 

to conduct formal adjudications and to issue regulations interpreting the Act. 

Given the history of acceptance of the disparate impact standard, it was no surprise that 

in the years following the amendments, the Department of Housing and Urban Development 

(HUD), the Justice Department and the agencies charged with enforcing the fair housing and fair 

lending laws have interpreted the fair housing laws to permit disparate impact claims, have 

trained their employees to use disparate impact analysis, and have brought enforcement actions 

relying on disparate impact. During that same period, the two remaining circuit courts which had 

not previously addressed the question of the validity of the disparate impact standard joined the 

other nine circuits in approving of it. 

On February 15, 2013, HUD reaffirmed the decades-long recognition of the availability 

of the disparate impact standard after going through a period of formal notice and comment. The 

regulation formally recognized the disparate impact standard as one way of proving 

discrimination. At the same time in the new regulation, HUD emphasized that this rulemaking 

did not propose new law. 

The need for the disparate impact standard as a tool in fighting discrimination is as great 

or greater now than it has ever been. Problems of residential segregation and the accompanying 

limitation on access to fine schools, transportation, healthy environments and employment 

continue to plague the nation. 

One striking example of the continuing need for an effective way of addressing the 

increasingly subtle way in which protected classes are denied access to fair housing can be seen 

in the wake of the economic crisis of 2008. Discriminatory lending practices, which included 

providing high risk subprime loans to members of communities of color became increasingly 

prevalent. Despite repeated attempts to blame the recipients of these mortgages for these loans 

with the suggestion that a combination of their greed and their lack of creditworthiness was the 

cause of their problems, the evidence shows that in 2005, 55 percent of subprime borrowers had 

sufficiently high credit scores to qualify for prime loans. 2 People of color were 

disproportionately included in that number. Ajoint report from HUD and the Department of the 

Treasury found that, as of 2000, "borrowers in black neighborhoods [were] five times as likely to 

refinance in the subprime market than borrowers in white neighborhoods," even when 

controlling for income3

• Even more striking was that "[b]orrowers in upper-income black 

neighborhoods were twice as likely as homeowners in low-income white neighborhoods to 

refinance with a subprime loan." 4 

These communities had previously experienced a long history of intentional 

2 Rick Brooks & Ruth Simon, Subprime Debacle Traps Even Very Credit-Worthy, Wall St. J., Dec. 3, 2007. 

) U.S. Department of Housing and Urban Development. Curbing Predatory Home Mortgage Lending (2000) at 47-

48, available at: http://www.huduser.orgIPublications/pdfltreasrpt.pdf. 

4 Stephen L. Ross & John Yinger. The Color a/Credit: Mortgage Discrimination, Research Methodology, and FairLending E'1forcement, 24-25 (2002). 

3 
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86686.016

discrimination in the form of racial steering, redlining and lack of access to financial institutions 

offering fair borrowing options, The new practice of extending predatory terms of mortgages 

added new injury to the old. The combination of the new abusive lending practices and the 

history of discrimination resulted in a foreclosure crisis which had a particularly serious impact 

on communities of color and reversed many of the economic gains which had been realized by 

those communities over the past half century. The nature of the policies that had such a serious 

impact is such that they could only be addressed by disparate impact claims since no individual 

would be able to demonstrate the discriminatory consequences of the policies which fueled the 

subprime bubble without relying on evidence of the broad impact of those policies. Cases 

challenging the lending practices which brought about the economic crisis that threatened the 

economy as a whole, but had particularly serious consequences on individuals and communities 

of color illustrate that the disparate impact standard is a careful, measured way of protecting all 

Americans from discrimination. After plaintiffs have shown that a policy or practice has a 

disproportionate impact on protected classes, defendants are permitted the opportunity to 

demonstrate that there is a substantial legitimate reason for the practice and policy. The practice 

will only violate the fair housing act if its justification is not legitimate or if there is a less 

discriminatory way to achieve the same purpose. 

By permitting the consideration of the multiple factors of impact, goals and the means of 

achieving those goals, the disparate impact standard permits challenges to barriers which 

prohibit equal opportunity to fair housing. It is common sense that any policy that unnecessarily 

excludes people from housing because of their race, gender, ethnicity, disability or any other 

protected class should be set aside in favor of one that serves everyone's needs fairly, effectively, 

and without discrimination. 

The use of disparate impact is a common sense way of assuring effective and equal fair 

housing opportunity and should be protected. To do otherwise would undercut decades of 

progress and betray the efforts of the people nearly half a century ago who sought to assure 

fairness and equality in housing. 

Thank you. 

4 
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86686.017

AMERICAN CIVIL 

LIBERTIES UNION 

OFFICERS AND DIRECTORS 

AMERICAN CIVll1l8£RTlES UNION 

November 18,2013 

The Honorable Patrick T. McHenry 

Chairman 

Subcommittee, 

Oversight and Investigations 

Committee on Financial Services 

U.S. House of Representatives 

Washington, DC 20515 

The Honorable AI Green 

Ranking Member 

Subcommittee, 

Oversight and Investigations 

Committee on Financial Services 

U.S. House of Representatives 

Washington, D.C. 20515 

Re: Financial Services Subcommittee on Oversight and Investigations 

Hearing on the Fair Housing Act 

Dear Chairman McHenry and Ranking Member Green: 

On behalf of the American Civil Liberties Union ("ACLU"), its over half a 

million members, 53 affiliates nationwide, and countless additional supporters 

and activists, we urge you to preserve the federal Fair Housing Act (FHA) in its 

entirety. The FHA is an indispensable tool that prohibits discrimination in the 

sale or rental of housing. Since its passage forty-five years ago, every court of 

appeals that has addressed the question, as well as the Department of Housing 

and Urban Development, has interpreted the Act to prohibit policies that have a 

discriminatory impact, regardless of whether they were adopted with a 

discriminatory intent. While a recent case before the U.S. Supreme Court, 

Mount Holly v. MI. Holly Gardens Citizens in Action, Inc., threatened disparate 

impact claims under the FHA, the case was settled, leaving in place the wellestablished understanding that the FHA prohibits discrimination in practice, as 

well as discrimination by design. By maintaining the disparate impact standards 

of the FHA, Congress would help to ensure basic American values of equal 

opportunity and to protect against arbitrary and unnecessary barriers to fair 

housing, particularly for racial minorities and victims of domestic violence. 

This important legal tool remains vital for combating and deterring 

contemporary forms of discrimination in housing. For example, disparate 

impact analysis provides an essential tool for remedying the widespread racial 

discrimination that defined the subprime lending boom, during which borrowers 

of color were disproportionately offered higher-rate loans than white borrowers. 

Disparate impact doctrine makes it possible to uncover disparities and 

determine whether racial disparities exist that cannot be justified by credit risk 

or any other legitimate business considerations. 

Similarly, disparate impact analysis confronts structural and institutional 

barriers to fair housing, such as zoning ordinances that prohibit the building of 

smaller homes or apartments that working people can afford, which in many 

places excludes most people of color. In fact, the redevelopment plan in the 
51 


86686.018

Sincerely, 

Mount Holly case would have demolished the only predominantly minority 

neighborhood to build new dwellings that few of the current residents would 

have been able to afford, thus excluding most of the town's minority residents. 

Furthermore, disparate impact analysis under the FHA offers crucial legal 

protection to women who face eviction or housing denials based on zerotolerance policies that exclude any member of a household where a crime has 

taken place. These policies are often used to evict or exclude survivors of 

domestic and sexual violence, the majority of whom are women and girls. 

Because zero tolerance policies are facially neutral, disparate impact claims are 

indispensable in eradicating this devastating form of discrimination. 

For these reasons, disparate impact analysis can root out harmful patterns of 

discrimination that might otherwise remain invisible and go unredressed, and it 

remains indispensable today in fulfilling Congress' promise to eradicate such 

discrimination in housing. The FHA's disparate impact standard is consistent 

with both Congressional intent and necessary to address critical and current 

issues, such as predatory lending and discrimination against domestic violence 

victims. It recognizes that actions that have the consequence of perpetuating 

exclusion and unequal access to housing can be just as harmful to society as 

intentionally discriminatory acts. 

These issues are discussed in more detail in the attached amicus brief, which we 

recently filed with the Supreme Court in the Mt. Holly case. We urge Congress 

to protect equal opportunity and freedom from discrimination for all by 

preserving the Fair Housing Act and maintaining its position that disparate 

impact is important and critical. Please contact Legislative Counsel Jennifer 

Bellamy with any questions at ibellamylaldcaclu.org. 

Laura W. Murphy Jennifer Bellamy 

Director, Washington Legislative Office Legislative Counsel 

Cc: Members of the Subcommittee on Oversight and Investigations of the House Financial 

Services Committee. 

2 
52 


86686.019

No. 11-1507 

IN THE 

~upreme (([ourt of tIte ~niteb: ~tates 

••• 

TOWNSHIP OF MOt:NT HOLLY, ET AL., 

Petitioners, 

-V.-

MT. HOLLY GARDENS CITIZENS IN ACTION, INC., ET AL., 

Respondents. 

ON WRIT OF CERTIORARI TO THE UNITED STATES 

COURT OF APPEALS FOR THE THIRD CIRCUIT 

BRIEF AMICI CURIAE OF THE AMERICAN CIVIL 

LIBERTIES UNION, THE ACLU OF NEW JERSEY, THE 

NATIONAL COALITION AGAINST DOMESTIC VIOLENCE, 

THE NATIONAL COMMUNITY REINVESTMENT 

COALITION, THE NATIONAL CONSUMER LAW CENTER, 

THE NATIONAL LAW CENTER ON HOMELESSNESS AND 

POVERTY, THE NATIONAL HOUSING LAW PROJECT, 

PUBLIC JUSTICE, P.C., AND THE NATIONAL WOMEN'S 

LAW CENTER, IN SUPPORT OF RESPONDENTS 

Stuart T. Rossman 

National Consumer Law 

Center 

7 Winthrop Square, Suite 400 

Boston, MA 02110 

(617) 542-8010 

Steven R. Shapiro 

Counsel oj Record 

Laurence M. Schwartztol 

Sandra S. Park 

Lenora M. Lapidus 

American Civil Liberties 

Union Foundation 

125 Broad Street 

New York, NY 10004 

(212) 549-2500 

sshapiro@aclu.org 

(Counsel continued on inside cover) 
53 


86686.020

Edward Barocas 

Jeanne LoCicero 

American Civil Liberties 

Union of New Jersey 

Foundation 

P.O. Box 32159 

Newark, NJ 07102 

(973) 642-2086 
54 


86686.021

TABLE OF CONTENTS 

TABLE OF AUTHORITIES ....................................... ii 

STATEMENT OF INTEREST ................................... 1 

SUMl\.1ARY OF ARGUMENT .................................... 1 

ARGUMENT ............................................................... 4 

I. DISPARATE IMPACT IS A VITAL TOOL FOR 

REMEDYING THE DISCRIMINATORY 

LENDING PRACTICES THAT FUELED THE 

SUBPRIME LENDING BUBBLE AND 

CONTRIBUTED TO THE CURRENT 

FORECLOSURE CRISIS .................................... 4 

A. Discriminatory Subprime Lending Was a 

Major Cause of the Foreclosure Crisis ......... 4 

l.Roots of Subprime Lending ...................... 4 

2.Subprime Lending Practices Resulted in 

Widespread Racial Disparities ............. 8 

B. Disparate Impact Analysis Plays a Vital Role 

in Combating Lending Discrimination ....... 11 

II. DISPARATE IMPACT ANALYSIS IS A 

CRUCIAL TOOL FOR ADDRESSING 

HOUSING DISCRIMINATION AGAINST 

DOMESTIC AND SEXUAL VIOLENCE 

VICTIMS ............................................................ 21 

CONCLUSION .......................................................... 35 

APPENDIX ............................................................... la 

1 
55 


86686.022

TABLE OF AUTHORITIES 

CASES 

Adkins v. Morgan Stanley, -- F.3d --,2013 WL 

3835198, at *2 (S.D.N.Y. July 25, 2013) ........... 7, 14 

Alvera v. Creekside Village Apartments, 

No. 10-99-0538-8 (Dep't of Hous. & Urban 

Dev. Apr. 13, 2001) .................................... 22, 23, 25 

Barkley v. Olympia Mortg. Co., 

2010 WL 3709278 (E.D.N.Y. Sept. 13, 2010) ........ 11 

Barrett v. H&R Block, Inc., 

652 F.Supp. 2d 104 (D. Mass. 2009) ..................... 14 

Barrett v. Option One Mortg., Corp., 

No. 08-10157 (D. Mass. Sept. 24,2010) ................ 16 

Bouley v. Young-Sabourin, 

394 F. Supp. 2d 675 (D. Vt. 2005) ......................... 24 

City of Memphis v. Wells Fargo Bank, N.A., 

No. 09-2857, 2011 WL 1706756 

(W.D. Tenn. May 4, 2011) ...................................... 14 

Cleaves-Milan v. AIMCO Elm Creek LP, 

1:09-cv-06143 (N.D. Ill. Oct. 1, 2009) .................... 25 

Connecticut v. Teal, 

457 U.S. 440 (1982) ................................................ 13 

Garcia v. Countrywide Fin. Corp., 

No. 5:07-cv-1161, 2008 WL 7842104 

(C.D. Cal. Jan. 17, 2008) ....................................... 14 

Griggs v. Duke Power Co., 

401 U.S. 424 (1971) .......................................... 12, 13 

Guerra v. GMAC, LLC, 

No. 2:08-cv-01297, 2009 WL 449153 

(E.D. Pa. Feb. 20, 2009) ......................................... 14 

11 
56 


86686.023

Hargraves v. Capital City Mortg. Corp., 

No. 1:98-cv-01021 (D.D.C. Mar. 25, 2002) ............ 14 

In re Wells Fargo Mort. Lending Practices Litig., 

No. 08-CV-01930 (N.D. Cal. Sept. 1, 2010) ..... 15, 16 

In re Wells Fargo Mortg. Lending Practices Litig., 

3:08-md-01930 (N.D. Cal. Apr. 10, 2008) .............. 14 

Laufman v. Oakley Bldg. & Loan Co., 

408 F. Supp. 489, 493 (S.D. Ohio 1976) .................. 5 

Lewis v. North End Village, 

No. 2:07-cv-l0757 (E.D. Mich. Feb. 21, 2007) 24, 25 

Mayor of Baltinwre v. Wells Fargo Bank, N.A., 

No. 1:08CV-00062, 2011 WL 1557759 

(D. Md. Apr. 22,2011) ........................................... 14 

Miller v. Countrywide Bank, N.A., 

571 F.Supp. 2d 251 (D. Mass. 2008) ..................... 14 

Nat'l Comm. Reinvestment Coal. v. Novastar Fin., 

Inc., 2008 WL 977351 (D.D.C. Mar. 31, 2008) ...... 11 

Nationwide Mutual Ins. Co. v. Cisneros, 

52 F.3d 1351, 1359-60 (6th Cir. 1995) .................... 5 

Ramirez v. Greenpoint Mortg. Funding, Inc., 

No. 3:08-cv-00369 (N.D. Cal. Apr. 1, 2010) ........... 16 

Ramirez v. Greenpoint Mortg. Funding, Inc., 

No. 3:08-cv-00369 (N.D. Cal. Apr. 12, 2011) ......... 14 

United States ex rei. Alvera v. The C.B.M. Group, 

Inc., No. 01-857-PA (D. Or. Nov. 5, 2001) ............. 23 

United States v. Countrywide Fin. Corp., 

No. CV11 10540 (C.D. Cal. Dec. 21, 2011) ............ 15 

Watson v. Fort Worth Bank & Trust, 

487 U.S. 977 (1988) ................................................ 13 

III 
57 


86686.024

Winsor v. Regency Prop. Mgmt., Inc., 

No. 94 CV 2349 (Wis. Cir. Ct. Oct. 2, 1995) ......... 30 

STATUTES 

Fair Housing Act, 42 U.s.C. § 3601 et seq ........ passim 

12 U.S.C. § 4545(1) ............................................... 18 

42 U.S.C. § 14043e ................................................ 21 

42 U.S.C. § 14043e(3) ........................................... 22 

42 U.S.C. § 14043e(7) ........................................... 33 

42 U.S.C. § 14043e-ll .......................................... 29 

ADMINISTRATIVE & LEGISLATIVE 

MATERIALS 

1985 N.Y. Op. Att'y Gen. 45 (1985), 

1985 WL 194069 .................................................... 30 

24 C.F.R. § 100.500(b) ............................................... 19 

Implementation of the Fair Housing Act's 

Discriminatory Effects Standard, 

78 Fed. Reg. 11,460 (Feb. 15, 2013) ...................... 17 

Policy Statement on Discrimination in Lending, 59 

FED. REG. 18266-01 (Dep't of Hous. & Urban Dev. 

et al. Apr. 15, 1994) ......................................... 17, 19 

S. REP. No. 92-415 (1971) ......................................... 13 

Statement on Subprime Mortgage Lending, 72 Fed. 

Reg. 37569-01 (Dep't of the Treas. et al. June 28, 

2007) ......................................................................... 6 

Testimony Before the S. Comm. on Banking, Hous., 

and Urban Affairs, 1l0th Congo 10-11 (Mar. 4, 

2008) (statement of John C. Dugan, Comptroller of 

the Currency) ......................................................... 20 

IV 
58 


86686.025

OTHER AUTHORITIES 

Alicia H. Munnell, et al., 

Mortgage Lending in Boston: Interpreting HMDA 

Data, 86 AMER. ECON. REV. 25 (1996) ..................... 6 

ALyS COHEN, CREDIT DISCRIMINATION, 

155 (5th ed. 2009) .................................................... 5 

AMY CORREIA & JEN RUBIN, 

VAWNET APPLIED RESEARCH FORUM, 

HOUSING AND BATTERED WOMEN (2001) ............... 33 

ANTI-DISCRIMINATION CTR. OF METRO NY, ADDING 

INSULT TO INJURY: HOUSING DISCRIMINATION 

AGAINST SURVIVORS OF DOMESTIC VIOLENCE 

(2005) ...................................................................... 32 

Bill Dedman, 

Atlanta Blacks Losing in Home Loans Scramble, 

ATLANTA JOURNAL-CONSTITUTION, 

May 1, 1988 .............................................................. 6 

Binyam Appelbaum et al., 

New Industry Fills Void in Minority Lending: 

Critics Say Borrowers Turn to High-Rate Lenders 

Because Bank Loans Too Often Not Available, THE 

CHARLOTTE OBSERVER, 

Apr. 29, 2005 ............................................................ 9 

CALLIE MARIE RENNISON, 

U.S. DEP'T OF JUSTICE, CRIME DATA BRIEF: 

INTIMATE PARTNER VIOLENCE, 1993-2001 

(2003) ...................................................................... 27 

v 
59 


86686.026

Cari Fais, Note, Denying Access to Justice: The Cost 

of Applying Chronic Nuisance Laws to Domestic 

Violence, 108 COLUM. L. REV. 1181 (2008) ............ 26 

Christopher L. Peterson, 

Predatory Structured Finance, 28 Cardozo L. Rev. 

2185 (2007) ............................................................. 20 

CTR. FOR IMPACT RESEARCH, 

PATHWAYS TO AND FROM HOMELESSNESS: WOMEN 

AND CHILDREN IN CHICAGO SHELTERS (2004) ........ 32 

DEBBIE GRUENSTEIN BOCIAN ET AL., 

CTR. FOR RESPONSIBLE LENDING, FORECLOSURE BY 

RACE AND ETHNICITY (2010) .................................. 10 

DEBBIE GRUENSTEIN BOCIAN ET AL., 

CTR. FOR RESPONSIBLE LENDING, LOST GROUND, 

2011: DISPARITIES IN MORTGAGE LENDING AND 

FORECLOSURES (2011) .............................................. 9 

DEBBIE GRUENSTEIN BOCIAN ET AL., 

CTR. FOR RESPONSIBLE LENDING, UNFAIR LENDING: 

THE EFFECT OF RACE AND ETHNICITY ON THE PRICE 

OF SUBPRIME MORTGAGES (2006) ............................. 9 

Douglas S. Massey, 

Origins of Economic Disparities: The Historical 

Role of Housing Segregation, in SEGREGATION: THE 

RISING COST FOR AMERICANS 40 (James H. Carr & 

Nandinee K. Kutty, eds., 2008) ............................... 5 

EQUAL RIGHTS CTR., 

No VACANCY: HOUSING DISCRIMINATION AGAINST 

SURVIVORS OF DOMESTIC VIOLENCE IN THE DISTRICT 

OF COLUMBIA (2008) ............................................... 31 

VI 
60 


86686.027

IRA GOLDSTEIN WITH DAN UREVICK-ACKELSBERG, 

THE REINVESTMENT FUND, SUBPRIME LENDING, 

MORTGAGE FORECLOSURES AND RACE: How FAR 

HAVE WE COME AND How FAR HAVE WE To Go? 

