In The News


Friday, September 4, 2015

Client Alert: Recent Supreme Court Decision Strengthens New York Attorney General Investigations of Banks and Residential Lenders for Discrimination Under the Fair Housing Act and NY Human Rights Law.

For two years, New York Attorney General Eric Schneiderman’s Civil Rights Bureau has been targeting banks and other residential mortgage lenders for violations of the Federal Fair Housing Act (“FHA”) and New York Human Rights Law.  The AG has filed a lawsuit against one upstate bank and in January entered into a settlement with another upstate bank requiring that bank to build branch banks in “majority minority” census tracts.  On June 25, 2015, the Supreme Court issued a decision which has far reaching implications regarding AG investigations of residential lending institutions.  In the case of Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc. (“Inclusive Communities case”) the Texas Department of Housing and Community Affairs asked the Supreme Court to decide whether the statutory language of the FHA permits plaintiffs to sue under a disparate impact theory of liability.  The Supreme Court had twice previously been presented and agreed to decide that issue, but the cases settled prior to oral argument.

As a bit of background, the FHA is a federal law which prohibits discrimination against certain individuals seeking to rent, buy, or secure financing for any housing.  The FHA specifically prohibits discrimination because of race, color, national origin, religion, sex, disability and the presence of children.  New York State Executive Law § 296-(a) prohibits the same conduct.  The standard for determining whether a company or individual has discriminated against an individual in violation of either statute is governed by case law interpreting the FHA.

The issue the Supreme Court was asked to decide in the Inclusive Communities case was whether a plaintiff can sue for unintended discriminatory effects.  A disparate impact theory of liability permits a plaintiff to prove discrimination and seek certain damages where a neutral rule, policy, or practice has a greater impact on a protected class of individuals- i.e., African Americans. This is distinct from intentional discrimination because liability under a disparate impact theory can be found regardless of the intent of the party/business/individual when promulgating the rule, policy, or practice complained about. Disparate impact cases involve policies that facially appear to treat everyone equally, yet when applied have an uneven and harsher impact on a protected class or classes of people. For example, a company adopts a rule that its HR department will not interview individuals who have a six-month work gap on their résumé.  While the rule is facially neutral and treats all individuals the same, it may be illegal if it has a disparate impact on women, minorities, or older workers who have been out of the workforce for longer periods of time due to varying reasons. 

In its decision, a divided Supreme Court ruled that individuals complaining of discrimination under the FHA could proceed under a disparate impact theory. The two sections of the Fair Housing Act that the Court relied upon in making its determination are sections 42 U. S. C. §3604(a) and 42 U. S. C. §3605(a).  They read as follows:

It shall be unlawful “to refuse to sell or rent after the making of a bona fide offer, or to 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.” 42 U. S. C. §3604(a).

 “It shall be unlawful for any person or other entity whose business includes engaging in real estate- related transactions to discriminate against any per- son in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.” §3605(a).

The Court found that the words “or otherwise make unavailable” in the above statutory sections allow disparate impact theory of liability in FHA cases because those words address the consequences of a decision rather than simply the intent of the decision maker.  The language used in the FHA is not the same as in other statutes (primary employment related) that permit disparate impact theories.  In employment discrimination laws (i.e., Title VII) the language used is “have an adverse impact” or “have an adverse effect.” 


This Supreme Court decision is significant for the banking industry because neutral lending rules or policies that may have a disparate impact on a protected class could subject a bank to liability under the FHA.  For example, minimum mortgage amounts, trade area delineations, and decisions on inclusion or exclusion of census tracts from Community Reinvestment Act assessment areas could become the subject of litigation by advocacy groups, individuals, or state regulators- including the Office of the New York State Attorney General.  Federally, the Department of Justice’s Civil Rights Division also prosecutes violations of the FHA.


While the Court’s finding regarding disparate impact theories is encouraging for many plaintiff’s and civil rights groups, the Court did place significant limitations on its applicability, including a robust causality requirement that must be well plead from the initial filing of the complaint. A plaintiff who fails to allege facts at the pleading stage or produce statistical evidence demonstrating a causal connection cannot make out a prima facie case of disparate impact. This means that the rule or policy complained of must cause the uneven and harsher impact on the protected individual or class of individuals complaining about the rule.

Additional Assistance

For more information regarding a review of lending practices in light of disparate impact liability under the Fair Housing Act , please contact Dennis C. Vacco, Brian B. Bocketti, Jillian E. Deck, or Stacey L. Moar.