On March 4, 2016, HUD’s Office of General Counsel issued guidance relating to the “Application of Fair Housing Act Standards to the Use of Criminal Records by Providers of Housing and Real Estate-Related Transactions.” While the guidance relates broadly to real estate rental transactions, the analysis relating to disparate impact can be helpful in maintaining compliance with fair lending practices.
According to its introduction, the OGC Guidance is intended to address discriminatory effects and methods of proof in Fair Housing Act cases in which a housing provider justifies an adverse decision based on a criminal background check. The guidance imposes a three-step, fact-specific, burden-shifting analysis that is used to determine whether there are discriminatory effects resulting from a facially neutral policy of denying individuals with a criminal background.
In the first step of the analysis, a complaining individual must be able to show that using criminal history results in a disparate impact on a group based on their race or national origin. If the first step is satisfied, the burden then shifts to the service provider to prove that the challenged policy or practice is justified because it is necessary to achieve a substantial, legitimate, nondiscriminatory interest of the provider. If the provider is able to show a legitimate, nondiscriminatory objective, the burden then shifts back to the complaining individual to show whether a less discriminatory alternative to the policy exists to meet the legitimate objective.
In the context of criminal histories, while the guidance does not put forth any specific policies or practices that would clearly cause disparate impact or obviously be acceptable, it does note that any scheme which takes into account individualized facts is likely to have less of a discriminatory effect than a blanket policy of exclusion based on criminal history.
Outside of the real estate rental market, this guidance could still be useful when looking to maintain proper fair lending procedures. Similar to housing issues, lending policies could be perceived to be in violation of fair housing rules if denied applications appear to show evidence of disparate impact and there is no showing of appropriate individualized risk assessment or demonstrably legitimate and nondiscriminatory interests.
Guidance available at: https://portal.hud.gov/hudportal/documents/huddoc?id=HUD_OGCGuidAppFHAStandCR.pdf.