(2008) ........................................................................ 6 

Jacob S. Rugh & Douglas S. Massey, 

Racial Segregation and the American Foreclosure 

Crisis, 75 AM. SOC. REV. 629 (2010) ........................ 4 

JAKE FAWCETT, 

WASHINGTON STATE COALITION AGAINST DOMESTIC 

VIOLENCE, UP TO US: LESSONS LEARNED AND GOALS 

FOR CHANGE AFTER THIRTEEN YEARS OF THE 

WASHINGTON STATE DOMESTIC VIOLENCE FATALITY 

REVIEW 44-45 (2010) .............................................. 33 

JAMES H. CARR ET AL., 

NAT'L COMMUNITY REINVESTMENT COAL., THE 

FORECLOSURE CRISIS AND ITS IMPACT ON 

COMMUNITIES OF COLOR: RESEARCH AND SOLUTIONS 

(Sept. 2011) ............................................................ 10 

JANA L. JASINSKI ET AL., 

THE EXPERIENCE OF VIOLENCE IN THE LIVES OF 

HOMELESS WOMEN: A RESEARCH REPORT (2005) .. 32 

JENNIFER L. TRUMAN, 

U.S. DEP'T OF JUSTICE, CRIMINAL VICTIMIZATION, 

20109 (2011) .......................................................... 28 

Joan Zorza, Woman Battering: A Major Cause of 

Homelessness, 25 CLEARINGHOUSE REV. 420 

(1991) ...................................................................... 33 

John Yinger, 

Evidence of Discrimination in Consumer Markets, 

12 J. OF ECON. PERSP. 23 (1998) ............................ 13 

Vll 
61 


86686.028

Kathleen C. Engel & Patricia A. McCoy, From Credit 

Denial to Predatory Lending: The Challenge of 

Sustaining Minority Homeownership, in 

SEGREGATION: THE RISING COSTS FOR AMERICANS 81 

(JAMES H. CARR AND NANDINEE K. KUTTY, EDS., 

2008) ......................................................................... 5 

KATHLEEN C. ENGEL & PATRICIAA. MCCOY, 

THE SUBPRIME VIRUS: RECKLESS CREDIT, 

REGULATORY FAILURE, AND NEXT STEPS 

(2011) .................................................................. 7, 20 

KATRINA BAUM ET AL., 

U.S. DEP'T OF JUSTICE, STALKING VICTIMIZATION IN 

THE UNITED STATES (2009) .............................. 28, 32 

M.C. BLACK ET AL., 

CENTERS FOR DISEASE CONTROL AND PREVENTION, 

NATIONAL INTIMATE PARTNER AND SEXUAL 

VIOLENCE SURVEY: 2010 SUMMARY REPORT, 

(2011) ...................................................................... 27 

Matthew Desmond & Nicol Valdez, 

Unpolicing the Urban Poor: Consequences of ThirdParty Policing for Inner-City Women, 78 AM. SOC. 

REV. 117 (2012) ...................................................... 26 

NAT'L HOUSING LAw PROJECT, HOUSING RIGHTS OF 

DOMESTIC VIOLENCE SURVIVORS: A STATE AND 

LOCAL LAw COMPENDIUM (2013) ........................... 30 

NAT'L LAw CTR. ON HOMELESSNESS & POVERTY & 

NAT'L NETWORK TO END DOMESTIC VIOLENCE, LOST 

HOUSING, LOST SAFETY: SURVIVORS OF DOMESTIC 

VIOLENCE EXPERIENCE HOUSING DENIALS AND 

EVICTIONS ACROSS THE COUNTRY (2007) ............... 31 

Vlll 
62 


86686.029

NAT'L LAw CTR. ON HOMELESSNESS & POVERTY, 

THERE'S No PLACE LIKE HOME: STATE LAws THAT 

PROTECT HOUSING RIGHTS FOR SURVIVORS OF 

DOMESTIC AND SEXUAL VIOLENCE (2013) ............... 29 

NAT'L SEXUAL VIOLENCE RESOURCE CTR., NATIONAL 

SURVEY OF ADVOCATES ON SEXUAL VIOLENCE, 

HOUSING & VIOLENCE AGAINST WOMEN ACT 

(2011) ...................................................................... 31 

Patricia A. McCoy, 

Rethinking Disclosure in a World of Risk-Based 

Pricing, 44 HARv. J. ON LEGIS. 123 (2007) ............ 12 

REN S. ESSENE & WILUAM APGAR, 

JOINT CTR. FOR Hous. STUDIES, HARVARD UNIV., 

UNDERSTANDING MORTGAGE MARKET BEHA \lIOR: 

CREATING GOOD MORTGAGE OPTIONS FOR ALL 

AMERICANS (2007) .................................................... 8 

Rick Brooks & Ruth Simon, 

Subprime Debacle Traps Even Very Credit-Worthy, 

WALL ST. J., Dec. 3, 2007 ......................................... 7 

Santiago Esparza, 

Landlord, Victim Settle, DETROIT NEWS, 

Feb. 27, 2008 .......................................................... 25 

SARA K. PRATT, 

U.S. DEP'T OF Hous. & URBAN DEV., OFFICE OF FAIR 

Hous. & EQUAL OPPORTUNITY, AsSESSING CLAIMS 

OF HOUSING DISCRIMINATION AGAINST VICTIMS OF 

DOMESTIC VIOLENCE UNDER THE FAIR HOUSING ACT 

AND THE VIOLENCE AGAINST WOMEN ACT 

(2011) ...................................................................... 27 

Sara Olkon, 

Tenant Reported Abuse - Then Suffered Eviction, 

CHI. TRIB., Oct. 13,2009 ........................................ 25 

IX 
63 


86686.030

SHANNAN CATALANO, 

U.s. DEP'T OF JUSTICE, FEMALE VICTIMS OF 

VIOLENCE 1, 3 (revised Oct. 2009) ......................... 28 

SHANNAN CATALANO, 

U.S. DEP'T OF JUSTICE, SPECIAL REPORT: INTIMATE 

PARTNER VIOLENCE, 1993-2010, at 3 (2012) .......... 28 

SHANNAN CATALANO, 

U.S. DEP'T OF JUSTICE, CRIME DATA BRIEF: 

INTIMATE PARTNER VIOLENCE IN THE UNITED STATES 

24 (revised Dec. 19, 2007) ...................................... 30 

SHANNAN CATALANO, 

U.S. DEP'T OF JUSTICE, STALKING VICTIMS IN THE 

UNITED STATES - REVISED 4 (2012) ........................ 28 

STEPHEN L. Ross & JOHN YINGER, 

THE COLOR OF CREDIT: MORTGAGE DISCRIMINATION, 

RESEARCH METHODOLOGY, AND FAIR-LENDING 

ENFORCEMENT (2002) ............................................... 8 

TK Logan et al., 

Barriers to Services for Rural and Urban Survivors 

of Rape, 20 J. INTERPERSONAL VIOLENCE 591 

(2005) ...................................................................... 33 

U.S. CONF. OF MAYORS, HUNGER AND HOMELESSNESS 

SURVEY 21-22 (Dec. 2011) ...................................... 21 

U.S. DEP'T OF HEALTH & HUMAN SERVICES, 

COSTS OF INTIMATE PARTNER VIOLENCE AGAINST 

WOMEN IN THE UNITED STATES (2003) ................... 27 

U.S. DEP'T OF HEALTH & HUMAN SERVICES, 

NATIONAL INTIMATE PARTNER AND SEXUAL 

VIOLENCE SURVEY: 2010 SUMMARY REPORT 18 

(2011) ...................................................................... 27 

x 
64 


86686.031

U.S. DEP'T OF Hous. & URBAN DEV. & U.S. DEP'T OF 

THE TREASURY, CURBING PREDATORY HOME 

MORTGAGE LENDING (2000) ............................. 4, 6, 8 

WILDER RESEARCH CTR., HOMELESS ADULTS AND 

THEIR CHILDREN IN FARGO, NORTH DAKOTA, AND 

MOORHEAD, MINNESOTA: REGIONAL SURVEY OF 

PERSONS WITHOUT PERMANENT SHELTER (2004) .. 32 

WILDER RESEARCH CTR., 

HOMELESS NESS IN MINNESOTA 2012 STUDY: INITIAL 

FINDINGS-CHARACTERISTICS AND TRENDS, PEOPLE 

EXPERIENCING HOMELESSNESS IN MINNESOTA 

(2013) ...................................................................... 33 

William Apgar & Allegra Calder, 

The Dual Mortgage Market: The Persistence of 

Discrimination in Mortgage Lending, in THE 

GEOGRAPHY OF OPPORTUNITY: RACE AND HOUSING 

CHOICE IN METROPOLITAN AMERICA 101 

(Xavier De Souza Briggs, ed., 2005) .............. 7, 9, 16 

WILLIAM APGAR ET AL., 

U.S. DEP'T OF Hous. & URBAN DEV., RISK OR RACE: 

AN AsSESSMENT OF SUB PRIME LENDING PATTERNS 

IN NINE METROPOLITAN AREAS (2009) ................... 15 

Xl 
65 


86686.032

STATEMENT OF INTERESTl 

Amici curiae are organizations that provide 

representation, advocacy, and services to victims of 

housing discrimination, as well as to victims of 

domestic and sexual violence. In furtherance of their 

respective missions, each organization has direct 

experience with the importance of maintaining 

disparate impact claims under the Fair Housing Act, 

and thus each organization has a direct interest in 

the proper resolution of the question presented in 

this case. A full statement of interest for each of the 

amici is set forth in an appendix to this brief. 

SUMMARY OF ARGUMENT 

The Fair Housing Act (FHA), interpreted for 

nearly forty years by federal appellate courts to 

authorize disparate impact claims, has proven 

transformative in combating housing discrimination. 

Nonetheless, discriminatory barriers to equal 

housing opportunity remain deeply entrenched. This 

brief focuses on two contemporary forms of housing 

discrimination that have had particularly 

devastating consequences: race discrimination in 

subprime mortgage lending and sex discrimination 

against victims of domestic and sexual violence. For 

the same reasons that disparate impact analysis has 

1 The parties have submitted blanket letters of consent to the 

filing of amicus curiae briefs. This brief was not authored in 

whole or in part by counsel for any party, and no party paid for 

the preparation or submission of this brief other than amici, 

their members, or their counsel. 

1 
66 


86686.033

been a critical weapon in the statute's antidiscrimination arsenal for over forty years, it 

remains indispensable today in fulfilling Congress' 

promise to eradicate discrimination in housing. 

1. The foreclosure crisis, which continues to 

batter communities across the country, was 

precipitated and exacerbated by widespread abuses 

on the part of subprime lenders. These abuses were 

inextricably linked to racial discrimination. A 

history of lending discrimination created lasting 

disparities in access to credit opportunities, leaving a 

vacuum in predominantly Mrican American and 

Latino communities that was filled by subprime 

specialists who operated without competition. 

Subprime lenders set up alternative business 

channels, through which minority communities had 

access only to the riskiest and most expensive loan 

products. Recipients of those products, in turn, 

faced a severely increased risk of foreclosure. 

Rigorous economic and statistical analyses have 

repeatedly shown that racial disparities appear even 

when holding income and creditworthiness constant 

- in other words, minority borrowers received riskier 

loan products than similarly situated whites, leaving 

minority communities with significantly higher rates 

of foreclosure. 

Disparate impact analysis provides an 

essential tool for remedying the widespread 

discrimination that defined the subprime lending 

boom. Courts considering disparate impact claims 

examine aggregate data collected by lenders, 

allowing them to uncover disparities and determine 

whether or not those disparities can be justified by 

credit risk or any other legitimate business 

2 
67 


86686.034

considerations. Indeed, discriminatory mortgage 

lending is particularly susceptible to disparate 

impact analysis, because lenders collect extensive 

financial data from borrowers. Legitimate lending 

decisions reflect algorithmic analysis of objective 

financial information, so disparities that persist 

when controlling for legitimate factors expose 

unlawful discrimination. Disparate impact analysis 

is thus uniquely powerful as a means of smoking out 

illegitimate discrimination that would otherwise 

remain unredressed. 

2. Disparate impact analysis has also been 

critical in addressing housing discrimination against 

women who have been victims of domestic and sexual 

violence. The problem arises in a number of 

contexts, including zero tolerance policies that 

subject every member of a household to eviction if 

any member of the household has committed a crime, 

and municipal nuisance ordinances that subject 

tenants to eviction if they call the police too 

frequently. Although neutral on their face, these 

policies have a disproportionate impact on women, 

who are substantially more likely than men to suffer 

from domestic and sexual violence, and thus are 

substantially more likely to be evicted from their 

homes because of the violence committed against 

them. 

In addition to being transparently unfair, such 

policies undermine law enforcement by deterring 

victims of domestic and sexual violence from 

reporting crimes, often leaving them trapped in 

violent situations that they cannot escape. By 

recognizing disparate impact claims, the FHA has 

offered legal redress to women III these 

3 
68 


86686.035

circumstances so that they are not faced with the 

Hobson's choice of risking eviction for themselves 

and their children, or remaining silent in the face of 

potentially life·threatening violence. 

ARGUMENT 

I. DISPARATE IMPACT IS A VITAL 

TOOL FOR REMEDYING THE 

DISCRIMINATORY LENDING 

PRACTICES THAT FUELED THE 

SUBPRIME LENDING BUBBLE AND 

CONTRIBUTED TO THE CURRENT 

FORECLOSURE CRISIS 

A. Discriminatory Subprime Lending 

Was a Major Cause of the 

Foreclosure Crisis 

L Roots of Subprime Lending 

Over the last two decades, many subprime 

lenders engaged in predatory practices, charging 

excessive fees, imposing overly risky terms, and 

frequently layering multiple risks in a single 

transaction. The impact of these practices has fallen 

disproportionately on minority borrowers. Subprime 

lenders marketing to minority communities exploited 

the absence of conventional lending institutions, 

which was the product of a history of housing 

discrimination. See, e.g., U.S. DEP'T OF Hous. & 

URBAN DEV. & U.S. DEP'T OF THE TREASURY, CURBING 

PREDATORY HOME MORTGAGE LENDING 18, 47·49 

(2000) [hereinafter CURBING PREDATORY HOME 

MORTGAGE LENDING]; Jacob S. Rugh & Douglas S. 

Massey, Racial Segregation and the American 

4 
69 


86686.036

Foreclosure Crisis, 75 AM. Soc. REV. 629, 630-31 

(2010). 

The historical roots of contemporary 

disparities in access to credit can be traced to the 

1930s, when the federal government developed a 

rating system purporting to assess risks associated 

with lending in specific neighborhoods. On rating 

system maps, integrated or predominately black 

neighborhoods were marked in red. See ALyS COHEN, 

CREDIT DISCRIMINATION (5th ed. 2009); Douglas S. 

Massey, Origins of Economic Disparities: The 

Historical Role of Housing Segregation, in 

SEGREGATION: THE RISING COST FOR AMERICANS 40, 

69-73 (James H. Carr & Nandinee K. Kutty, eds., 

2008). Loans were virtually never made in these 

"redlined" communities. Massey, Origins of 

Economic Disparities, supra, at 69. Federal courts 

have long recognized that the practice of redlining -

i.e., basing refusals to extend credit on the racial 

composition of neighborhoods - violates the Fair 

Housing Act. See, e.g., Nationwide Mutual Ins. Co. v. 

Cisneros, 52 F.3d 1351, 1359-60 (6th Cir. 1995); 

Laufman v. Oakley Bldg. & Loan Co., 408 F. Supp. 

489, 493 (S.D. Ohio 1976). 

Even though redlining was found to be illegal, 

credit opportunities remained scarce in Mrican 

American and Latino communities throughout the 

1970s and 80s. See Kathleen C. Engel & Patricia A. 

McCoy, From Credit Denial to Predatory Lending: 

The Challenge of Sustaining Minority 

Homeownership, in SEGREGATION: THE RISING COSTS 

FOR AMERICANS, supra, at 81, 85. A series of Pulitzer 

Prize-winning newspaper articles examining lending 

practices in Atlanta illustrated the persistence of 

5 
70 


86686.037

neighborhood-based racial discrimination during that 

period. The investigation found that "[r]ace - n?t 

home value or household income - consistently 

determine[d] the lending patterns of metro Atlanta's 

largest financial institutions," and that "[a]mong 

stable neighborhoods of the same income, white 

neighborhoods always received the most bank loans 

per 1,000 single family homes," while black 

neighborhoods "always received the fewest." Bill 

Dedman, Atlanta Blacks Losing in Home Loans 

Scramble, ATLANTA JOURNAL-CONSTITUTION, May 1, 

1988, at Al. Similarly, a study by the Federal 

Reserve Bank of Boston found that, even after 

controlling for creditworthiness, blacks and 

Hispanics were more likely than whites to be turned 

down for credit. Alicia H. Munnell et a1., Mortgage 

Lending in Boston: Interpreting HMDA Data, 86 

AMER. ECON. REV. 25, 26 (1996). 

Redlining, and the disparities in access to 

credit it created, set the stage for new forms of 

discriminatory lending arising in the 1990s and 

cresting in the years leading up to the 2008 financial 

crISIS. As the 1990s progressed, the advent of 

subprime lending and mortgage securitization 

created the tools and incentives that led subprime 

specialists to focus on communities previously denied 

access to conventional credit. Subprime products 

"originally were extended to customers primarily as a 

temporary credit accommodation in anticipation of 

early sale of the property or in expectation of future 

em'nings growth." Statement on Subprime Mortgage 

Lending, 72 FED. REG. 37569-01 (Dep't of the Treas. 

et a1. June 28, 2007). However, lenders also 

extended these high-cost loans to people who 

qualified for prime loans and to credit-impaired 

6 
71 


86686.038

borrowers who could not afford the loans. See, e.g., 

CURBING PREDATORY HOME MORTGAGE LENDING, 

supra, 2; IRA GOLDSTEIN WITH DAN UREVICKACKELSBERG, THE REINVESTMENT FUND, SUBPRIME 

LENDING, MORTGAGE FORECLOSURES AND RACE: How 

FAR HAVE WE COME AND How FAR HAVE WE To Go? 

10 (2008). Indeed, an analysis conducted for the 

Wall Street Journal found that, in 2005, 55 percent of 

subprime borrowers had sufficiently high credit 

scores to qualifY for prime loans. Rick Brooks & 

Ruth Simon, Subprime Debacle Traps Even Very 

Credit-Worthy, WALLST.J., Dec. 3, 2007, at AI. 

Lenders intensified these unscrupulous 

practices in response to explosive demand from 

financial firms that bundled subprime mortgages 

into securities products. See, e.g., Adkins v. Morgan 

Stanley, -- F.3d --, 2013 WL 3835198, at *2 (S.D.N.Y. 

July 25, 2013); see also KATHLEEN C. ENGEL & 

PATRICIA A. MCCOY, THE SUBPRIME VIRUS: RECKLESS 

CREDIT, REGULATORY F AlLURE, AND NEXT STEPS 56-58 

(2011). In contrast to traditional lending - where 

banks held onto mortgages, bearing the risk and 

reward of payment obligations for the life of the loan 

- securitization allowed lenders to quickly dispose of 

loans, selling them to investment banks (which, in 

turn, sold investment interests in large pools of 

loans). Id. at 40-41; see also William Apgar & 

Allegra Calder, The Dual Mortgage Market: The 

Persistence of Discrimination in Mortgage Lending, 

in THE GEOGRAPHY OF OPPORTUNITY: RACE AND 

HOUSING CHOICE IN METROPOLITAN AMERICA 101, 104 

(Xavier De Souza Briggs, ed., 2005). This process 

allowed lenders to rapidly replenish their funds, 

enabling a cycle of origination, sale, and 

securitization. Because these loans could be quickly 

7 
72 


86686.039

sold, and because the secondary market incentivized 

origination of loans with the riskiest terms over 

prime loans, lenders changed their focus from quality 

to quantity, emphasizing volume in risky loans that 

generated the largest profits. ENGEL & MCCOY, THE 

SUBPRIME VIRUS, supra, at 28-29, 32-33. "Rather 

than simply search for the best loan product for the 

customer," the secondary market created incentives 

to '''push market' particular products to the extent 

that the market [would] bear." REN S. ESSENE & 

WILLIAM APGAR, JOINT CTR. FOR Hous. STUDIES, 

HARVARD UNIV., UNDERSTANDING MORTGAGE MARKET 

BEHAVIOR: CREATING GOOD MORTGAGE OPTIONS FOR 

ALL AMERICANS 8 (2007) (citation omitted). For these 

reasons, the "invention of securitized mortgages . . . 

changed the calculus of mortgage lending and made 

minority households very desirable as clients." Rugh 

& Massey, supra, at 631. 

2. Subprime Lending Practices Resulted in 

Widespread Racial Disparities 

The subprime lending boom and race were 

inextricably linked from the outset. A joint report 

from the U.S. Department of Housing and Urban 

Development (HUD) and the U.S. Department of the 

Treasury found that as of 2000, "borrowers in black 

neighborhoods [were] five times as likely to refinance 

in the subprime market than borrowers in white 

neighborhoods," even when controlling for income. 

