Inclusive Communities and Disparate Impact Under the Fair Housing Act

On June 25, 2015, the Supreme Court announced its highly anticipated opinion in Texas Dept. of Housing and Comm. Affairs v. Inclusive Comm. Project, Inc. The question presented to the Court was whether plaintiffs bringing suits under the Fair Housing Act (the “Act”) would be permitted to continue relying on a disparate impact theory of liability, in lieu of a more widely recognized theory of intentional discrimination, to carry their burden in discrimination cases.

The Court held in a 5-4 decision that disparate impact is cognizable under the Act. While the outcome was a victory for the Inclusive Communities Project and proponents of disparate impact, the opinion provided much to detractors as well. Among other things, the Court clarified and stiffened the hurdles that plaintiffs must clear in order to establish a prima facie case of disparate impact discrimination. This article examines the legal landscape of disparate impact prior to Inclusive Communities, and explores how the Court’s decision has changed — in several ways for the better — the application of, and risks posed by, the doctrine to financial institutions and other housing market participants.

Originally published in the October 2015 issue of The Review of Banking & Financial Services; reprinted with permission.