Banking

HUD proposes reinstating Obama-era fair lending rule

WASHINGTON — The Department of Housing and Urban Development has officially proposed rescinding a Trump administration rule on fair lending enforcement and reinstating an Obama-era regulation that established a lower bar for plaintiffs alleging discrimination.

In a press release Friday, HUD said that the 2013 rule does a better job of carrying out the statutory purpose of “eradicating unncessary discriminatory practices” from the housing market than the version that the department finalized last year.

“It is a new day at HUD — and our department is working to lift barriers to housing and promote diverse, inclusive communities across the country,” HUD Secretary Marcia Fudge said in a statement. “Today’s publication of the proposed discriminatory effects rule is the latest step HUD is taking to fulfill its duty to ensure more fair and equitable housing.”

Housing and Urban Development Secretary Marcia Fudge is seeking to revive a rule on fair lending enforcement that was weakened under former HUD Secretary Ben Carson.

Disparate impact, a legal doctrine that opens up lenders to fair-lending enforcement even if their lending policies were unintentionally discriminatory, got greater support from the Obama administration’s rule than its Trump-era successor. The doctrine has long been unpopular with financial institutions, and banks were generally supportive of a proposal under former HUD Secretary Ben Carson that suggested raising the legal bar for plaintiffs alleging discrimination under the Fair Housing Act.

However, big banks urged the Trump administration to shelve its plan last year following the police killing of George Floyd that sparked a national dialogue on racial equity.

The Biden administration originally revealed in April that it was planning to roll back the Trump administration’s disparate impact rule in favor of the earlier Obama-era rule.

The 2013 rule that HUD is proposing to reinstate maintains that if a policy has a discriminatory effect on a protected class, it is illegal, so long as it does not serve a “substantial, legitimate, nondiscriminatory interest.”

“The 2020 rule complicated that analysis by adding new pleading requirements, new proof requirements, and new defenses, all of which made it harder to establish that a policy violates the Fair Housing Act,” the department said Friday in a release. “HUD now proposes to return to the 2013 rule’s straightforward analysis.”

HUD will accept comment on the proposal for 60 days after it is published in the Federal Register.


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