CURBING PREDATORY HOME MORTGAGE LENDING, 

supra, 47-48. Moreover, "[b]orrowers in upperincome black neighborhoods were twice as likely as 

homeowners in low-income white neighborhoods to 

refinance with a subprime loan." Id. at 48; see also 

STEPHEN L. Ross & JOHN YINGER, THE COLOR OF 

8 
73 


86686.040

CREDIT: MORTGAGE DISCRIMINATION, RESEARCH 

METHODOLOGY, AND FAIR-LENDING ENFORCEMENT 24-

25 (2002) (summarizing research on minority access 

to credit). In effect, a "dual mortgage market" took 

root, in which different communities were offered "a 

different mix of products and by different types of 

lenders" and subprime lenders "disproportionately 

target [ed] minority, especially Mrican American, 

borrowers and communities, resulting in a noticeable 

lack of prime loans among even the highest-income 

minority borrowers." Apgar & Calder, supra, at 102; 

see also Binyam Appelbaum et al., New Industry Fills 

Void in Minority Lending: Critics Say Borrowers 

Turn to High-Rate Lenders Because Bank Loans Too 

Often Not Available, THE CHARLOTTE OBSERVER, Apr. 

29, 2005, at 1A (describing institutions with highcost units focused on predominately minority 

borrowers). 

Other studies uncovered stark disparities as 

subprime lending expanded. One study found that, 

within the subprime market, "borrowers of color . . . 

were more than 30 percent more likely to receive a 

higher-rate loan than white borrowers, even after 

accounting for differences in risk." DEBBIE 

GRUENSTEIN BOCIAN ET AL., CTR. FOR RESPONSIBLE 

LENDING, UNFAIR LENDING: THE EFFECT OF RACE AND 

ETHNICITY ON THE PRICE OF SUBPRIME MORTGAGES 3 

(2006). Another study found that Mrican Americans 

and Latinos were much more likely to receive 

subprime loans, and that "the disparities were 

especially pronounced for borrowers with higher 

credit scores." DEBBIE GRUENSTEIN BOCIAN ET AL., 

CTR. FOR RESPONSIBLE LENDING, LOST GROUND, 2011: 

DISPARITIES IN MORTGAGE LENDING AND 

FORECLOSURES 5 (2011). That study also found 

9 
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86686.041

"evidence that higher-rate loans were often 

inappropriately targeted: as many as 61 percent of 

borrowers who received subprime loans had credit 

scores that would have enabled them to qualify for a 

prime loan." Id. at 17 (citation omitted). These 

practices also meant that "borrowers in minority 

groups were much more likely to receive loans with 

product features associated with higher rates of 

foreclosure," i.e., loans with higher interests rates or 

with risky terms, like ballooning interest rates. Id. 

at 21. These high disparities persisted even after 

controlling for credit score. Id. 

Disparities in subprime lending have led to 

high levels of foreclosure among borrowers of color, 

devastating black and Latino communities. "Mrican 

Americans and Latinos are, respectively, 47% and 

45% more likely to be facing foreclosure than whites." 

DEBBIE GRUENSTEIN BOCIAN ET AL., CTR. FOR 

RESPONSIBLE LENDING, FORECLOSURE BY RACE AND 

ETHNICITY 10 (2010). These disparities persist even 

within income categories. Id. at 9-10. The Center for 

Responsible Lending estimates that "the spillover 

wealth lost to African-American and Latino 

communities between 2009 and 2012 as a result of 

depreciated property values alone will be $194 billion 

and $177 billion, respectively." Id. at 11; see also 

JAMES H. CARR ET AL., NAT'L COMMUNITY 

REINVESTMENT COAL., THE FORECLOSURE CRISIS AND 

ITS IMPACT ON COMMUNITIES OF COLOR: RESEARCH 

AND SOLUTIONS 31 (Sept. 2011) (discussing the racial 

wealth gap). 

Examined in the aggregate, the connection 

between race, subprime lending, and foreclosures is 

starkly apparent. Researchers at Princeton 

10 
75 


86686.042

University, for example, studied the relationship 

between neighborhood racial composition, subprime 

lending, and foreclosure rates, and found strong 

statistical links. See Rugh & Massey, supra, at 644. 

"Simply put, the greater the degree of Hispanic and 

especially black segregation a metropolitan area 

exhibits, the higher the number and rate of 

foreclosures it experiences." Id. 

B. Disparate Impact Analysis Plays a 

Vital Role in Combating Lending 

Discrimination 

Disparate impact analysis provides an 

indispensable framework for remedying 

discriminatory lending practices.2 When focusing on 

2 Amici note that lending cases typically arise under 42 U.S.C. § 

3605 (prohibiting discrimination in mortgage lending and other 

"residential real estate-related transactions"), while the specific 

question before the Court in this case relates to 42 U.S.C. § 

3604(a). But see, e.g., Barkley v. Olympia Mortg. Co., 2010 WL 

3709278, at *18 (E.D.N.Y. Sept. 13, 2010) (noting that 

"predatory lending connected to the purchase of a home can 

form the basis of a claim under either § 3604(b) or § 3605(a)."); 

Nat'l Comm. Reinvestment Coal. v. Novastar Fin., Inc., 2008 WL 

977351 at *3 (D.D.C. Mar. 31, 2008) (holding "that 42 U.S.C. § 

3604 applies to discrimination in the availability of mortgage 

financing."). Accordingly, even a ruling for petitioners would 

not automatically apply to lending cases brought under § 3605, 

contrary to the suggestion of Petitioners' amici. See Br. for Am. 

Fin. Servs. Ass'n et al. as Amici Curiae in Supp. Of Pet'r at 26-

29. Nonetheless, discriminatory subprime lending illustrates 

the critical role of disparate impact analysis in combating 

current and pervasive forms of discrimination in housing, and 

should therefore inform the Court's disposition of this case. 

11 
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86686.043

individual lending transactions, disparities in the 

availability and terms of credit are easily masked by 

the complexity of the loan process. 3 Yet lenders 

collect highly detailed data relevant to the 

creditworthiness of individual loan applicants. 

Disparate impact doctrine sets out a method for 

exammmg that data on a large scale and 

determining whether racial disparities exist that 

cannot be accounted for by credit risk or any other 

legitimate business considerations. For that reason, 

disparate impact analysis can root out harmful 

patterns of discrimination that might otherwise 

remain invisible and go unredressed. 

Since it was first articulated by this Court in 

the employment context, disparate impact analysis 

has provided a means to combat "practices that are 

fair in form, but discriminatory in operation." Griggs 

3 This was particularly true in the years before the housing 

market collapse. For borrowers offered prime loans, published 

rates and terms were readily available, lenders gave free 

quotes, and lock-in commitments were common, enabling 

borrowers to shop for the best deaL Patricia A. McCoy, 

Rethinking Disclosure in a World of Risk-Based Pricing, 44 

HARv. J. ON LEGIS. 123, 124 (2007). In contrast, although 

subprime lenders had the technology and information needed to 

provide firm price quotes to customers at minimal cost, these 

lenders typically "entice[d] customers with rosy prices that 

[were] not available to weaker borrowers, hike[d] the price after 

customers [paid] a hefty application fee, then raise[d] the price 

again at closing, often with no advance notice." ld. at 124. 

"[P]rices in the subprime market [were] only partly based on 

differences in borrowers' risk. Other factors, including 

mortgage broker compensation, discrimination, and rentseeking, [could] and [did] push up subprime prices." ld. at 127. 

12 
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86686.044

v. Duke Power Co., 401 U.S. 424, 431 (1971). In 

effectuating that standard, this Court has explained 

that the evidence in disparate impact cases "usually 

focuses on statistical disparities, rather than specific 

incidents, and on competing explanations for those 

disparities" because this mode of analysis exposes 

practices that, while "adopted without a deliberately 

discriminatory motive, may m operation be 

functionally equivalent to intentional 

discrimination." Watson v. Fort Worth Bank & Trust, 

487 U.S. 977, 987 (1988). Aggregate analysis is at 

times necessary to achieve the purpose of the civil 

rights laws, which are directed foremost at "the 

consequences of [ ] practices, not simply the 

motivation." Griggs, 401 U.S. at 432. As Congress 

found and this Court has recognized, discrimination 

is a "complex and pervasive phenomenon" most 

accurately described "in terms of 'systems' and 

'effects' rather than simply intentional wrongs." 

Connecticut v. Teal, 457 U.S. 440, 447 n.8 (1982) 

(quoting S. REP. No. 92-415, at 5 (1971». 

In the mortgage lending context, the key 

question is whether the availability or terms of credit 

vary according to race in a manner that cannot be 

justified by credit risk or any other legitimate 

business consideration. Typically, this inquiry 

proceeds by applying statistical regression analysis 

to a large sample of a defendant's loans, comparing 

the availability or terms of credit to borrowers of 

different races while controlling for factors that 

would legitimately affect lending outcomes. The 

critical ingredient in making this analysis probative 

of discrimination is selecting the right control 

variables. "[L]egitimate controls are those associated 

with a person's qualifications to rent or buy a house." 

13 
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86686.045

John Yinger, Evidence of Discrimination m 

Consumer Markets, 12 J. OF ECON. PERSP. 23, 27 

(1998). Regression analysis of aggregate data allows 

a court to discern pricing disparities between white 

and minority borrowers that cannot be justified by 

legitimate factors, a situation that one district court 

referred to as "a classic case of disparate impact," 

Miller v. Countrywide Bank, N.A., 571 F.Supp. 2d 

251, 254 (D. Mass. 2008) ("If the facts alleged in the 

complaint are to be believed - which they must at 

this point in the litigation - the net effect of 

Countrywide's pricing policy is a classic case of 

disparate impact: White homeowners with identical 

or similar credit scores pay different rates and 

charges than African American homeowners .... ").4 

4 Amici are not aware of any court that has yet adjudicated the 

merits in a case alleging unjustified statistical disparities in 

subprime lending. Several cases pressing such allegations are 

currently pending or have closed prior to adjudication on the 

merits. See, e.g., Adkins, -- F.3d --, 2013 WL 3835198, *2 

(denying motion to dismiss; pending); City of Memphis v. Wells 

Fargo Bank, N.A., No. 09-2857, 2011 WL 1706756 (W.D. Tenn. 

May 4, 2011) (denying motion to dismiss; subsequently settled); 

In re Wells Fargo Mortg. Lending Practices Litig., No. 3:08-md01930 (N.D. Cal. Apr. 10, 2008) (dismissed pursuant to 

settlement); Mayor of Baltimore v. Wells Fargo Bank, N.A., No. 

1:08-CV-00062, 2011 WL 1557759 (D. Md. Apr. 22, 2011) 

(denying defendants' motion to dismiss; subsequently settled); 

Final Approval Order, Ramirez v. Greenpoint Mortg. Funding, 

Inc., No. 3:08-cv-00369 (N.D. Cal. Apr. 12, 2011) (approving 

class settlement); Guerra v. GMAC, LLC, No. 2:08-cv-01297, 

2009 WL 449153 (E.D. Pa. Feb. 20, 2009) (denying motion to 

dismiss; pending); Barrett v. H&R Block, Inc., 652 F.Supp. 2d 

104 (D. Mass. 2009) (granting defendant parent company's 

motion to dismiss for lack of personal jurisdiction and denying 

subsidiaries' motion to dismiss; subsequently dismissed by 

14 
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86686.046

Indeed, disparate impact analysis is 

particularly well suited for the mortgage lending 

context, because allegations of mortgage 

discrimination can be tested in a highly sophisticated 

manner. Raw disparities in loan terms can be 

rigorously examined to determine whether they 

reflect objective factors related to creditworthiness -

e.g., credit score, the ratio of a loan to a home's value, 

an applicant's total debt obligations, etc. See 

generally Class Certification Report of Howell E. 

Jackson at ~ 36, In re Wells Fargo Mort. Lending 

Practices Litig., No. OB-CV-01930 (N.D. Cal. Sept. 1, 

2010) ("Loan pricing decisions are made en masse by 

automated systems of regularly updated rate sheets" 

and are "based on the formulaic application of 

objective, statistically-validated criteria."). If a 

lending policy leads to disparities even after 

controlling for legitimate factors, and if the policy 

cannot otherwise be justified as a business necessity, 

those disparities reveal illicit discrimination. 

This mode of analysis is uniquely effective in 

uncovering unjustified disparities. One recent HUD 

study focused specifically on whether racial 

disparities in rates of subprime lending could be 

explained by factors related to creditworthiness, 

concluding that "the inclusion of credit score 

measures did not explain away the troubling finding 

stipulation); Order Granting Voluntary Dismissal, Garcia v. 

Countrywide Fin. Corp., No. 5:07-cv-1l61, 2008 WL 7842104 

(C.D. Cal. Jan. 17, 2008) (denying motion to dismiss as to 

plaintiffs' disparate impact claims; subsequently consolidated 

into multi-district litigation and settled); Memorandum and 

Order, Hargraves v. Capital City Mortg. Corp., No. 1:98-cv01021 (D.D.C. Mar. 27, 2002) (dismissing in light of settlement). 

15 
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86686.047

that even after years of public policy efforts, race and 

ethnicity remain important determinants of the 

allocation of mortgage credit in both home purchase 

and home refinance markets." WILLIAM APGAR ET 

AL., U.S. DEP'T OF HODS. & URBAN DEV., RISK OR 

RACE: AN AsSESSMENT OF SUBPRIME LENDING 

PATTERNS IN NINE METROPOLITAN AREAS 45 (2009); 

see also Complaint at '1 3, United States v. 

Countrywide Fin. Corp., No. CVll 10540 (C.D. Cal. 

Dec. 21, 2011) ("As a result of Countrywide's policies 

and practices, more than 200,000 Hispanic and 

Mrican-American borrowers paid Countrywide 

higher loan fees and costs for their home mortgages 

than non-Hispanic White borrowers, not based on 

their creditworthiness or other objective criteria 

related to borrower risk, but because of their race or 

national origin."); Apgar & Calder, supra, at 111-15 

(summarizing research of subprime lending designed 

to "control 0 for neighborhood and borrower 

characteristics, including several measures of risk" 

and concluding that those studies "confirmD that 

race remains a factor"). 

Expert witness analysis in several recent 

lawsuits demonstrates that, when subject to 

regression analyses designed to account for 

legitimate markers of creditworthiness, the practices 

of many leading subprime lenders reveal significant 

unjustified racial disparities. E.g., Class 

Certification Report of Howell E. Jackson at ,-r 53, In 

re Wells Fargo Mort. Lending Practices Litig., No. 08-

CV-01930 (N.D. Cal. Sept. 1, 2010) ("even when a 

comprehensive list of risk-based characteristics are 

controlled for, Mrican Americans' APRs are 10.1 

basis points greater than whites' APRs, and 

Hispanics' APRs are 6.4 basis points greater than 

16 
81 


86686.048

whites' APRs"); Class Certification Report of Ian 

Ayres at ~ 69, Barrett v. Option One Mortg., Corp., 

No. 08-10157 (D. Mass. Sept. 24, 2010) ("even when 

a comprehensive list of risk-based characteristics are 

controlled for, African Americans' APRs are 8.6 basis 

points greater than whites' APRs"); Class 

Certification Report of Howell E. Jackson at ~ 52, 

Ramirez v. Greenpoint Mortg. Funding, Inc., No. 

3:08-cv-00369 (N.D. Cal. Apr. 1, 2010) ("even when a 

comprehensive list of risk-based characteristics are 

controlled for, Mrican Americans' APRs are 9.4 basis 

points greater than whites' APRs, and Hispanics' 

APRs are 7.6 basis points greater than whites' 

APRs"). 

Given the effectiveness of disparate impact 

analysis in identifying unjustified disparities, it is 

unsurprising that the federal agencies charged with 

enforcing the Fair Housing Act have embraced 

disparate impact analysis in combating 

discriminatory lending. Most recently, HUD 

promulgated a rule codifying the disparate impact 

standard. See Implementation of the Fair Housing 

Act's Discriminatory Effects Standard, 78 Fed. Reg. 

11,460 (Feb. 15, 2013). In instituting that rule, the 

agency explicitly contemplated its application to 

facially neutral lending practices that resulted in an 

unjustified disparate impact. Id. at 11,475-76. This 

understanding, moreover, long predated the recent 

HUD rule. A 1994 interagency Policy Statement on 

Discrimination in Lending explains that the 

"existence of disparate impact" is frequently 

established "through a quantitative or statistical 

analysis" that may focus on a challenged practice's 

"effect on an applicant pool." Policy Statement on 

Discrimination in Lending, 59 FED. REG. 18266-01, 

17 
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86686.049

18,269 (Dep't of Hous. & Urban Dev. et al. Apr. 15, 

1994).5 

Amicus briefs filed by the lending industry 

assert that the disparate impact standard impedes 

legitimate business practices, but those arguments 

ignore the fact that disparate impact liability will not 

attach to policies that are shown to be legitimate and 

necessary to originate safe loans. For example, in 

arguing against the disparate impact standard, those 

amici point to government data showing that, in 

2011, "African-American applicants for conventional 

home-purchase loans were rejected at a rate more 

than twice the rate at which white applicants were 

rejected .... [and] Hispanic applicants were rejected 

at a rate more than 1.6 times the rate at which white 

applicants were rejected." Br. for Am. Fin. Servs. 

Ass'n et al. as Amici Curiae in Supp. Of Pet'r atl1 

n.18. But if such disparities arise from facially 

neutral policies that are legitimate and necessary to 

5 Congress has endorsed the application of disparate impact 

analysis to the lending context through its regulation of the 

secondary mortgage market. In delegating authority to HUD to 

regulate entities like Fannie Mae and Freddie Mac - the socalled Government Sponsored Enterprises that purchase pools 

of mortgage loans - Congress directed the agency to issue 

regulations that "prohibit each enterprise from discriminating 

in any manner in the purchase of any mortgage because of race, 

color, religion, sex, handicap, familial status, age, or national 

origin, including any consideration of the age or location of the 

dwelling or the age of the neighborhood or census tract where 

the dwelling is located in a manner that has a discriminatory 

effect." 12 U.S.C. § 4545(1). Significantly, this mandate 

appears in the same statute that requires HUD to ensure that 

the enterprises "comply with the Fair Housing Act." Id. at 

4545(2). 

18 
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86686.050

originate safe loans, there is no threat of disparate 

impact liability. Conversely, in the absence of such 

justification, it is hard to see how the disparities 

cited by amici operate as an argument against the 

disparate impact standard - to the contrary, they 

provide evidence of the problem disparate impact is 

designed to address. Those alnici also argue that 

"[u]nder a disparate-impact theory, lenders would 

face the double bind of incurring increased litigation 

risk simply by complying with government directives 

and sensible lending standards."6 Id. at 4. The 

"double bind" threat, however, is an illusion: any 

lender that adopted a practice that was in fact 

mandated by a government directive would prevail in 

litigation challenging the practice because 

compliance with relevant legal requirements is a 

"substantial and legitimate" interest, and would 

therefore constitute a defense to a disparate impact 

claim. See 24 C.F.R. § 100.500(b)J 

6 Amici do not adduce any evidence of such a "double bind" 

actually occurring, even though disparate impact has been the 

law of the land under prevailing circuit court precedent for 

decades, and all lenders are on notice of the Justice 

Department's 1994 fair lending guidance. See Policy Statement 

on Discrimination in Lending, 59 Fed. Reg. at 18,269. 

7 Amici representing the banking industry concede that, under 

HUD's regulations, lenders have an opportunity to avoid 

disparate impact liability by demonstrating a legitimate 

business interest. Br. for Am. Fin. Servs. Ass'n et aL as Amici 

Curiae in Supp. Of Pet'r at 12. But they dismiss the 

significance of that clear legal principle with the unsupported 

assertion that "virtually every lender in the United States could 

be sued for using non-discriminatory credit standards simply 

because variations in economic and credit characteristics 

produce different credit outcomes among racial and ethnic 

19 
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86686.051

The same amici also misleadingly assert that 

it is somehow inconsistent with responsible 

underwriting practices to avoid disparate impact. 

See Br. for Am. Fin. Servs. Ass'n et al. as Amici 

Curiae in Supp. Of Pet'r at 18-19. To the contrary, it 

was the subprime lending industry's abandonment of 

sound underwriting that resulted in a disparate 

impact on minority borrowers. With the proliferation 

of loan products that required no information on 

borrower income or assets, subprime lenders 

eviscerated sound underwriting. See, e.g., Engel & 

McCoy, The Subprime Virus, supra, at 33, 35-39 

(describing lenders using slogans like "a thin file is a 

good file," and "Did You Know NovaStar Offers to 

Completely Ignore Consumer Credit!"); Testimony 

Before the S. COlnm. on Banking, Hous., and Urban 

Affairs, 110th Congo 10-11 (Mar. 4, 2008) (statement 

of John C. Dugan, Comptroller of the Currency) 

(recounting how the pressures from securities 

market led to loosened underwriting standards); 

Christopher L. Peterson, Predatory Structured 

Finance, 28 Cardozo L. Rev. 2185, 2214-15 (2007) 

(observing that in "the rush to originate new loans" 

to be securitized "some lenders have even 

disregarded their own underwriting guidelines"). 

