- Key insight: Even as disparate impact is entangled in legal challenges to diversity, equity and inclusion, its influence on the future of housing policy continues to grow.
- Supporting data: The 21st Century ROAD to Housing Act, passed in the Senate in March, reflected nationally many of the best practices learned as the result of a process to address disparate impact.
- Forward look: Disparate impact empowers business and policy leaders to generate the critical insights they rely on to ensure their products and policies serve their stakeholders.
Even as the
Known as "disparate impact," the legal concept is simple: A policy that appears neutral on its face, but significantly disadvantages a protected group under civil rights law in practice, is unlawful if it does not clearly serve the institution's objectives. Consequently, the law requires institutions to adopt ready alternatives that would still serve their objectives, but blunt the disadvantage, often called "less discriminatory alternatives" or LDAs. The United States Supreme Court's 2015 decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project settled the matter under the Fair Housing Act. In the majority
Nowhere is the influence of disparate impact more evident than in the recent modernization of credit scoring models. The same day that the CFPB published its disparate impact rule, HUD and the Federal Housing Finance Agency announced the implementation of expanded
Disparate impact has its roots in employment law. The 1971 United States Supreme Court decision in Griggs v. Duke Power set the precedent that job requirements "neutral on their face" — for example, requiring a college degree for a technical skills role — can violate civil rights law if the job requirements do not directly impact job performance and lead to the disproportionate exclusion of protected groups from such roles. Today,
A coalition of Democratic attorneys general, led by California and Illinois, have sued the Department of Housing and Urban Development over a guidance that they argue will scale back enforcement to strict federal standards and threaten state funding to enforce fair housing laws.
Recent housing policy efforts absorbed these lessons to address much needed housing development gaps and create pathways to affordability. Restrictive zoning, so
Similarly on the finance side, efforts to address small balance mortgages are gaining steam. Indeed, since at least 1994, federal fair lending guidance has named minimum loan amount policies as prime examples of disparate impact. A study from the Federal Reserve Bank of Philadelphia recently underscored this, finding that, following the onset of the COVID-19 pandemic, small-dollar mortgage loan lending declined by as much as 43% in some areas. As a result, borrowers in this market experienced higher overall costs and riskier loans. Unsurprisingly, small balance mortgage reforms are central pieces of both the
The support for these reforms shows us that disparate impact is more than a legal doctrine, even as it finds itself entangled in legal challenges to diversity, equity and inclusion policy. Disparate impact empowers business and policy leaders to generate the critical insights they rely on to ensure their products and policies serve their stakeholders. It provides vocabulary and structure for this process.
Clearing new paths has always been part of the American character. As the United States approaches its 250th birthday this summer, the influence of the "effects test" on policy is a reminder that leaders can untangle and redesign systems to widen the avenues of opportunity for business and community growth.