Minority borrowers absorbed the consequences of 

lenders' shoddy underwriting because they were 

targeted for a disproportionate share of the high-cost, 

risk-layered loans. Thus, the deterioration of 

underwriting standards in the lead-up to the 

foreclosure crisis was a tactic of discriminatory 

lending, not a product of anti-discrimination law. 

groups." Id. at 12-13. That conclusory assertion should not 

obscure the actual operation of the disparate impact standard. 

20 
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86686.052

*** 

The cascading effects of the foreclosure crisis 

touch every community in America. But Mrican 

American and Latino communities 

disproportionately suffered the consequences of 

abusive lending practices. In light of those 

disparities, there remains an urgent need for 

effective means to address past abuses and deter 

future ones. For the reasons explained above, 

disparities in lending outcomes can be rigorously 

analyzed to control for legitimate factors related to a 

lender's business necessity. It is hard to fathom any 

argument in favor of insulating lenders from liability 

when they systematically provide credit on less 

favorable terms because of race and in the absence of 

any legitimate justification. Disparate impact 

analysis is the principal tool for policing these 

abuses. 

II. DISPARATE IMPACT ANALYSIS IS A 

CRUCIAL TOOL FOR ADDRESSING 

HOUSING DISCRIMINATION AGAINST 

DOMESTIC AND SEXUAL VIOLENCE 

VICTIMS 

Disparate impact analysis under the FHA 

offers crucial legal protection to women who face 

eviction or housing denials based on domestic and 

sexual violence perpetrated against them. Domestic 

and sexual violence is a primary cause, and 

consequence, of homelessness and housing instability 

for women and girls. See, e.g., 42 U.S.C. § 14043e 

(congressional finding that domestic violence causes 

homelessness and that an estimate of 92 percent of 

homeless mothers have experienced severe physical 

and/or sexual assault at some time, 60 percent of all 

21 
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86686.053

homeless women and children have been abused by 

age 12, and 63 percent have been victims of intimate 

partner violence as adults); U.S. CONF. OF MAYORS, 

HUNGER AND HOMELESSNESS SURVEY 26 (Dec. 2012) 

(reporting that over a quarter of cities surveyed in 

2011-12 cited domestic violence as one of the three 

main causes of family homelessness). 

Discriminatory housing policies contribute to 

and exacerbate the housing crises faced by 

victims. 42 U.S.C. § 14043e(3) (congressional finding 

that "[w]omen and families across the country are 

being discriminated against, denied access to, and 

even evicted from public and subsidized housing 

because of their status as victims of domestic 

violence"). However, many of the housing policies 

that can punish victims - such as zero tolerance-forcrime policies (sometimes referred to as one-strike 

policies), or policies that explicitly target victims of 

domestic and sexual violence are facially 

neutral. Disparate impact analysis reveals how 

these policies adversely impact women and girls, who 

make up the vast majority of victims of domestic and 

sexual violence. It also allows survivors to challenge 

housing policies that, when enforced against them, 

eliminate housing options and endanger their safety. 

The legal protection offered to survivors by 

disparate impact analysis under the FHA was first 

established in 2001, after Tiffani Ann Alvera sought 

redress when she faced eviction from her Seaside, 

Oregon apartment pursuant to a zero tolerance 

policy. See Determination of Reasonable Cause, 

Alvera v. Creekside Village Apartments, No. 10-99-

22 
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86686.054

0538-8 (Dep't of Hous. & Urban Dev. Apr. 13, 2001).8 

After she was assaulted by her husband and he was 

imprisoned, Ms. Alvera provided a copy of the 

restraining order she obtained to her property 

manager. Id. at 1-2. She was then served with a 24-

hour eviction notice based on the incident of domestic 

violence she had experienced. It stated: ''You, 

someone in your control, or your pet, has seriously 

threatened to immediately inflict personal injury, or 

has inflicted personal injury upon the landlord or 

other tenants." Id. 

Ms. Alvera filed a complaint with HUD, which 

found that taking action against all members of a 

household after an incident of domestic violence "has 

an adverse impact based on sex, because of the 

disproportionate number of women victims of 

domestic violence." Id. at 4. HUD noted that there 

were no similarly situated male tenants. Id. at 3. 

Accordingly, the case could best be understood 

through the lens of disparate impact. After 

reviewing the available statistics on intimate partner 

violence and gender and the arguments presented by 

the management company, HUD concluded that 

discrimination had occurred: "The evidence taken as 

a whole establishes that a policy of evicting innocent 

victims of domestic violence because of that violence 

has a disproportionate adverse impact on women and 

is not supported by a valid business or health or 

safety reason." Id. at 6. The Department of Justice 

subsequently filed suit, leading to a consent decree 

S HUD's Determination of Reasonable Cause is available at 

http://www .nhlp.org/files/6a. %20Alvera%20reasonable%20cause 

%20finding_O.pdf. 

23 
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86686.055

that mandated the adoption of a housing policy 

prohibiting discrimination against victims of 

violence. Consent Decree, United States ex rel. 

Alvera v. The C.B.M. Group, Inc., No. 01-857-PA (D. 

Or. Nov. 5, 2001). 

Since Alvera, other women facing eviction 

following a domestic violence incident and the 

abuser's arrest or removal from the home have 

invoked disparate impact analysis under the FHA. 

For example, in 2003, Quinn Bouley and her two 

children faced eviction from their St. Albans, 

Vermont home. After her husband physically 

attacked her, Ms. Bouley called the police and fled. 

Bouley v. Young-Sabourin, 394 F. Supp. 2d 675, 677 

(D. Vt. 2005). St. Albans police arrested her 

husband, who pled guilty to several criminal charges 

related to the incident, and Ms. Bouley obtained a 

restraining order. Id. Three days later, her landlord 

gave Ms. Bouley a 30-day notice to vacate, quoting a 

provision in the lease that stated: "Tenant will not 

use or allow said premises or any part thereof to be 

used for unlawful purposes, in any noisy, boisterous 

or any other manner offensive to any other occupant 

of the building." Id. In other words, violence 

directed against Ms. Bouley was cited as a predicate 

for evicting her pursuant to a facially neutral policy. 

Ms. Bouley filed a federal lawsuit, including 

allegations that the landlord's policy of evicting the 

victims of domestic violence had an adverse, 

disparate impact on women. Complaint at ~~ 26-28, 

Bouley v. Young-Sabourin, 394 F. Supp. 2d 675 (D. 

Vt. Nov. 24, 2003) (No. 1:03-cv-320). The case settled 

after the court denied the defendants' motion for 

summary judgment. Bouley, 394 F. Supp. 2d at 678. 

24 
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86686.056

In 2006, Tanica Lewis and her two daughters 

were evicted from their Detroit home after her 

abusive ex-partner, who had never lived at the 

residence, broke through the windows, kicked in her 

door, and was arrested for home invasion. 

Complaint, Lewis v. North End Village, No. 2:07-cv10757 (E.D. Mich. Feb. 21, 2007). Although Ms. 

Lewis previously had provided a copy of a current 

protection order to her management company, she 

received a 30-day notice of eviction, stating that she 

had violated the portion of her lease that held her 

liable for any damage resulting from lack of proper 

supervision of her guests. Id. at ~~ 22, 32. As a 

result, Ms. Lewis was forced to remain in a shelter 

with her daughters, although it was safe to return to 

their home given her ex-partner's incarceration. 

Santiago Esparza, Landlord, Victim Settle, DETROIT 

NEWS, Feb. 27, 2008. She subsequently filed a 

federal lawsuit that included disparate impact 

claims. Ultimately, she obtained a settlement that 

required the management company to adopt a policy 

prohibiting discrimination based on domestic and 

sexual violence and compensated her for the financial 

losses she had suffered. Stipulated Order of 

Dismissal as to Tanica Lewis, Lewis v. North End 

Village, No. 2:07-cv-10757 (E.D. Mich. Feb. 26, 2008). 

In 2007, Kathy Cleaves-Milan was evicted 

from her Elmhurst, Illinois apartment complex after 

calling the police to remove her fiance, who was 

threatening to shoot her and himself with a gun. 

Complaint, Cleaves-Milan v. AIMCO Elm Creek LP, 

No. 1:09-cv-06143 (N.D. Ill. Oct. 1, 2009). She 

explained the circumstances and provided her 

protective order to the management company, yet 

was told that "anytime there is a crime in an 

25 
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86686.057

apartment the household must be evicted." Id. at ~ 

31. She was compelled to move, forcing her daughter 

to transfer to a substandard school, and was charged 

a $3180 lease termination fee by the management 

company. Id. at ~~ 34-35, 37; see also Sara Olkon, 

Tenant Reported Abuse - Then Suffered Eviction, 

CHI. TRIB., Oct. 13, 2009 (quoting Cleaves-Milan as 

stating, "I was punished for protecting myself and 

my daughter"). 

This recurring fact-pattern places the 

importance of the disparate impact standard in stark 

relief. As in Alvera, the seminal challenge to a zero 

tolerance policy disproportionately affecting women, 

the lawsuits discussed above have challenged facially 

neutral policies that are applied overwhelmingly 

against women. 

In addition, local governments across the 

country are increasingly passing ordinances that are 

neutral on their face but have a devastating impact 

on domestic violence victims. Often known as 

chronic nuisance ordinances, these laws impose 

penalties on landlords based on a tenant's repeated 

calls to the police. Cari Fais, Note, Denying Access to 

Justice: The Cost of Applying Chronic Nuisance Laws 

to Domestic Violence, 108 COLUM. L. REV. 1181, 1187 

(2008). Many landlords seek to avoid these sanctions 

and eliminate the "nuisance" by evicting the unit's 

tenants, including victims of domestic violence who 

may need to reach out to police repeatedly due to the 

conduct of their abusers. See EMILY WERTH, 

SARGENT SHRIVER NAT'L CTR. ON POVERTY LAw, THE 

COST OF BEING "CRIME FREE"; LEGAL AND POLITICAL 

CONSEQUENCES OF CRIME FREE RENTAL HOUSING AND 

NUISANCE PROPERTY ORDINANCES 8-9 (2013). Indeed, 

26 
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86686.058

a study by a Harvard scholar established that 

survivors of domestic violence are regularly evicted 

under this type of ordinance, forcing victims to 

choose between calling the police and maintaining 

their home. Matthew Desmond & Nicol Valdez, 

Unpolicing the Urban Poor: Consequences of ThirdParty Policing for Inner-City Women, 78 AM. Soc. 

REV. 117, 125-127, 130 (2012) (reporting that 

domestic violence was the third most cited nuisance 

activity under a Milwaukee ordinance, that 

properties in black neighborhoods were more than 

twice as likely to be cited, and surveying 59 other 

ordinances). 

Without disparate impact analysis, even the 

most extreme disparities in the effect of policies that 

punish survivors for the violence perpetrated against 

them would likely lie beyond the reach of antidiscrimination law, and survivors of domestic and 

sexual violence deprived of housing would lack legal 

redress. 

This reasoning was embraced by HUD in 

recently-issued guidance to all fair housing staff 

addressing the applicability of disparate impact 

analysis in situations involving domestic violence. 

See SARA K. PRATT, U.S. DEP'T OF Hous. & URBAN 

DEV., OFFICE OF FAIR Hous. & EQUAL OPPORTUNITY, 

AsSESSING CLAIMS OF HOUSING DISCRIMINATION 

AGAINST VICTIMS OF DOMESTIC VIOLENCE UNDER THE 

FAIR HOUSING ACT AND THE VIOLENCE AGAINST 

WOMEN ACT (2011) [hereinafter HUD MEMO]. The 

guidance notes that an estimated 1.3 million women 

are the victims of assault by an intimate partner 

each year, that about one in four women will 

experience intimate partner violence in her lifetime, 

27 
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86686.059

and that 85 percent of victims of domestic violence 

are women. Id. at 2 (citing U.S. DEP'T OF HEALTH & 

HUMAN SERVICES, COSTS OF INTIMATE PARTNER 

VIOLENCE AGAINST WOMEN IN THE UNITED STATES 

(2003); CALLIE MARIE RENNISON, U.S. DEP'T OF 

JUSTICE, CRIME DATA BRIEF: INTIMATE PARTNER 

VIOLENCE, 1993-2001 (2003)).9 Because "statistics 

9 More recent statistics confirm that although the prevalence of 

domestic violence against men has increased, women still 

experience extremely high, and disproportionate, rates of 

domestic and sexual violence. M.C. BLACK ET AL., CENTERS FOR 

DISEASE CONTROL AND PREVENTION, NATIONAL INTIMATE 

PARTNER AND SEXUAL VIOLENCE SURVEY: 2010 SUMMARY 

REPORT 18, 38-39, 54-55 (2011) (reporting that more than one in 

three women has experienced rape, physical violence, and/or 

stalking by an intimate partner in her lifetime, that nearly five 

times more women, compared to men, need medical care from 

domestic violence, and that thirteen times more women than 

men have been raped). Intimate partner violence, rape, and 

stalking are even more prevalent among Mrican American 

women, American Indian women, and multiracial women. Id. 

at 20,31. 

While the HUD Memo focused on domestic violence, 

studies document the devastating impact of both domestic and 

sexual violence on women. The most recent Department of 

Justice study examining intimate partner violence found that, 

from 1994 to 2010, about 4 in 5 victims of intimate partner 

violence were female. SHANNAN CATALANO, U.S. DEP'T OF 

JUSTICE, SPECIAL REPORT: INTIMATE PARTNER VIOLENCE, 1993-

2010, at 3 (2012). Women also made up 70 percent of all 

domestic violence homicide victims in 2007, a percentage that 

has not changed significantly over time. SHANNAN CATALANO, 

U.S. DEP'T OF JUSTICE, FEMALE VICTIMS OF VIOLENCE 1, 3 

(revised Oct. 2009). Likewise, women are far more likely to be 

victimized by rape, sexual assault, and stalking, whether or not 

they know the perpetrator. JENNIFER L. TRUMAN, U.S. DEP'T OF 

,JUSTICE, CRIMINAL VICTIMIZATION, 2010 9 (2011) (finding that 

women experienced over 169,000 rapes and sexual assaults, 

28 
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86686.060

show that discrimination against victims of domestic 

violence is almost always discrimination against 

women," the HUD Memo stated that a disparate 

impact analysis is appropriate when a facially 

neutral housing policy disproportionately affects 

victims. Id. at 2, 5. According to the guidance: 

"Disparate impact cases often arise in the context of 

'zero tolerance' policies, under which the entire 

household is evicted for the criminal activity of one 

household member .... [Als the overwhelming 

majority of domestic violence victims, women are 

often evicted as a result of the violence of their 

abusers." 10 Id. at 5. 

Other laws do not provide comprehensive 

protection against housing discrimination. The 

federal Violence Against Women Act ("VA W N'), 

which contains targeted housing protections for 

victims of domestic violence, sexual assault, dating 

violence, and stalking, applies only to specific 

federally-funded housing programs and does not 

provide victims with an explicit administrative or 

judicial remedy.ll 42 U.S.C. § 14043e-ll; HUD 

MEMO, supra, at 4. 

compared to approximately 15,000 experienced by men); 

SHANNAN CATALWO, U.S. DEP'T OF JUSTICE, STALKING VICTIMS 

IN THE UNITED STATES - REVISED 4 (2012) (finding that women 

are stalked at nearly three times the rate of men). 

JO In the memo, HUD stated that the application of zero 

tolerance policies to domestic violence victims, while not per se 

unlawful, may be illegal and is subject to a disparate impact 

analysis. HUD MEMO, supra, at 2, 5. 

11 Contrary to the suggestion of amici National Leased Housing 

Association et aI., fair housing obligations are consistent with 

29 
94 


86686.061

Only a handful of states have enacted laws 

specifically prohibiting discrimination against 

victims of domestic or sexual violence when they both 

apply for and live in rental housing. See NAT'L LAw 

CTR. ON HOMELESSNESS & POVERTY, THERE'S No 

PLACE LIKE HOME: STATE LAws THAT PROTECT 

HOUSING RIGHTS FOR SURVIVORS OF DOMESTIC AND 

SEXUAL VIOLENCE 18-20 (2013) (including Arkansas, 

District of Columbia, Indiana, North Carolina, 

Oregon, Rhode Island, Washington, Wisconsin). See 

also NAT'L HOUSING LAw PROJECT, HOUSING RIGHTS 

OF DOMESTIC VIOLENCE SURVIVORS: A STATE AND 

LOCAL LAw COMPENDIUM (2013); Br. of Amici Curiae 

Legal Momentum et al. Moreover, the few states 

that have interpreted how their state fair housing 

laws apply when victims face housing discrimination 

have relied, in part, on their understanding that the 

federal FHA allows for disparate impact claims. 

1985 N.Y. Op. Att'y Gen. 45 (1985), 1985 WL 194069 

at *3-4 (citing the FHA in finding that the practice of 

denying housing to domestic violence victims has a 

disparate impact on women in violation of state 

human rights law); Winsor v. Regency Prop. Mgmt., 

Inc., No. 94 CV 2349 (Wis. Cir. Ct. Oct. 2, 1995) 

(holding that the state fair housing law, which is 

modeled on the federal FHA, prohibits housing 

VAWA and HUD policy. While HUD authorizes evictions from 

public housing based on criminal activity, VAWA prohibits 

application of such policies based on domestic violence, dating 

violence, sexual assault, and stalking. 42 U.S.C. § 14043e-ll. 

Interpreting the FHA to prohibit evictions of victims based on 

the violence perpetrated against them is consistent with HUD's 

requirements for public housing authorities, which must comply 

with VAWA's protections for victims of violence. 

30 
95 


86686.062

discrimination against victims, using a disparate 

impact theory). A ruling that disparate impact 

claims are foreclosed under the FHA would mean 

that most survivors of domestic and sexual violence 

would have severely limited recourse when subjected 

to eviction or housing denials simply because they 

were victimized by violence. 

The persistence of housing discrimination 

against victims of domestic and sexual violence only 

reinforces the importance of disparate impact 

analysis as a legal tool. The practice of evicting 

victims based on their abusers' criminal activity,12 or 

the noise disturbance and property damage they 

cause, is widespread. See NAT'L LAw CTR. ON 

HOMELESSNESS & POVERTY & NAT'L NETWORK TO END 

DOMESTIC VIOLENCE, LOST HOUSING, LOST SAFETY: 

SURVIVORS OF DOMESTIC VIOLENCE EXPERIENCE 

HOUSING DENIALS AND EVICTIONS ACROSS THE 

COUNTRY 7-9 (2007) [hereinafter LOST HOUSING, 

LOST SAFETY]; NAT'L SEXUAL VIOLENCE RESOURCE 

CTR., NATIONAL SURVEY OF ADVOCATES ON SEXUAL 

VIOLENCE, HOUSING & VIOLENCE AGAINST WOMEN 

ACT 17-18 (2011). A national survey of service 

providers showed that approximately 30 percent had 

represented domestic violence victims who were 

either threatened with eviction or evicted due to the 

violence or noise, calls to the police, or physical 

12 Landlords are especially likely to become aware of these 

crimes because such a significant percentage occurs at home. 

See, e.g., SHANNAN CATALANO, U.S. DEP'T OF JUSTICE, CRIME 

DATA BRIEF: INTIMATE PARTNER VIOLENCE IN THE UNITED 

STATES 24 (revised Dec. 19, 2007) [hereinafter INTIMATE 

PARTNER VIOLENCE IN THE U.S.]. 

31 
96 


86686.063

damage directly resulting from the violence. NAT'L 

LAw CTR. ON HOMELESSNESS & POVERTY, DOMESTIC 

VIOLENCE PROGRAM, INSULT TO INJURY: VIOLATIONS 

OF THE VIOLENCE AGAINST WOMEN ACT, at v, 12 

(2009) [hereinafter INSULT TO INJURY]; LOST 

HOUSING, LOST SAFETY, supra, at 2-4,7-9. 

Domestic and sexual violence survivors are 

also frequently subjected to discrimination when 

they apply for housing, simply because they have 

experienced violence. This can occur when, for 

example, their past history of victimization may 

become known to landlords because they are 

applying for housing from domestic violence or 

emergency shelters. See EQUAL RIGHTS CTR., No 

VACANCY: HOUSING DISCRIMINATION AGAINST 

SURVIVORS OF DOMESTIC VIOLENCE IN THE DISTRICT 

OF COLUMBIA (2008) (finding significant 

discrimination against victims applying for housing, 

despite the District's anti-discrimination law); LOST 

HOUSING, LOST SAFETY, supra, at 3, 5, 9-10; ANTIDISCRIMINATION CTR. OF METRO NY, ADDING INSULT 

TO INJURY: HOUSING DISCRIMINATION AGAINST 

SURVIVORS OF DOMESTIC VIOLENCE (2005); see also 

INSULT TO INJURY, supra, at iv, 10 (reporting that 

more than a third of surveyed advocates had worked 

with victims who were denied housing for reasons 

directly related to domestic violence, dating violence, 

or stalking). 

Discriminatory evictions and denials thus give 

rise to a double victimization, imperiling the housing 

options and safety of a victim when she is most in 

32 
97 


86686.064

need of secure housing. I3 Housing discrimination 

based on violence compounds the safety risks because 

it can further trap victims, who often have few 

resources due to their abuse and isolation, in 

dangerous situations. See also Br. of Amici Curiae 

Legal Momentum et aI. Congress has recognized 

that "[v]ictims of domestic violence often return to 

abusive partners because they cannot find long-term 

housing." 42 U.S.C. § 14043e(7); see also WILDER 

RESEARCH CTR., HOMELESSNESS IN MINNESOTA 2012 

STUDY: INITIAL FINDINGS-CHARACTERISTICS AND 

TRENDS, PEOPLE EXPERIENCING HOMELESSNESS IN 

MINNESOTA 2 (2013) (48 percent of homeless women 

reported staying in an abusive situation due to lack 

of housing alternatives); TK Logan et aI., Barriers to 

Services for Rural and Urban Survivors of Rape, 20 

J. INTERPERSONAL VIOLENCE 591, 600, 611 (2005) 

(rural women who had been sexually assaulted 

stated that, without housing, other services were not 

likely to be helpful); AM. BAR Assoc., COMMISSION ON 

13 Many victims already lose their homes due to violence. See, 

e.g., KATRINA BAUM ET AL., U.S. DEP'T OF JUSTICE, STALKING 

VICTIMIZATION IN THE UNITED STATES 6 (2009) (stating that one 

in seven stalking victims reported they moved as a result of 

stalking); JANA L. JASINSKI ET AL., THE EXPERIENCE OF 

VIOLENCE IN THE LIVES OF HOMELESS WOMEN: A RESEARCH 

REPORT 2, 65 (2005) (finding that one out of every four homeless 

women is homeless because of violence committed against her); 

WILDER RESEARCH CTR., HOMELESS ADULTS AND THEIR 

CHILDREN IN FARGO, NORTH DAKOTA, AND MOORHEAD, 

MINNESOTA: REGIONAL SURVEY OF PERSONS WITHOUT 

PERMANENT SHELTER 39 (2010) (similar); CTR. FOR IMPACT 

RESEARCH, PATHWAYS TO AND FROM HOMELESSNESS: WOMEN 

AND CHILDREN IN CHICAGO SHELTERS 3 (2004) (similar). 

33 
98 


86686.065

DOMESTIC VIOLENCE, REPORT TO THE HOUSE OF 

DELEGATES 2 (2003); AMY CORREIA & JEN RUBIN, 

VAWNET APPLIED RESEARCH FORUM, HOUSING AND 

BATTERED WOMEN 1-3 (2001); Joan Zorza, Woman 

Battering: A Major Cause of Homelessness, 25 

CLEARINGHOUSE REV. 420 (1991). Tragically, the 

shortage of housing alternatives has been found to be 

a major contributing factor to fatalities. See, e.g., 

JAKE FAWCETT, WASHINGTON STATE COALITION 

AGAINST DOMESTIC VIOLENCE, UP TO US: LESSONS 

LEARNED AND GOALS FOR CHANGE AFTER THIRTEEN 

YEARS OF THE WASHINGTON STATE DOMESTIC 

VIOLENCE FATALITY REVIEW 44-45 (2010). 

Disparate impact analysis is therefore a 

crucial tool for preserving the housing and enhancing 

the safety of survivors of domestic and sexual 

violence that would otherwise be jeopardized by 

facially neutral policies that discriminate against 

victims. The eradication of that legal remedy would 

escalate both the risk of homelessness for victims 

and their children and the likelihood that they are 

forced to remain in dangerous living situations. 

34 
99 


86686.066

CONCLUSION 

Amici respectfully urge this Court to affirm 

the judgment below, and hold that disparate impact 

claims can be brought under the Fair Housing Act. 

Dated: October 28, 2013 

Respectfully Submitted, 

Steven R. Shapiro 

Counsel of Record 

Laurence M. Schwartztol 

Sandra S. Park 

Lenora M. Lapidus 

American Civil Liberties 

Union Foundation 

125 Broad Street 

New York, N.Y. 10004 

(212) 549~2500 

sshapiro@aclu.org 

Stuart T. Rossman 

National Consumer Law 

Center 

7 Winthrop Square 

Boston, MA 02110 

Edward Barocas 

Jeanne LoCicero 

American Civil Liberties 

Union of New Jersey 

P.O. Box 32159 

Newark, N.J. 07102 

35 
100 


86686.067

APPENDIX 
101 


86686.068

The American Civil Liberties 

Union (ACLU) IS a nationwide, 

nonprofit, nonpartisan organization 

with more than 500,000 members 

dedicated to the principles of liberty 

and equality embodied in the 

Constitution and this nation's civil 

rights laws. The American Civil 

Liberties Union of New Jersey is 

one of its statewide affiliates. Since its 

founding in 1920, the ACLU has 

appeared before this Court in 

numerous cases, both as direct counsel 

and amicus curiae. Of particular 

relevance to this case, the ACLU's 

Racial Justice Program engages in a 

nationwide program of litigation and 

advocacy on behalf of people who have 

been historically denied their 

constitutional and civil rights on the 

basis of race in housing and other 

areas. The ACLU's Women's Rights 

Project has, among other things, 

worked to improve access to housing 

for survivors of domestic and sexual 

violence and their children, including 

litigating cases on behalf of battered 

women who faced eviction based on the 

abuse they experienced. 

MFY Legal Services, Inc. 

(MFY), a nonprofit organization, 

envisions a society in which no one is 

1a 
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86686.069

denied justice because he or she cannot 

afford an attorney. To make this vision 

a reality, for 50 years MFY has 

provided free legal assistance to 

residents of New York City on a wide 

range of civil legal issues, prioritizing 

services to vulnerable and underserved 

populations, while simultaneously 

working to end the root causes of 

inequities through impact litigation, 

law reform and policy advocacy. MFY 

provides advice and representation to 

more than 8,500 New Yorkers each 

year. In September 2008, with the 

implosion of the housing market, MFY 

created its Foreclosure Prevention 

Project. Over the past five years, MFY 

has been on the frontlines of the 

foreclosure crisis, providing services to 

more than 2,700 individuals, saving 

hundreds of homes from unnecessary 

foreclosures. MFY attorneys have 

witnessed first-hand the devastating 

and discriminatory impact of predatory 

mortgage lending, and, through both 

defensive and affirmative litigation, 

MFY has sought to combat its effects 

and preserve homeownership in New 

York City. MFY's Mental Health Law 

Project and Disability and Aging 

Rights Project also regularly litigates 

2a 
103 


86686.070

Fair Housing Act claims on behalf of 

people with disabilities who live in 

private apartments, public housing, 

and facilities such as adult homes. 

The National Coalition 

Against Domestic Violence 

(NCADV), based in Colorado since 

1992, was formed in 1978 to create a 

national network of programs serving 

victims of domestic violence. There are 

over 2,000 domestic violence programs 

currently in the United States. NCADV 

provides technical assistance, general 

information and referrals, and 

community awareness campaigns, and 

does public policy work at the national 

level. NCADV has participated in 

many amicus briefs over the years on 

issues relating to domestic violence 

victims, for whom obtaining and 

keeping safe housing is a major and 

pressmg concern. It is critical that 

survivors have access to legal remedies 

through the Fair Housing Act when 

they experience housing discrimination 

based on the violence perpetrated 

against them. 

The National Community 

Reinvestment Coalition (NCRC) is a 

3a 
104 


86686.071

nonprofit public interest organization 

founded in 1990. NCRC, both directly 

and through its network of six hundred 

community-based member 

organizations, works to increase access 

to basic banking services including 

credit and savings, and to create and 

sustain affordable housing, job 

development and vibrant communities 

for America's working families. NCRC, 

through its National Neighbors civil 

rights program, seeks to advance fair 

lending and open housing practices 

nationwide and actively assists in 

efforts to affirmatively further fair 

housing and eliminate discrimination 

that is detrimental to the economic 

growth of low to moderate income and 

traditionally underserved 

communities. 

The National Consumer Law 

Center (NCLC) is a national research 

and advocacy organization focusing on 

justice in consumer financial 

transactions, especially for low income 

and elderly consumers. Since its 

founding as a nonprofit corporation in 

1969, NCLC has been a resource center 

addressing numerous consumer 

finance issues affecting equal access to 

4a 
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86686.072

fair credit in the marketplace. NCLC 

publishes a 20-volume Consumer 

Credit and Sales Legal Practice Series, 

including Credit Discrimination, Sixth 

Ed., and has served on the Federal 

Reserve System Consumer-Industry 

Advisory Committee and committees of 

the National Conference of 

Commissioners on Uniform State 

Laws. NCLC has also acted as the 

Federal Trade Commission's 

designated consumer representative in 

promulgating important consumerprotection regulations. 

The National Housing Law 

Project (NHLP) is a private, 

nonprofit, national housing and legal 

advocacy center established in 1968. 

Its mission is to advance housing 

justice for poor people by increasing 

and preserving the supply of decent, 

affordable housing; improving existing 

housing conditions, including physical 

conditions and management practices; 

expanding and enforcing low-income 

tenants' and homeowners' rights; and 

increasing housing opportunities for 

racial and ethnic minorities. Through 

policy advocacy and litigation, NHLP 

has been responsible for many 

5a 
106 


86686.073

critically important changes to federal 

housing policy and programs that have 

resulted in increased housing 

opportunities and improved housing 

conditions for poor people. NHLP has 

worked with hundreds of advocates, 

attorneys and agencies throughout the 

country on cases involving tenants and 

homeowners in foreclosure as well as 

cases involving housing and domestic 

violence. In addition, NHLP has 

advocated for policies that help victims 

of domestic violence to access and 

maintain safe and decent housing. 

The present case involves a critical 

remedy for the widespread 

discrimination experienced by victims 

of subprime lending and victims of 

domestic and sexual violence. 

Disparate impact analysis provides an 

essential tool for identifying and 

ending these patterns, practices and 

policies that illegitimately and 

disproportionately discriminate 

against protected groups of people. 

Without this important enforcement 

tool, it will be extremely difficult, if not 

impossible, to address pervasive and 

covert housing discrimination. 

6a 
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The National Law Center on 

Homelessness & Poverty (the "Law 

Center") was founded in 1989. The 

mission of the Law Center is to prevent 

and end homelessness by serving as 

the legal arm of the nationwide 

movement to end homelessness. To 

achieve its mission, the organization 

pursues three main strategies: impact 

litigation, policy advocacy, and public 

education. Over more than a decade, 

the Law Center has devoted significant 

attention to protecting the housing 

rights of victims of domestic violence, 

thereby preventing them and their 

family members from becoming 

homeless. The Law Center has done 

this work through legislation such as 

the Violence Against Women Act, 

administrative advocacy with agencies 

such as HUD and the U.S. Department 

of Justice, and litigation. The Law 

Center joins this brief in order to 

emphasize the importance of disparate 

impact analysis in the ability of 

survivors to vindicate these important 

rights. 

The National Women's Law 

Center is a nonprofit legal advocacy 

organization dedicated to the 

7a 
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advancement and protection of 

women's legal rights and opportunities 

since its founding in 1972. The Center 

focuses on issues of key importance to 

women and their families, including 

economic security, employment, 

education, health, and reproductive 

rights, with special attention to the 

needs of low-income women, and has 

participated as counselor anticus 

curiae in a range of cases before this 

Court to secure the equal treatment of 

women under the law, including cases 

challenging practices that have a 

discriminatory impact on women, even 

III the absence of proof of 

discriminatory animus. The Center 

has long sought to ensure that rights 

and opportunities are not restricted for 

women based on arbitrary practices or 

policies not justified by compelling 

interests. 

Public Justice, P.C., IS a 

national public interest law firm 

dedicated to pursuing justice for the 

victims of corporate and government 

abuses. Throughout its history, Public 

Justice has participated in cases that 

highlight the importance of the role 

that disparate impact claims play in 

8a 
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ensurmg the effectiveness of our 

nation's federal civil rights statutes. 

For example, Public Justice joined in 

an amici brief in Smith v. City of 

Jackson, urging this Court to hold, as 

it ultimately did, 544 U.S. 228 (2005), 

that the Age Discrimination m 

Employment Act prohibits not only 

disparate treatment discrimination, 

but also disparate impact 

discrimination. Public Justice IS 

gravely concerned that the arguments 

advanced by petitioner in this case, if 

adopted, would eviscerate the 

effectiveness of the Fair Housing Act. 

9a 
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~IVIIC :® 

NATIONAL ASSOCIATION OF MUTUAL INSURANCE COMPANIES 

Statement 

of 

National Association of Mutual Insurance Companies 

to the 

United States House of Representatives 

Committee on Financial Services 

Subcommittee on Oversight and Investigations 

Hearing on 

A General Overview of Disparate Impact Theory 

November 19,2013 
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Comments of the National Association of Mutual Insurance Companies 

A General Overview of Disparate Impact Theory 

November 19, 2013 

Introduction 

Page 2 

The National Association of Mutual Insurance Companies (NAMIC) is pleased to 

provide testimony on the legal doctrine of disparate impact and its relationship to the 

business of property/casualty insurance. 

We are 1,400 property/casualty insurance companies serving more than 135 million 

auto, home and business policyholders, with more than $196 billion in premiums 

accounting for 50 percent of the automobile/homeowners market and 31 percent of the 

business insurance market. We are the largest property/casualty insurance trade 

association in the country, with regional and local mutual insurance companies on main 

streets across America joining many of the country's largest national insurers who also 

call NAMIC their home. More than 200,000 people are employed by NAMIC members. 

For more than two decades, fair housing activists have sought to limit insurance 

companies' use of risk-based methods for underwriting and priCing homeowners 

insurance. This effort intensified in March 2013, when the U.S. Department of Housing 

and Urban Development (HUD) promulgated a new administrative rule that codifies the 

use of the "disparate impact" theory of discrimination to prove allegations of unlawful 

discrimination under the Fair Housing Act (FHA). The disparate-impact theory holds 

that a policy or practice that has a disproportionate effect on a group defined by race, 

ethnicity, or certain other characteristics may constitute illegal discrimination, even if the 

policy or practice is neutral with respect to such prohibited characteristics, and even if 

the architects of the policy or practice did not intend to discriminate on the basis of 

these characteristics and apply it evenhandedly. 

Under the HUD disparate-impact rule, government regulators and private plaintiffs can 

bring claims of illegal discrimination in the provision of housing, mortgage lending, 

homeowners insurance, and other housing-related products without having to prove that 

any individuals were treated differently because of their group membership. All that is 

necessary is a statistical analysis showing that the percentage in one group that was 

adversely affected by a neutral practice is greater than the percentage that was 

adversely affected by the practice in other groups. 

The following hypothetical example illustrates how disparate-impact theory might work 

in practice: Suppose that a property insurer decides not to provide coverage for homes 

with wood-burning stoves because claims data suggest that such homes have a higher 

than average probability of catching fire. If it turns out that the insurer's decision 

adversely affects a greater percentage of white homeowners than nonWhite 

homeowners, a white homeowner with a wood-burning stove could sue the insurer. 1 It 

, A popular misconception is that federal antidiscrimination laws such as the Fair Housing Act protect only 

nonwhite minority groups and women from discriminatory practices based on race and gender. In fact, the laws' 

provisions apply to any group defined by "race, color, national origin, religion, sex, familial status [or] disability." 

It is therefore quite possible that the disparate-impact approach could be used to prove claims that defendants 
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Comments of the National Association of Mutual Insurance Companies 

A General Overview of Disparate Impact Theory 

Page 3 

November 19, 2013 

would not matter that the insurer's decision to avoid the risk associated with woodburning stoves was neutral with respect to race and not motivated by hostility toward 

whites. Nor would it matter that the insurer's decision was applied uniformly to all 

applicants for coverage, without regard to race, or that the insurer did not even know the 

racial identity of those applying for coverage. 

According to the disparate-impact theory as described in the HUD rule, the insurer 

would be in violation of the FHA unless it could prove to the satisfaction of a judge or 

jury that its reason for charging more for homes with wood-burning stoves is not only 

actuarially sound; it would also have to prove that doing so was "necessary to achieve 

one or more of its substantial, legitimate, nondiscriminatory interests.',2 And even if the 

insurer could meet that burden, the HUD rule would still allow the plaintiff to prevail if he 

could show that the insurer's "substantial, legitimate, nondiscriminatory interest could be 

served by a practice that has a less discriminatory effect.,,3 The alternative practice 

need not serve the insurer's interest as well as the challenged practice, and it could still 

have a disparate impact, albeit of lesser magnitude than that produced by the 

challenged practice. If a judge or jury could be convinced that such an alternative 

practice could be found, the insurer would be judged guilty of illegal discrimination on 

the basis of race. 

This is obviously a bad state of affairs, and the purpose of this testimony is to explain 

how it came about, the legal and policy objections to it, and what can be done in 

response. 

Section II of this testimony clarifies the meaning and explains the use of "discrimination" 

in the enterprise of insurance, contrasting "risk discrimination" with the kinds of 

discrimination prohibited under the FHA and other federal and state antidiscrimination 

laws. Section III provides a brief history of the evolution of the disparate-impact theory 

of discrimination and its relationship to contemporary antidiscrimination laws, including 

illegally discriminated against whites, immigrants from any country, members of any religion or religious sect, or 

males. 

278 Federal Register 11,481 (to be codified at 24 C.F.R. 100.500 et seq.) As prescribed in the rule, the disparateimpact burden-shifting process is as follows: 

3 Ibid. 

The party challenging a practice by an insurer must first prove a prima facie case that the practice results in, 

or would predictably result in, a discriminatory effect on the basis of a protected characteristic, which under 

!he FHA includes race, color, national origin, religion, sex, familial status and disability. 

If the challenging party meets that burden, the burden shifts to the respondent/defendant to prove that the 

challenged practice is necessary to achieve one or more of its substantial, legitimate. nondiscriminatory 

interests. A legally sufficient justification must be supported by evidence and not be hypothetical or 

speculative. A substantial interest is a core interest of the organization that has a direct relationship to the 

function of that organization. A substantial, legitimate, nondiscriminatory interest is equivalent to the 

concept of "business necessity" applied in connection with other types of discrimination claims. 

If the respondent/defendant meets its burden, the challenging party may still establish liability by proving 

that the substantial, legitimate, nondiscriminatory interest could be served by a practice that has less 

discriminatory effect. 
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A General Overview of Disparate Impact Theory 

November 19, 2013 

the FHA. This section also analyzes and critiques the general consequences of the 

disparate-impact approach. Section IV examines the role historically played by HUD in 

promoting the application of disparate-impact analysis to insurance underwriting 

practices and pricing, as well as the consequences of that application, again most 

particularly in the context of underwriting and pricing of homeowners insurance. Section 

V focuses on a particular insurance underwriting factor-consumer credit history-as a 

case study of the application of the disparate-impact theory to insurance. Finally, 

Section VI provides a conclusion along with the authors' recommendations. 

II. Homeowners Insurance, Risk, and the Fair Housing Act 

In common parlance, the word "discrimination" has acquired connotations so profoundly 

negative that many people reflexively assume that the act of discriminating can never 

be fair. "Unfair discrimination" may therefore seem a redundancy. Yet in their daily 

lives, people frequently make decisions that require them to recognize material 

distinctions among things, places, and other people-in other words, they discriminate. 

What should concem us is whether acts of discrimination are informed by accurate 

information and by the application of neutral standards that are free of bias. 

Discriminating among Kinds of Discrimination 

In the business of insurance, discrimination takes the form of assessing and classifying 

varying degrees of risk. From the perspective of insurers, classifying people and their 

property according to the risk they present, and treating similar risks similarly, is a form 

of discrimination that is both reasonable and fair. A leading textbook for students of 

insurance regulation notes that "in insurance, discrimination is not necessarily a 

negative term so much as a descriptive one. For insurance, fair discrimination is not 

only permitted, but necessary.,,4 Unfair discrimination, on the other hand, occurs when 

similar risks are treated differently. 5 

The importance of distinguishing between fair and unfair discrimination in insurance has 

long been recognized by the National Association of Insurance Commissioners, 6 whose 

Model Unfair Trade Practices Act prohibits "discrimination between individuals or risks 

of the same class and of essentially the same hazards." In addition, the Model Act 

prohibits "refusing to insure, refusing to continue to insure, or limiting the amount of 

coverage available to an individual because of the sex, marital status, race, religion or 

national origin of the individual"7 -regardless of whether these characteristics are 

related to risk. In sum, the Model Act posits that discrimination based on risk is "fair" 

4 Kathleen Heald Ettlinger, State Insurance Regulation (Insurance Institute of America, 1995), pp. 29-30. 

5 For a detailed discussion of risk assessment and classification, see Kenneth S. Abraham, "Efficiency and Fairness 

in Insurance Risk Classification," Virginia Law Review, Vol. 71 (1985), pp. 403-451. 

6 The National Association ofInsurance Commissioners (NAIC) is composed of the insurance commissioners of all 

fifty states. (The insurance industry is regulated at the state level.) The organization addresses problems that 

concern the industry nationwide, and drafts model laws and regulations to aid state decision-makers in setting 

insurance regulatory standards. 

7 NAIC Unfair Trade Practice Act, section 4G(3)(4)(5), NAIC Model Regulation Service at p. 880-4 (Jan. 2004). 
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Comments of the National Association of Mutual Insurance Companies 

A General Overview of Disparate Impact Theory 

November 19, 2013 

PageS 

except when an insurer explicitly considers an individual's sex, marital status, race, 

religion, or national origin as a risk factor. As of 2004, a majority of the states had 

adopted the NAIC Model Act, or a substantially similar version of it. 8 

Assessing, Classifying, and Pricing Risk 

Insurance evolved over time as a partial solution to our inability to predict the future. No 

one knows for certain what hazards lie ahead, but the prudent person understands that 

she is exposed to any number of risks. A homeowner runs the risk that her home could 

be damaged by fire or a weather-related calamity. The owner of an automobile knows 

that her car could crash or be stolen. Insurance allows an individual to manage these 

risks by making what she regards as a reasonable payment now in order to protect 

herself from the possibility of financial disaster in the future. But insurance is attractive 

to individuals only if the price of coverage corresponds to their perceived risk. A rational 

consumer will not voluntarily purchase insurance if she believes that the price she is 

charged for coverage is excessive relative to the probability and magnitude of her 

potential loss. 

Establishing the optimal price of insurance is therefore critical to the business of 

insurance. But insurance is unlike other industries in that the price of insurance is 

determined by future costs that are inherently difficult to predict. If even a small number 

of individuals comprised within a particular insurance pool incurs inordinately large 

losses, the premiums paid by every member of the pool will have to be increased. 

When an insurer acquires information that allows it to improve the accuracy of its ability 

to assess risk, it can more closely align the price it charges for coverage with the cost of 

providing that coverage. "The pressure for increased accuracy," observes economist 

Scott Harrington, "is relentless. Insurers that predict claim costs better than their 

competitors prosper. Insurers that respond slowly end up insuring a disproportionate 

volume of business at inadequate rates; they lose money and either take corrective 

action or disappear."g 

The process of risk assessment often reveals significant disparities in the level of risk 

that various individuals present. Certain personal characteristics or behavioral traits 

may suggest either a relatively high or a relatively low probability of future loss. 

Similarly, variations in the condition and use of the item to be insured will translate to 

disparities in risk. To keep premiums low and prevent adverse selection,10 insurers 

classify insureds into groups posing similar risks. Distributing risk among a pool of 

relatively low-risk insureds will keep costs down and result in lower premiums. By the 

same token, distributing risk among a pool of relatively high-risk insureds will lead to 

8 Jd at p. 880-4 (Jan. 2004). 

9 Scott Harrington, "Repairing Insurance Markets," Regulation (Summer 2002). 

!O Adverse selection is the phenomenon whereby low-risk insureds leave the insurance pool, leaving behind higher 

risk insureds. The effect of this is necessarily to increase the costs borne by insurers, and hence to drive up 

premiums. 
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A General Overview of Disparate Impact Theory 

November 19, 2013 

higher costs that necessitate higher premiums. 11 In each case, the price of insurance 

and the type of coverage offered are a function of the insurer's assessment of the risk 

presented by the insured. 

One factor that insurers often consider in assessing risk among applicants for 

homeowners insurance is the home's geographic location. Consider those regions of 

the U.S. that are unusually prone to devastation by natural forces such as tornadoes, 

floods, earthquakes, and wildfires. Insurers know from experience that homes located 

in these areas suffer more frequent and/or more severe losses than homes located 

elsewhere, so insurers charge rates that reflect the relatively greater degree of risk that 

the insurer must bear in providing coverage for such properties. By the same token, 

people whose homes are located in areas that are relatively free of extreme weatherrelated hazards will typically pay a lower rate for coverage because insurers' experience 

shows that such properties incur losses that are fewer and/or less severe than homes 

located in areas prone to natural catastrophes. 

In the modern American city, risk may be a function of social and economic factors. 

Deteriorated urban core areas often suffer from relatively high rates of property crime 

such as vandalism and arson. Accidental fires are also more prevalent; the large 

number of old, substandard structures characteristic of economically depressed areas 

increases the probability of fire damage even to buildings in good repair. 12 The quality 

of municipal services in urban areas can likewise affect the likelihood and magnitude of 

losses. For example, the equipment, training, and manpower of local firefighting unitsand the degree of rigor in local housing inspections-can affect the frequency and 

severity of fires. All of these are risk factors that an insurer would have reason to 

consider in deciding what type of coverage to offer and in determining its price. 

Homeowners Insurance and the Fair Housing Act 

The Fair Housing Act as amended makes it unlawful 

(a) To refuse to sell or rent after the making of a bona fide offer, or to refuse to 

negotiate for the sale or refuse to negotiate for the sale or rental of, or otherwise make 

unavailable or deny, a dwelling to any person because of race, color. religion. sex, 

familial status, or national origin. 

(b) To discriminate against any person in the terms, conditions, or privileges of sale or 

rental of a dwelling, or in the provision of services or facilities in connection therewith, 

because of race, color, religion, sex, familial status, or national origin. 13 

11 Conceivably, the risk posed by some individuals will be so great that they cannot fit into any existing risk pool 

without driving up costs and encouraging adverse selection. Such people will be deemed uninsurable. 

12 "Meeting the Insurance Crisis of Our Cities," President's National Advisory Panel on Insurance in Riot-Affected 

Areas (Washington. DC: V.S. Government Printing Office, 1968), p. 6. 

13 42 V.S.c. Sec. 3604. 
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November 19, 2013 

Page 7 

Although the text of the Act contains no explicit reference to insurance, federal courts 

have generally concluded that the law applies to insurance inasmuch as homeowners 

insurance is a "service" related to "the sale or rental of a dwelling: But there is a world 

of difference between applying it to ban intentional discrimination on the basis of race 

and other proscribed categories, versus applying it to ban insurance practices that do 

not unfairly discriminate by their terms, in their intent, or in their application, but simply 

have a disproportionate effect on this or that group. Unfortunately, HUD has now made 

clear through new regulations that it will strongly embrace this disparate-impact 

approach to FHA enforcement. In the next section we explain more precisely what this 

approach entails. 

III. Insurance Practices and the Disparate Impact Theory of Discrimination 

It is by no means clear that the disparate-impact theory is cognizable under the FHA, 

much less that disparate-impact analysis is an appropriate means of proving allegations 

of illegal housing discrimination on the part of insurers. 

As noted above, the FHA makes it unlawful to "discriminate against any person ... 

because of race, color, religion, sex, familial status, or national origin: Similarly, the 

1989 HUD regulations define unlawful insurance discrimination under the Act as 

"refusing to provide ... property or hazard insurance for dwellings or providing ... 

insurance differently because of race, color, religion, sex, handicap, familial status, or 

national origin." Defining unlawful discrimination as a form of behavior undertaken 

because of some (impermissible) factor is a way of making clear that, to be unlawful, an 

act of discrimination must be intentional rather than inadvertent. It indicates that the 

behavior involves disparate treatment of individual persons, rather than behavior that 

affords equal treatment of individuals but results in a disparate impact, or 

disproportionate effect, upon a group of persons as revealed through statistics. 

Before considering the implications of the disparate-impact theory for homeowners 

insurance underwriting and pricing, it is important to understand what, exactly, is meant 

by the term "disparate impact" and how it operates in contexts other than insurance. To 

answer these questions, a brief digression is necessary. 

The Disparate Impact Theory of Discrimination: A Short History 

The disparate-impact theory of discrimination has been a source of controversy among 

legal scholars and civil rights policy analysts for more than 40 years. 14 The theory's 

origins can be found in the 1971 Supreme Court case of Griggs v. Duke Power CO. 15 In 

Griggs, the Court was asked to consider whether the application of "faCially neutral" 

employment criteria that disproportionately excluded blacks violated Title VII of the Civil 

Rights Act of 1964, which prohibits employment discrimination based on race. The 

14 See, e.g., Detlefsen, Civil Rights under Reagan (San Francisco: res Press, 1991), passim. 

15 Griggs v. Duke Power Co., 401 U.s. 424 (1971). 
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November 19, 2013 

Court held that, in a case where members of a racial minority group had been 

intentionally excluded from employment prior to the enactment of Title VII, the use of 

such neutral criteria-in this case, performance on a general intelligence test and 

possession of a high school diploma-was prima facie unlawful if it produced, as 

between blacks and non blacks, a "disparate impact" that was adverse to blacks as a 

group. 

The Court ruled that for an employer to rebut the presumption of illegal racial 

discrimination in such circumstances, it would have to prove to a court's satisfaction that 

the neutral criteria that produced them were "job-related." Writing for a unanimous 

Court, Chief Justice Warren Burger declared that "Congress directed the thrust of the 

[Civil Rights] Act to the consequences of employment practices, not simply the 

motivation. More than that, Congress placed on the employer the burden of showing 

that any given requirement must have a manifest relationship to the employment in 

question." Furthermore, "good intent or absence of discriminatory intent does not 

redeem" employment procedures or testing mechanisms that operate as "built-in 

headwinds for minority groups and are unrelated to measuring job capabilily.,,16 

Putting aside the question whether Burger's opinion can be reconciled with the relevant 

statutory language or its legislative history, the Griggs ruling assumes that it is possible 

to distinguish empirically those criteria that are truly "job-related" from those that are 

not. 17 That assumption is highly problematic, as the economist Thomas Sowell has 

explained: 

Nor can the "job-relatedness" of the standards be assessed in any mechanical way by 

the nature of the task. Standards that are person-related play the same economic role 

as standards that are jOb-related. If people who finish high school seem to the 

employer to work out better than dropouts, third parties who were not there can neither 

deny this assessment nor demand that it be proved to their uninformed satisfaction. It 

makes no difference economically whether this was because the specific task relates to 

what was learned in high school or because those who finish high school differ in 

outlook from those who drop out. Neither does it matter economically whether those 

who score higher on certain tests make better workers because the kind of people who 

read enough to do well on tests tend to differ from those who spend their time in 

activities that require no reading. 18 

In short, hiring standards that are not demonstrably "job-related" may still provide a 

reliable basis for predicting successful performance on the job. Nevertheless, lower 

federal courts Significantly expanded the disparate-impact doctrine throughout the 

1970s, as the "job relatedness" element of the Griggs decision rapidly evolved into what 

16 Ibid. (Emphasis in original) 

IJ In fact, it is likely that, in creating the disparate-impact cause of action, the Supreme Court misconstrued Title VII 

in Griggs. See Gold, Michael Evan (1985). Griggs'folly: An essay on the theory, problems, and origin of the 

adverse impact definition of employment discrimination and a recommendation for reform. Industrial Relations L.J. 

7(4), 429-598. http://digitalcommons.ilr.comell.edu/cbpubs/9/ 

18 Thomas Sowell, Civil Rights: Rhetoric or Reality? (New York: William Morrow, 1984) pp. 115-116 (emphasis in 

original). 
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November 19, 2013 

Page 9 

has become known as the "business necessity" test. A leading case described the test 

as follows: 

The test is whether there exists an overriding legitimate business purpose such that the 

practice is necessary for the safe and efficient operation of the business. Thus, the 

business purpose must be sufficiently compelling to override any racial impact; the 

challenged practice must effectively carry out the business purpose it is alleged to 

serve; and there must be available no acceptable alternative policies or practices which 

would better accomplish the business purpose advanced, or accomplish it equally well 

with a lesser differential racial impact.'9 

Note the stringency with which "business necessity" is defined: Employment criteria 

that produce a disparate racial impact may be sustained only if they are "compelling," 

which is to say, "necessary for the safe and efficient operation of the business." The 

courts applying this test seemed not to recognize that to survive in a highly competitive 

market economy, it is usually not enough for a firm to operate "safely" and "efficiently"; it 

must also provide a product or service that consumers regard as superior to that offered 

by competing firms. 

The lower courts also extended the range of employment practices that were governed 

by the disparate-impact and business-necessity doctrines. Griggs spoke only of 

standardized tests and educational credentials, but by 1972 federal case law had 

established that an employer could not refuse to hire applicants with multiple arrest 

records (unless it could prove the job-relatedness of this criterion), because national 

statistics revealed that blacks are arrested more frequently than whites. 2o Because it 

can be exceedingly difficult to prove to the satisfaction of a judge or a jury that neutral 

criteria such as these are "necessary" in the sense used by the courts, many employers 

responded by avoiding the use of any objective criterion that might lead to a disparate 

outcome among racial and ethnic groups. Employers that made hiring and promotion 

decisions based on workers' performance on standardized tests either abandoned their 

use of such tests or resorted to practices such as "race-norming" (i.e., adding points to 

the scores of candidates belonging to groups that would otherwise be adversely 

affected by testing) and "supplemental selection" techniques (i.e., choosing from 

separate lists of minority and nonminority candidates) in order to avoid disparate racial 

outcomes. 

The approach has further metastasized by spreading far and wide from the employment 

arena: It is now used for everything from education to voting, from environmental law to 

pizza delivery - and, of course, in housing and insurance. 21 

19 Robinson v. Lorillard Corp., 444 F.2d 791, 798 (4th Cir. 1971). 

20 Gregory v. Litton Systems, Inc., 316 F.Supp 401, 403 (C.D. Cal. 1970), aff'd, 472 F.2d 613 (9th Cir. 1972). 

21 See Roger Clegg, "Disparate Impact in the Private Sector: A Theory Going Haywire" (NLCPII AEI monograph, 

December 2001, available at http://www.aei.org/files/2001 112/0 l/Briefly-Disparate-Impact.pdf); and Roger Clegg, 

"How Not to Fight Discrimination," Wall Street Joumal (Feb. 26, 2013), available at 

http://online.wsi.com/article/SB10001424127887324162304578301804194205718.html. 
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The Disparate Impact Theory of Discrimination: A Short Critique 

Page 10 

Most people would not consider it "discrimination" if, for example, an insurer lacking 

discriminatory intent adopted a race-neutral criterion and applied it to all individuals 

regardless of race. Indeed, they would find it objectionable - would consider it to be 

discrimination and certainly to invite discrimination - if a law forced them to choose 

criteria or to apply them with an eye on the skin color of the person seeking insurance 

coverage. 

Those defending the disparate-impact approach make several closely related 

arguments. The first is that, because there is so much racism in our society and it is so 

cleverly hidden, it does not make sense to require plaintiffs to produce a smoking gun of 

discriminatory intent. The second is that no one should object to a defendant having to 

defend a selection device with a disparate impact and, if he cannot justify it in court, 

being forced to get rid of it. The third justification is that equality of racial results is ipso 

facto a very important social end, and so it makes sense to require any selection device 

- no matter how innocent, innocently contrived, and innocently applied - that thwarts 

this end to jump through some narrow hoops. 

Part of the answer to the first argument is empirical: that it exaggerates the extent to 

which racism abounds, and that where racism does exist it is not particularly wellhidden. But of course it is hard to persuade some people on this point. It is also true, 

however, that proving discriminatory intent does not require the production of a 

"smoking gun" memorandum or the like. The Supreme Court has made clear that there 

can be circumstantial proof of discrimination, just as there can for other offenses. It's 

just that the ultimate question ought to be whether there actually is discrimination, not 

whether there is nothing more than the failure to achieve a particular racial balance or 

quota. The fact that an offense is difficult to detect would not in any other context justify 

redefining the offense. For example, the fact that drug smugglers are hard to catch 

would not justify a conclusive presumption that all entrants into the United States are 

carrying illegal drugs. And it bears repeating that, in a disparate-impact lawsuit, even if 

the defendant can prove to a certainty that he acted with no discriminatory intent, it is 

irrelevant to his liability. 

Nor is it true that there is no appreciable cost to requiring defendants to defend a 

selection device and to get rid of any selection device that they cannot justify, In the 

first place, the defendant is not just told to get rid of a selection device: He also must 

pay his lawyers, the other side's lawyers, and any damages, besides getting rid of a 

device that he believes serves a legitimate end. In the latter regard, there are the 

inevitable economic costs attendant to letting inexpert bureaucrats, judges, and 

plaintiffs' lawyers determine - through litigation or threat of litigation - the selection 

devices that ought to be used, rather than leaving that determination to someone who 

knows his business. Finally, it is simply not the case that only bad selection devices will 

be shied away from. Being confident in a policy does not necessarily mean that you are 

willing to "bet the company" in an uncertain lawsuit that will be decided by a judge or 

jury who knows much less about the business than you do. 
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It is the third argument that one suspects is behind much of the defense of the 

disparate-impact approach. Yes, there will be economic costs to getting rid of perfectly 

good selection devices, but the social-justice benefits justify them: We want to have 

equal racial outcomes and aren't comfortable with anything that stands in the way of 

them. There is, in this, a manifest impatience with anyone's fear of losing money (even 

though, as discussed elsewhere, it is not only insurance companies but policyholders of 

all colors who will ultimately lose money). But let us focus instead on the noneconomic 

costs and benefits. The trouble is that the third argument is no longer an argument 

against discrimination but in its favor. The justification is not that the disparate-impact 

approach will end discrimination against some groups, but rather an acknowledgment 

that it will increase discrimination against others: That is, that some groups are being 

made to pay more money than the logic dictates they should in order to subsidize other 

groups. The institutionalization of such discrimination is a serious social cost indeed. 

Indeed, this brand of social "justice" is quite unjust, and it will result in resentment and 

stigmatization. 

The disparate-impact approach has always been a bad idea. The focus of a civil-rights 

lawsuit ought to be on whether people of different races are treated differently because 

of their race. That is the commonsense and dictionary definition of "discrimination," and 

it is what the Fair Housing Act clearly says and means, as is discussed below. The 

question of intent, rather than incidental effect, ought to be at the heart of every lawsuit. 

Defendants in disparate-impact lawsuits do have the opportunity to rebut the plaintiffs' 

case by proving that their policies are justified by some "necessity." But, as we have 

discussed, it is risky to go to court, trying to prove to a judge or jury - who will know 

nothing about the business of insurance, and may be indifferent, to put it mildly, to the 

interests of insurance companies - that the challenged practice is a "necessity." What's 

more. the technical "validation" frequently insisted on by civil rights plaintiffs, 

enforcement bureaucrats. or federal judges is often expensive and difficult, if not 

impossible. 

Conversely, it is almost always possible that a plaintiff in one group can come up with a 

tweaked approach that will diminish the impact on that group while still serving the 

company's end. if not quite so well. For example, in our hypothetical example of a 

disparate-impact lawsuit involving a home with a wood-burning stove that was 

discussed earlier, the plaintiff might have demonstrated that, had the insurer agreed to 

offer coverage if the wood stove was professionally installed, contained certain safety 

features. or was used sparingly (perhaps as indicated by the amount of wood that it 

burned each year), as opposed to categorically refusing to provide coverage for such 

homes, this practice would have had less of a "discriminatory effect" on white 

homeowners while still allowing the insurer to protect itself against the inordinate fire 

risk presented by wood-burning stoves. Such a showing would be enough to establish 

liability on the part of the insurer, never mind that the plaintiffs alternative approach 

would probably be less effective in preventing insured fire-related losses and certainly 
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more costry to administer (requiring individual home inspections by specially-trained 

inspectors) . 

All this, moreover, is designed to create an incentive for insurers to ensure that 

disparate impact does not occur in the first place by taking steps to ensure that their 

numbers come out right. If they do this by simply abandoning a legitimate criterion, the 

end result will be less of a disparate impact but higher insurance rates for everyone -

not to mention the fact that the reason for the higher rates is to ensure a particular racial 

result (exactry the kind of race-based decision-making that the civil-rights laws was 

designed to prohibit). Thus, what is really rotten at the core of the disparate-impact 

approach is this: Under the guise of combating the problem of "unintended" or "hidden" 

discrimination, the theory encourages deliberate, overt discrimination. Applied to 

property insurance, it requires underwriting and rating factors to be chosen with an eye 

on the racial bottom line. Such a practice would be condemned under any other 

circumstances, and rightly so. 

In sum, by pushing companies to substitute race-outcome-based decisions for decisions 

that are color-blind and merit-based (or risk-based, in the case of insurance), disparateimpact lawsuits have two bad results: less efficient and productive business practices, 

and the institutionalization of race-conscious decision-making. That is not just the effect 

of disparate impact; it is its intent. 

IV. Disparate Impact, Homeowners Insurance, and HUD 

While the objections to the disparate-impact approach are therefore serious, HUD has 

nonetheless adopted it. This section will describe briefly how this came about, and then 

outline the legal problems it raises, both as a general matter and in the specific 

approach taken in HUD's new regulations. 

How HUD Came To Embrace the Disparate-Impact Approach 

Early in the Clinton administration and soon after the Sixth and Seventh Circuits 

decided that the Fair Housing Act applies to property insurance, HUD made clear its 

intention to apply disparate-impact analysis to allegations of housing discrimination. An 

internal memorandum dated December 17,1993, written by Assistant Secretary 

Roberta Achtenberg and addressed to "all regional directors" of the agency's Office of 

Fair Housing and Equal Opportunity, begins with the following instruction: 

Cases which have been brought under the Fair Housing Act should now be analyzed 

using a disparate impact analysis, to the extent that this theory is applicable to a 

particular case. 
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Under a disparate impact analysis, a policy, standard, practice or procedure which, in 

operation, disproportionately adversely affects persons protected by the Fair Housing 

Act coverages may violate the Act. 22 

The memorandum went on to note that "a respondent may rebut a prima facie case by 

evidence that the policy is justified by a business necessity which is sufficiently 

compelling to overcome the discriminatory effect. The business necessity justification 

may not be hypothetical or speculative." The memo admonished HUD investigators to 

wield the disparate impact weapon aggressively, and to regard claims of "business 

necessity" with a high degree of skepticism: 

Each [respondent) should be investigated to determine if there are genuine business 

reasons for the policy. The respondent should also be queried as to whether or not the 

respondent considered any alternatives to the particular policy, and what the reasons 

for rejecting the alternatives, if any, were .... [T]he investigation should consider whether 

there are any less discriminatory ways in which the respondent's business justifications 

may be addressed. These steps are important because if there is a less discriminatory 

way by which genuine business necessities may be addressed, it may be argued that 

the respondent should have adopted a less discriminatory alternative. 23 

Now, however, HUD has gone even further, and adopted formal regulations that 

strongly embrace the disparate-impact approach. 

The timing, it must be said, is suspicious: (1) First, on November 7, 2011, the Supreme 

Court granted review in Magner v. Gallagher, which raised the issue whether the Fair 

Housing Act allowed disparate-impact causes of action at all; (2) just nine days later, 

HUD published proposed regulations that embraced the disparate-impact approach; (3) 

then, in February 2012, the Obama administration persuaded the petitioner in the 

Magner case to withdraw the successfully submitted cert petition just prior to oral 

argument before the Court, an unheard of action, but one which was taken here 

because the administration promised not to participate against the petitioner in another, 

unrelated case (potentially costing the government, and saving the petitioner, over $160 

million); and (4) last, the administration published the final version of the HUD 

regulations, just in time to cite them in its amicus brief to the Court in Township of Mt. 

Holly v. Mt. Holly Gardens Citizens in Action, Inc. - another case before the Court, also 

raising the FHA disparate-impact issue - and to urge the Court to give deference to 

them. We say the timing is "suspicious" because, as discussed in more detail in the 

next section, it appears that the regulations were quickly written and adopted so that the 

Supreme Court could be urged to defer to them, and that the Magner case was 

torpedoed because in February 2012 there were not yet any final regulations to which 

the Court could be urged to defer. 

22 HUD Memorandum to All Regional Directors, Office of Fair Housing and Equal Opportunity, on "Applicability 

of Disparate Impact Analysis to Fair Housing Cases," December 17, 1993, p. 1. Also see Robert Detlefsen, 

"HUDlining: Disparate Impact and Insurance," Center for Equal Opportunity, October 1997. 

23 Ibid. p. 2. 
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The final version of the HUO regulations is also "aggressive" in the way the disparateimpact approach is used, according to a February 12, 2013, analysis by the law firm 

Morrison and Foerster. 24 The new rule "goes well beyond" HUO's prior position: "It 

articulates a burden-shifting framework that places significant new burdens onto 

defendants, and it 'clarifies' the standard for 'business justification' that HUO had 

originally proposed into a test the courts have affirmatively rejected." It will also apply 

retroactively, and to "a broad range of housing activity." Requiring a defendant to 

"prove" that a challenged practice is "necessary" is "inconsistent with legal authority" 

(e.g., the Supreme Court's 1989 decision in Wards Cove Packing Co. v. Atonio2

f). 

Worse, the way that the rule will allow a plaintiff to prevail by showing a "less 

discriminatory" alternative "may well begin to swallow the original rule." 

The rule makes clear that HUO's new disparate-impact regulations will apply to insurers, 

but offers few clues about how problems like those raised in this testimony will be 

avoided. 26 In predicting how the HUO regulations will be applied, it is worth taking a 

look at Disparate Impact under the Fair Housing Act: A Proposed Approach, a 2009 

report that was commissioned by the National Fair Housing Alliance and co-authored by 

Sara Pratt, now an official at HUOY Particularly interesting is Appendix 2, which 

provides "examples of impact-producing policies that might violate the FHA: The last 

four examples involve homeowners insurance, and suggest that just about any 

insurance underwriting practice will run afoul of the law because there will almost 

always be a "less discriminatory" - if more burdensome - alternative practice that the 

insurer could have used. 

Immediate Legal Issues Raised by the HUD Regulations 

The text of the Fair Housing Act is inconsistent with the disparate-impact approach in 

any number of ways, and the legislative history supports the view that only disparate 

treatment was targeted by the statute. Allowing a disparate-impact approach would 

also create a number of bizarre policy outcomes. For example, it would make an 

ordinance in one city illegal while allowing exactly the same ordinance in another city, 

just because of the different racial makeup of the two cities - an odd outcome for a 

national civil-rights law. It would encourage enforcement (or non-enforcement) of such 

ordinances with an eye on racial outcomes - again, an odd result for a 

nondiscrimination law. It is especially strange to encourage mortgage lenders to make 

decisions based on race, as the HUO rule would do, when such decision making is 

believed by many to have played a key role in triggering the mortgage crisis of 2007-

08. 28 

24 Michael J. Agoglia, et aI., "HOD Issues Aggressive New Fair Housing Rule," February 12,2013. Available at 

http://www.mofo.com/fileslUploads/lmages/130212-HUD-lssues-Aggressive-New-Fair-Housing-Rule.pdf. 

25 490 U.S. 642 (1989). 26 78 FR 11474-75. 

27 Electronic copy available at http://ssrn.comlabstract=1577291. 

28 http://www.idsupra.comllegal newslbrief-amicus-curiae-of-paci fic-Iegal-fou-7 4521 / 
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There are several reasons why the HUD disparate-impact rule is entitled to little 

deference from the courts. First and foremost and as also noted above, the meaning of 

the statute is clear that only actual discrimination - "disparate treatment" - is banned. 

Further, the Fair Housing Act has been on the books for 45 years, and during that time 

the Executive Branch has sometimes used the disparate-impact approach and 

sometimes not. For example, President Reagan explicitly rejected the approach in 

signing major amendments to the Act, and his Justice Department argued against it in a 

brief to the Supreme Court; the Bushes didn't think much of it, either. The Obama 

administration, on the other hand, orchestrated a controversial deal with the City of st. 

Paul to get it to withdraw last term's cert petition in Magner, and meanwhile has worked 

on promulgating those new regulations - a process that was not begun until after the 

Court had granted review in Magner. "We were afraid we might lose disparate impact in 

the Supreme Court because there wasn't a regulation," said HUD official Sara Pratt. 29 

Finally, the Supreme Court will, where possible, avoid construing a statute in a way that 

would create a constitutional problem. And construing the Fair Housing Act to allow 

disparate-impact causes of action would be constitutionally problematic in at least two 

ways: It encourages race-based decision making, and it would alter the federal-state 

balance by calling into question race-neutral rules in areas of the law typically left to the 

states. 

Not only is the approach taken by HUD problematic as a general matter, but the 

regulations that HUD has adopted inevitably raise additional and technical questions 

that can be resolved only through expensive and wasteful litigation. For example: 

(a) How great does the "impact" have to be? 

(b) How does one quantify the strength of the defendant's interest, especially if it is 

not an immediate pecuniary interest? 

(c) How precisely does the "alternative" practice have to be presented, and how 

comparable in cost must it be?30 

29 Pratt quote can be found here: http://www.propublica.org/articlelhow-the-supreme-court-could-scuttle-criticalfair-housing-rule. 

30 James Scanlon, an expert on the use of statistics in civil-rights cases, has noted that one dealing with 

housing/lending disparate impact issues should be aware of an anomaly in the federal government's regulation of 

lenders arising from the failure to recognize that reducing the frequency of adverse outcomes (like mortgage 

rejection), while tending to reduce relative differences in the corresponding favorable outcomes (like mortgage 

approval), tends to increase relative differences in the adverse outcome. The pattern is well illustrated in test score 

data which show how lowering a test cutoff reduces relative differences in pass rates but increases relative 

differences in failure rates. Everyone who deals with data should know this, Mr. Scanlon notes, but few do. In any 

case, out of concern about seemingly large relative differences in adverse lending outcomes (which were attributed 

in part to the disparate impact of standard lending criteria), the federal government has for 19 years been pressuring 

lenders to relax lending criteria and otherwise to reduce the frequency of adverse lending outcomes. But unaware 

that doing so tends to increase relative differences in experiencing those outcomes, regulators continue to judge 

compliance on the basis of relative differences in adverse outcomes. Thus, Mr. Scanlon concludes, by acceding to 

pressures to reduce adverse lending outcomes, lenders increase the likelihood that they will be sued for 

discrimination. See "Misunderstanding of Statistics Leads to Misguided Law Enforcement Policies" (Amstat News, 

Dec. 2012); "'Disparate Impact': Regulators Need a Lesson in Statistics" (American Banker, June 5, 2012); "The 

Lending Industry"s Conundrum" (National Law Journal, Apr. 2, 2012). Related articles going back to 1992 may be 
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Note that, in a disparate-treatment lawsuit, on the other hand, the inquiry is always 

straightforward: Are people being treated differently because of their skin color? 

Statistical evidence is still permissible, and the implausibility of a policy's rationale is fair 

game, but the focus is clear and so the problems listed above vanish. 

Additional Legal and Policy Issues Raises by the HUD Regulations 

It is very odd to tell an insurer: Before you can adopt a policy, you must first look to see 

whether it has a disproportionate effect on any racial group, on any ethnic group, on any 

gender, and on any religious group (not to mention "familial status: handicap, and any 

other group protected by other federal, state, or local laws from discrimination). For 

example, most insurers do not even ask a prospective policyholder what his religion is; 

if we are serious about the disparate-impact approach, then insurers will have to start 

asking policyholders about religion when they weren't before - an odd outcome for a 

civil-rights statute. 

This calculus will be further complicated by the fact that racial, ethnic, and religious 

groups can always be subdivided. Recently, for example, the Chronicle of Higher 

Education ran a column that complained about the grouping "Asian and Pacific 

Islanders," because while the group as a whole might be "overrepresented" among 

successful students, certain subgroups were "underrepresented.,,31 Likewise, a policy 

might not have a disparate impact on whites, or Latinos, or Asians as a whole, but it 

might have a disparate impact on Arab Americans, or Mexican Americans, or Hmong 

Americans. Or it might not have a disparate impact on Muslims generally, but it does on 

Shiite Muslims. 

The winners and losers when the disparate-impact approach is used are not always 

predictable. Consider: 

• The threat of a disparate-impact firing lawsuit will, according to research by two 

Yale Law School frofessors, discourage some employers from hiring minorities 

in the first place. 3 

• De-emphasizing the results of the written test for policemen and firefighters will 

result in less disparate impact on the hiring of African Americans, but will hurt 

women; de-emphasizing the results of the physical strength test will result in less 

disparate impact on women, but will hurt African American men. 

found on the Lending Disparities section ofjpscanlan.com. That page and its subpages discuss a number of related 

issues (for example, the Less Discriminatory Alternative - Substantive subpage of the Disparate Impact page 

explains that, in most situations where a disparity is measured in terms of relative differences in adverse outcomes, 

what would commonly be regarded as the obvious less discriminatory alternative will tend to increase the relative 

difference). See also Mr. Scanlon's March 4, 2013 letter to the Federal Reserve Board. 

31 Kawika Riley, "Pacific Islanders: A Misclassified People," Chronicle of Jligher Education, June 7, 2013, at A31. 

32 Ian Ayres & Peter Siegelman, "The Q-Word as Red Herring: Why Disparate Impact Liability Does Not Induce 

Hiring Quotas," 74 Tex. L.Rev. 1487 (1996). 
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• Reliance on standardized tests for university admissions and K-12 "ability 

grouping" will be to the advantage of some minority racial groups but will also be 

to the disadvantage of others. 

To put it another way: Just about any selection criterion is likely to have a disparate 

impact on some group. But why should every disparity be viewed as a social problem, 

let alone a social problem that can be solved by a government regulation or a civil-rights 

lawsuit? 

There are temporal problems as well. A policy that might be unobjectionable at one 

point in time might become illegal if the demographic mix of the relevant jurisdiction 

changes. Or, even if the demographic mix does not change, it might still become illegal 

if the characteristics of some groups, in the aggregate, do change. For example, a 

refusal to insure homes of less than a particular value might have been lawful in 2007 

but might become illegal if a particular racial minority was especially hard-hit by the 

recession. 

And there are geographic problems, too. An insurance policy that is sold in Arizona 

might be legal there but illegal if sold in New Jersey because the two states are different 

demographically. It seems nonsensical to tell that company that it must ensure no 

disparate impact in every state (or every county, for that matter) in which it does 

business; but it seems equally nonsensical to say that a small company that does 

business in only one geographic region will be barred from selling policies that it would 

be free to sell if it did business nationally. 

Finally, even if a company wanted to do all this number-crunching, it's not at all clear 

that the numbers are there to crunch. The credit history of every racial, ethnic, and 

religious group in every county in Kentucky may not be available. 

As noted above, the disparate-impact approach inevitably encourages raceconsciousness by a company and its agents. If a company senses that it is selling "too 

many" policies to, say, Asian Americans and "too few" policies, to, say, Latinos, then it 

will begin to pull back from selling to the former and give preferential consideration to 

the latter. This is a perverse result for a nondiscrimination law to have. 

What's more, pressuring companies to charge customers the same amount for what are 

essentially different products is itself discrimination against those who ought to be 

charged less. If a lawn mowing company is told that it must charge all customers the 

same price, no matter how big or small the lawn, this means that people with large 

lawns are getting a discount at the expense of those with small lawns; likewise, if 

policyholders who present less risk must be charged the same as those who present 

greater risk, then the former are being discriminated against in favor of the latter. 

Insurers made this point to HUD in commenting on the proposed rule, but it was 

ignored. 
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The trend in recent decades has been to push companies to focus on behavior rather 

than immutable characteristics. Yet the disparate-impact approach does just the 

opposite, by insisting that companies look to immutable characteristics and making it 

risky for them to scrutinize behavior. 

And it is hard to see how it does anyone (and any group) any good to remove a 

disincentive for bad, impulsive behavior - or, to put it more positively, why wouldn't we 

want to encourage people not to have bad credit ratings and criminal records, rather 

than following the rules and making good choices in life? The use of the disparateimpact approach encourages problems to be swept under the rug rather than being 

addressed directly. For example, if some groups are less likely to eam high-school 

diplomas, then it is better to address that problem directly rather than telling employers 

they cannot require high-school diplomas; indeed, the latter prohibition actually removes 

an incentive for correcting the underlying problem. A number of educational reforms in 

California were precipitated when, but only when, a ballot initiative there prohibited the 

state's use of preferences based on race, ethnicity, and sex. 

Finally, if the price of insurance goes up, the people who will be most easily priced out 

of the market are the less affluent - who are, ironically, likely to be members of those 

racial and ethnic groups that the supporters of the disparate-impact approach profess to 

be helping. Conversely, the market itself provides a strong incentive for insurers not to 

indulge any "taste for racial discrimination," as Nobel-laureate Gary Becker termed it. 33 

V. Credit-Based Insurance Scores and Disparate Impact 

Sometimes a factor considered by property insurers bears an obvious relationship to 

risk (the property is located in an area with a history of frequent catastrophic 

windstorms); sometimes consideration of a factor can be rejected out of hand as unfair 

(race); and sometimes a factor indisputably does have a strong correlation with risk but 

no one - including insurers - is exactly sure why. 

One insurance underwriting factor that fits the latter description, is likely to come under 

fire with the new HUD rule, and has indeed already been proven especially vulnerable 

to allegations of unfair discrimination based on disparate-impact analysis is consumer 

credit information, which insurers use to help them decide whether to issue or renew a 

policy, and to establish its price. 34 Insurers are interested in consumer credit 

information because they have discovered that an individual's experience managing 

credit is an accurate predictor of whether he will file a claim for automobile or 

homeowners insurance, and the potential size of losses. 35 Today, most large 

33 Source (from Wikipedia entry on Becker: :::. The Open University: Learning Space."Economics Explains 

Discrimination in the Labour Market." Accessed June 29, 2012. 

34 The HUD regulations discuss the use of credit scores, but not specifically in the insurance context. 78 FR 11475-

76. 

" Numerous studies have confirmed the relationship between consumer credit ratings and property insurance 

losses. See Michael J. Miller and Richard A. Smith, "The Relationship of Credit-Based Insurance Scores to Private 

Passenger Automobile Insurance Loss Propensity," EPIC Actuaries, LLC (June 2003); Bruce Kellison, Patrick 
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automobile and homeowners insurers use "credit-based insurance scores" for 

underwriting and rating purposes. Though the precise methodology for calculating 

insurance scores varies among insurers, the scores are typically based on such factors 

as payment history, forced collections, bankruptcies, ratio of account balances to credit 

limits, types of credit utilized, and any pending credit applications. 

Empirical Studies 

While numerous empirical studies have confirmed the relationship between credit 

history and insurance risk, arguably the most thorough and rigorous report on the 

subject was produced by the Texas Department of Insurance (TDI) in December 2004 

(a supplemental report was issued in January 2005). The TDI obtained data from six 

leading insurer groups for approximately 2 million policies. Of these, approximately 1.2 

million were for personal auto insurance and 800,000 were for homeowners insurance. 

The personal auto policies covered roughly 2.5 million vehicles. To account for the fact 

that individual insurers use different credit scoring models, the TDI gathered data from 

six different personal auto and three different homeowner's insurance credit scoring 

models. 

The TDI study was unusual both because of the size of its database, and because it 

included individual information on race and ethnicity. That information was missing from 

other studies-including those conducted or sponsored by the insurance industry-for a 

simple reason: insurers do not collect information concerning the race or ethnicity of 

their policyholders or applicants for insurance. As a state agency, however, the TDI 

was able to draw on the resources of the Texas Department of Public Safety and the 

Texas Office of the Secretary of State. Based on data it acquired from those agencies, 

the TDI was able to classify individuals as white, black, Asian, and Hispanic. 

The TDI also obtained credit scores and input variables (e.g., number of credit cards, 

number of collections, etc.) from credit vendors. Data regarding race/ethnicity, credit 

score, credit-related variables, policy details, and claim history for each of the 2 million 

policies was entered into a database for each insurer group and line of business 

(personal auto or homeowners). The TOI used the data "to analyze whether the use of 

credit scoring: (1) impacts certain classes of individuals more than others; and (2) 

predicts claims experience.,,36 The first question was answered in the first installment of 

Brockett, Seon-Hi Shin, and Shihong Li, "A Statistical Analysis of the Relationship Between Credit History and 

Insurance Losses," Bureau of Business Research, McCombs School ofBusin.ss, University of Texas at Austin 

(March 2003);American Academy of Actuaries, "The Use of Credit History for Personal Lines ofInsurance; Report 

to the National Association ofinsurance Commissioners" (November 15, 2002); James E. Monaghan, "The Impact 

of Personal Credit History on Loss Performance in Personal Lines," Actuarial Society Forum (Winter 2000); 

Commonwealth ofYirginia, State Corporation Commission, Bureau ofInsurance, "Use of Credit Reports in 

Underwriting" (1999); Fair, Isaac & Co., "Predictiveness of Credit History for Insurance Loss Ratio Relativities" 

(1999). See also the two studies discussed in the next section: Texas Department oflnsurance, Report to the 79'" 

Legislature: Use of Credit Information by Insurers in Texas (December 30,2004), with Supplemental Report on 

"The Multivariate Analysis" (January 31,2005); and A Report to Congress by the Federal Trade Commission, 

Credit-Based Insurance Scores: Impact on Consumers of Automobile Insurance (July 2007). 

36 Report to the 71" Legislature: Use of Credit Information by Insurers in Texas (December 30, 2004), p.3 
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the report issued in late December 2004: 'Whites and Asians, as a group, tend to have 

better credit scores than Blacks and Hispanics. In general, Blacks have an average 

credit score that is roughly 10 percent to 35 percent worse than the credit scores for 

Whites. Hispanics have an average credit score that is roughly 5 percent to 25 percent 

worse than those for Whites. Asians have average credit scores that are about the 

same or slightly worse than those for Whites.'>37 The report's executive summary stated 

that "Blacks and Hispanics tend to be over-represented in the worse credit score 

categories and under-represented in the better credit score categories." 

As for whether credit scores predict claims experience, the December report concluded 

that "there appears to be a strong relationship between credit scores and claims 

experience on an aggregate basis.,,38 The report cautioned, however, that "credit 

scores, to some extent, may be reflective of other risk characteristics associated with 

claims." The report explained that, because the positive correlation between credit 

score and claims experience was based on a univariate statistical analysis, the 

department needed to perform a multivariate analysis to determine if, and to what 

extent, credit scoring enables an insurer to predict losses more accurately than it could 

without resorting to credit scores. A month later, the department released its 

multivariate analysis in the form of a supplemental report, which concluded that "for both 

personal auto liability and homeowners, credit score was related to claim experience 

even after considering other commonly used rating variables. This means that credit 

score provides insurers with additional predictive information distinct from other rating 

variables. By using credit score, insurers can better classify and rate risks based on 

differences in claim experience.,,39 

This finding so surprised Texas insurance commissioner Jose Montemayor that he felt 

obliged to acknowledge, in a letter to Governor Rick Perry accompanying the 

supplemental report, that prior to the study "my initial suspicions were that while there 

may be a correlation to risk, credit scoring's value in pricing and underwriting risk was 

superficial, supported by the strength of other risk variables." The study, however, "did 

not support those initial suspicions." Credit scoring, Montemayor added, "is not unfairly 

discriminatory as defined in current law because credit scoring is not based on race, nor 

is it a precise indicator of one's race."40 

In 2007, the Federal Trade Commission issued a report to Congress, titled "CreditBased Insurance Scores: Impacts on Consumers of Automobile Insurance," that 

covered much of the same ground as the TDI study and reached essentially the same 

conclusions. Like the TDI study, the FTC report concluded that credit-based insurance 

scoring improves insurers' ability to assess and price risk; better matches the price of 

insurance with the risk of loss posed by the consumer; benefits low-risk consumers by 

allowing them to pay less for coverage; and benefits high-risk consumers by allowing 

37 Ibid., p. 13. 

38 Ibid., executive summary. 

39 Supplemental Report on "The Multivariate Analysis" (January 31, 2005). 

40 Cite to Montemayor letter. 
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them to purchase coverage that would not otherwise be available. 41 And also like the 

TDI study, the FTC report found that blacks and Hispanics are "substantially 

overrepresented" among consumers with the lowest scores, and "substantially 

underrepresented" among consumers with the highest scores. 

The'Proxy'Canard 

Notably, the FTC report dismissed an assertion often made by those who oppose creditbased insurance scoring on disparate-impact grounds: viz., the notion that scores serve 

as a "proxy" for race, ethnicity, and income. That claim, which Congress specifically 

directed the FTC to investigate, implies that credit scores-and presumably any other 

underwriting factor that produces a disparate impact-can be used to predict an 

individual's race or ethnicity and thus to facilitate covert discrimination against members 

of particular groups. The FTC found that "credit-based insurance scores appear to have 

little effect as a 'proxy' for membership in racial and ethnic groups in decisions related to 

insurance," noting that there was a range of credit-based insurance scores within every 

group studied and that scores accurately predict risk insurance claims within each racial 

and ethnic group. 42 

Intuition alone suggests that the proxy claim is rather silly. An insurer that, for whatever 

reason, wished to use credit scores as a means of overcharging or avoiding black or 

Hispanic customers would not succeed in screening out the many blacks and Hispanics 

with high credit scores. But it would definitely succeed in screening out a large number 

of whites with low credit scores. That is because while blacks, Hispanics, and whites 

are apparently not equally represented among those with high and low credit scores on 

a group percentage basis, the aggregate number of white individuals with low credit 

scores will almost certainly exceed the aggregate number of black or Hispanic 

individuals with low credit scores, for the obvious reason that there are many more 

whites than blacks or Hispanics in the general population. 

Implications of the Credit-Scoring Studies 

The TDI and FTC studies' conclusions-with respect to both credit-based insurance 

scoring's impact on the groups studied and its validity as a risk-based underwriting 

tool-would in all likelihood apply to many, and perhaps most, property insurance 

underwriting factors. In other words, it is likely that a statistical analysis of any 

underwriting factor would show that the proportion of individuals that is adversely 

affected by the factor is not the same for every racial, ethnic, and religious group. 

Conversely, the premise underlying disparate-impact theory is that a "fair" process is 

one that results in statistical parity among groups. Applied to insurance underwriting 

and pricing, disparate impact theory assumes that a neutral, risk-based underwriting 

factor will have the same statistical impact on whites, blacks, Hispanics, and Asians. 

Further, inasmuch as religion is also a protected class under the Fair Housing Act, the 

41 Cite to FTC report. 

42 FTC report. 
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November 19, 2013 

theory posits that underwriting factors should have the same statistical impact on 

Muslims, Jews, Christians, Hindus, and perhaps atheists. 

As we have seen, this notion is strikingly different from the prevailing view held by 

insurers and embedded in state insurance regulation, which is that unfair discrimination 

involves disparate treatment of people who present similar risks. In sum, discrimination 

in insurance is assumed to be fair as long as it takes the form of neutral, objective risk 

assessment and classification. 

At this point, however, a caveat is in order. To say that discrimination is "fair" is not to 

say that it is in all circumstances socially or politically acceptable. Taken literally, the 

axiom that "risk discrimination is fair discrimination" could justify intentional 

discrimination against entire racial, ethnic, or religious groups if insurers had data 

showing that these groups have higher-than-average loss probabilities-much as auto 

insurers justify discrimination against teenage drivers for that reason. Yet as legal 

scholar Kenneth Abraham observes, even if it could be demonstrated that in certain 

situations race correlates with risk, most Americans would strongly oppose an insurance 

regulatory regime that allowed the use of race as an underwriting or rating variable. 43 

Still, there is no denying that restricting the use of risk-based underwriting variables that 

are morally or politically unacceptable undermines the assessment of risk, with the 

result that low-risk individuals will subsidize the insurance costs of high-risk individuals. 

As Abraham explains: 

Whenever an efficiency-promoting but emotionally or morally suspect variable is 

rendered inadmissible, a form of redistribution of risk occurs. The risk-assessment goal 

of insurance is sacrificed to the risk-distribution goal. Subsidies then run from the lowrisk members of other groups to the high-risk members of the group identified by an 

inadmissible variable. Variables that would otherwise be used in classification because 

of their economic superiority are not used because of their social inferiority. That is 

simply the cost of avoiding discrimination in insurance on the basis of the suspect 

variable in question. Indeed, our willingness to ignore variables that would otherwise be 

useful for classification is largely what defines them as discriminatory in this context. 44 

But, we hasten to add, the issue confronting policymakers today is not whether to reject 

"efficiency promoting" variables that are explicitly based on race, ethnicity, religion, or 

other suspect classifications: There is a strong societal consensus against disparate 

treatment on these grounds, which insurers share. Rather, the question is whether 

neutral variables that unintentionally produce a disparate impact among groups are 

thereby rendered so "emotionally or morally suspect" that they should be officially 

discouraged or prohibited, notwithstanding the cross-subsidies that would result. We 

think the answer to that question is clearly no, because few people would consider this 

to be discrimination at all. 

43 Kenneth S. Abraham, Distributing Risk: Insurance, Legal Theory, and Public Policy (Yale Univ. Press, 1986), p. 

93. 

44 Ibid. (Emphasis added.) 
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November 19, 2013 

VI. Conclusion and Recommendations 

Page 23 

One can easily imagine a future in which insurers will be required to document a precise 

cause-and-effect relationship between each underwriting and pricing variable they use 

and its associated risk. In addition, they will be required to show that no "less 

discriminatory" risk-assessment technique is available. Where it is not possible or too 

costly to meet this burden, insurers will have no choice but to abandon the use of those 

risk selection practices and cost-based pricing mechanisms that yield a disparate racial 

impact. 

In such an event, an insurer would have, in theory, two options: It could distribute the 

expected, more frequent, and higher claim costs of one group of homeowners among 

another group of homeowners who present lower risk, in effect creating a cross-subsidy. 

That, however, would lead to "the underwriter's nemesis: adverse selection.,,45 

Altematively, the insurer could ignore economic reality and treat high-risk insureds as if 

they presented low risk, a strategy that eventually would either drive the insurer from the 

market or cause it to fail, because to continue doing business in a regulated market that 

demands underpricing of risk would threaten not only the insurer's profits, but its 

solvency as well. The threat to solvency is an important consideration to which 

disparate-impact enthusiasts are apparently oblivious. It is worth noting that solvency 

regulation has historically been a central mission of state insurance regulators. 

The evidence, examples, and critiques presented in this testimony demonstrate the 

economic irrationality and injustice of the disparate-impact approach. Policymakers at 

all levels of government should work with insurers and other stakeholders to curtail its 

further encroachment into U.S. law and regulation, and eventually to prohibit its use 

altogether. Aside from challenging the validity of the disparate-impact doctrine in the 

courts (as was attempted in the Magner case and is currently being done in Mt. Holly), 

there are two basic ways in which this can be done. 

1. Lawmakers should oppose attempts to codify the disparate-impact approach 

through legislation. For example, if there is ultimately a court ruling that the 

disparate-impact approach may not be used under the Fair Housing Act, federal 

legislation will inevitably and immediately be proposed to overturn that decision. 

Moreover, regardless of what happens with regard to federal fair-housing law, 

there will be proposals at the state level to adopt the disparate-impact approach, 

and they, too, should be aggressively resisted by state legislators and governors. 

Ideally, in fact, it would be desirable to spell out in legislation that the disparateimpact approach should not be used. 

2. Legislators should use persuasion - and, if necessary, agency oversight 

hearings and the budget appropriations process - to prevent executive-branch 

adoption of the disparate-impact in its regulations and lawsuits. We have seen at 

45 Rosemary Baptiste, James Carson, et aI., "Redlining, Property Insurance and Urban Markets: Concepts, Issues, 

Initiatives, and Solutions," Chartered Property & Casualty Undern-riters Journal, Summer 1996, p. 82. 
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November 19, 2013 

the federal level that often the applicable statutes are ambiguous about whether 

the disparate-impact approach is contemplated; in these situations, it is important 

to persuade executive-branch officials not to go down this road in the regulations 

they adopt or in the positions they take in litigation. Ideally, in fact, it would be 

desirable to persuade these officials to clarify in their regulations that disparatetreatment must be shown for there to be a violation, and to take this position in 

litigation as well. 
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to Questions for the Record or 

!louse Commillce on Financial Services 

Suheommitwc on Oversight and 

General Overviell' of'Disl'orale Impact Theory 

November 19.2013 
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Dennis Parker I ACLU I 2 

QUESTIONS FROM REP. KEITH ELLISON 

Question 1: Domestic Violence 

I am very concerned about the scourge of domestic violence. I worry that if the disparate impact 

standard is limited or eliminated, it might be possible to evict the entire family [member]. The 

disparate impact standard protects women and children from eviction after domestic violence. 

• Should a woman lose her housing because she is being abused by someone in her 

household? 

• Is it is fair to evict her with her abuser because she was "party" to a domestic 

dispute? 

• Do you think a child should have to leave his home because his father is abusing 

him? 

fuI!!y: It is ridiculous and unjust for a woman to lose her housing just because she is a 

victim of intimate partner violence; yet, this happens regularly across the U.S. Domestic 

and sexual violence is a primary cause, and consequence, of homeIessness and housing 

instability for women and girls. Congress' own findings reveal that domestic violence 

causes homelessness and that an estimated 92 percent of homeless mothers have 

experienced severe physical and/or sexual assault at some time, 60 percent of all 

homeless women and children have been abused by age 12, and 63 percent have been 

victims of intimate partner violence as adults. 42 U.S.C. § 14043e. The U.S. Conference 

of Mayors' Hunger and Homelessness Survey reported that over a quarter of cities 

surveyed in 2011-12 cited domestic violence as one of the three main causes of family 

homelessness. 

The ACLU has represented a number of survivors who faced eviction because of the 

abuse perpetrated by their batterers and thus deeply understands the importance oflegal 

remedies in ensuring access to safe housing. Victims of violence should be able to 

remain in their homes if they wish, and not be punished by landlords for the violence 

perpetrated against them. 

Disparate impact analysis under the Fair Housing Act (FHA) offers crucial legal 

protection to women and their children who face eviction or housing denials based on 

domestic and sexual violence perpetrated against them. Discriminatory housing policies 

contribute to and exacerbate the housing crises faced by victims. However, many of the 

housing policies that can punish victims - such as zero tolerance-for crime policies 

(sometimes referred to as one-strike policies), or policies that explicitly target victims of 

domestic and sexual violence - are facially neutral. Disparate impact analysis reveals 

how these policies adversely impact women and girl, who make up the vast majority of 

victims of domestic and sexual violence. It also allows survivors to challenge housing 

policies that, when enforced against them, eliminate housing options and endanger their 

safety. 
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Dennis Parker I ACLU I 3 

The legal protection offered to survivors by disparate impact analysis under the FHA was 

first established in Alvera v. Creekside Village Apartments, No. 10-99-0538-8 (Dep't of 

Hous. & Urban Dev. Apr. 13,2001). HUD found that taking action against all members 

of a household after an incident of domestic violence "has an adverse impact based on 

sex, because of the disproportionate number of women victims of domestic violence." 

HUD noted that there were no similarly situated male tenants. Accordingly, the case 

could best be understood through the lens of disparate impact. After reviewing the 

available statistics on intimate partner violence and gender and the arguments presented 

by the management company, HUD concluded that discrimination had occurred: "The 

evidence taken as a whole establishes that a policy of evicting innocent victims of 

domestic violence because of that violence has a disproportionate adverse impact on 

women and is not supported by a valid business or health or safety reason." Id. The 

Department of Justice subsequently filed suit, leading to a consent decree that mandated 

the adoption of a housing policy prohibiting discrimination against victims of violence. 

Consent Decree, United States ex reI. Alvera v. The C.B.M Group, Inc., No. 01-857-PA 

(D. Or. Nov. 5,2001). 

In addition, local governments across the country are increasingly passing ordinances that 

are neutral on their face but have a devastating impact on domestic violence victims. 

Often known as "chronic nuisance ordinances," these laws impose penalties on landlords 

based on a tenant's repeated calls to the police. Many landlords seek to avoid these 

sanctions and eliminate the "nuisance" by evicting the unit's tenants, including victims of 

domestic violence who may need to reach out to police repeatedly due to the conduct of 

their abusers. Indeed, a study by a Harvard scholar established that survivors of domestic 

violence are regularly evicted under this type of ordinance, forcing victims to choose 

between calling the police and maintaining their home. Matthew Desmond & Nicol 

Valdez, Unpolicing the Urban Poor: Consequences of Third- Party Policing for InnerCity Women, 78 AM. SOC. REV. 117, 125-127, 130 (2012). 

Without disparate impact analysis, even the most extreme disparities in the effect of 

policies that punish survivors for the violence perpetrated against them would likely lie 

beyond the reach of antidiscrimination law, and survivors of domestic and sexual 

violence deprived of housing would lack legal redress. This reasoning was embraced by 

HUD in reccntly-issued guidance to all fair housing staff addressing the applicability of 

disparate impact analysis in situations involving domestic violence. See SARA K. 

PRATT, U.S. DEP'T OF HOUS. & URBAN DEV., OFFICE OF FAIR HOUS. & 

EQUAL OPPORTUNITY, ASSESSING CLAIMS OF HOUSING DISCRIMINATION 

AGAINST VICTIMS OF DOMESTIC VIOLENCE UNDER THE FAIR HOUSING 

ACT AND THE VIOLENCE AGAINST WOMEN ACT (2011). The guidance notes 

that an estimated 1.3 million women are the victims of assault by an intimate partner each 

year and that about one in four women will experience intimate partner violence in her 

lifetime, and that 85 percent of victims of domestic violence are women. Because 

"statistics show that discrimination against victims of domestic violence is almost always 

discrimination against women," the HUD Memo stated that a disparate impact analysis is 

appropriate when a facially neutral housing policy disproportionately affects victims. 
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Dennis Parker 1 ACLU 14 

Other laws do not provide comprehensive protection against housing discrimination. The 

federal Violence Against Women Act ("VA W A"), which contains targeted housing 

protections for victims of domestic violence, sexual assault, dating violence, and stalking, 

applies only to specific federally-funded housing programs and does not provide victims 

with an explicit administrative or judicial remedy. Disparate impact analysis is therefore 

a crucial tool for preserving the housing and enhancing the safety of survivors of 

domestic and sexual violence that would otherwise be jeopardized by facially neutral 

policies that discriminate against victims. The eradication of that legal remedy would 

escalate both the risk of homeless ness for victims and their children and the likelihood 

that they are forced to remain in dangerous living situations. 

Question 2: Disabled Veterans and People with Disabilities 

The disparate impact standard requires that landlords cannot require that tenants have a job. All 

income must be considered. This allows disabled vets who receive veterans' benefits to be able 

to find apartments. 

• If the disparate impact standard was eliminated, could an apartment complex only 

allow people with full-time jobs to reside in the development? 

• What would the impact of eliminating the disabled impact standard on disabled 

veterans who cannot work - even if they CAN afford the rent? 

Reply: Elimination of the disparate impact would make it considerably more difficult to 

bring federal cases challenging policies which imposed arbitrary policies unrelated to any 

legitimate interest. Although some states and municipalities have laws forbidding 

discrimination based upon source of income, those protections are far from being 

universal. As a result, groups who rely on sources of income other than full time 

employment, which could include disabled veterans, single mothers receiving child 

support or public assistance, people with disabilities on Social Security, or any other 

persons who is fully able to meet financial obligations relating to housing could be 

unfairly excluded from housing opportunities. 

Most jurisdictions allow landlords great leeway, so renting only to people with full-time 

jobs would not be illegal. However, the policy would discriminate against people who 

are unable to hold full-time jobs, such as disabled veterans and other people with 

disabilities. Without a disparate impact standard, it is unlikely that people with 

disabilities - a protected class - would have any recourse to enforce their rights. 

Question 3: Families with Children 

Families with children already struggle to find and afford safe and appropriate housing. I am 

concerned that if the disparate impact standard was weakened, condominiums could implement 

random policies that discriminate against families with children. 
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Dennis Parker I ACLU 15 

• For example, if a couple residing in a one-bedroom unit in a building with a two-person 

per bedroom limit had their first child, would it be fair to fine or evict them? 

Reply: Although HUD has not followed a policy of prosecuting cases involving the use of a 

two-person per bedroom standard, such policies would necessarily have the impact of 

substantially limiting the availability of housing to families with children without requiring a 

showing that the limitation is justified by any legitimate concerns such as safety or health. 

Moreover, these policies have the potential of violating the Fair Housing Act because of the 

fact that families of color tend to be larger than white families and would therefore be 

disproportionately excluded from available housing (the average Hispanic household size is 

3.54 people, the average Asian household size is 2.95 people as compared to the average 

white household size of only 2.56. Family Status and Household Relationship of 

People 15 Years and Over, by Marital Status, Age, and Sex: 2010, America's Families and 

Living Arrangements: 2010, U.S. CENSUS BUREAU, 

http://www.census.gov/population/www/socdemolhhfam/cps20 I O.html). Eliminating the 

disparate impact standard would complicate efforts to challenge occupancy restrictions which 

serve no legitimate function but which deprive families with children and larger families of 

color housing opportunities. 

Question 4: Credit Reports and Credit Scores 

I am especially concerned about the disparities that exist in credit scores. It is well documented 

that credit scores do not always accurately reflect someone's ability and willingness to repay. In 

order to have a credit score, a person needs at least three lines of credit. That generally means 

someone needs a relationship with a bank (a checking or savings account are normally prerequisites for any type ofloan), and at least two credit cards. Those who lack a credit card, a 

mortgage, car payment or other credit history are Credit Invisible. We know that at least 54 

million people are Credit Invisible. 

I have heard from prospective tenants that they cannot rent apartments because they lack a credit 

score or a credit report. I have heard the same concerns from potential job applicants. According 

to a Federal Reserve report, from August 2007, the average credit score for an African-American 

consumer is less than half the average score of a white consumer. These disparities are not 

wholly due to differences in credit usage but the prevalence of thin/no file in minority 

communities. 

• Do you think there is a "substantial, legitimate, non-discriminatory justification for using 

credit reports for housing rental or employment? 

• Bank of America and Kaplan, the educational services company, were sued in part 

because of their use of credit scores in employment screening. What empirical research 

exists that links credit reports to employee quality? 

• Last year, 35 bills in 17 states and DC were introduced to restrict the use of credit 

information in employment decisions. Do you think we need to restrict the use of credit 

information in employment decisions at the national level? 
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Dennis Parker I ACLU I 6 

• Do you think we should work to make the credit reporting system more inclusive and 

accurate? 

Reply: We are unaware of any research that shows any statistical correlation between what is 

in somebody's credit report and their job performance or their likelihood to commit fraud in 

employment. In their Report, "Discredited: How Employment Credit Checks Keep Qualified 

Workers Out of a Job: DEMOS concluded that credit history illegitimately obstructs access 

to employment because the lower credit ratings which individuals of color result at least in 

part from discrimination and the absence of equal opportunity. 

http://www.demos.orgldiscredited-how-employment-credit-checks-keep-gualified-workersout-job. Given that fact, to the extent that credit history may also not reflect the ability of 

people seeking housing to pay housing costs, policies which require high credit scores may 

disproportionately exclude persons of color for no legitimate purpose. Eliminating the 

disparate impact standard would make it difficult to challenge a practice which eliminated 

opportunities for classes protected by the Fair Housing Act even those practices may have no 

legitimate justification. 

Creating a more inclusive and accurate credit reporting system would necessarily reduce the 

number of qualified people unfairly excluded from available housing. There is no acceptable 

reason for permitting the continuation of practices which unfairly exclude qualified people 

from employment or housing. 

o