Monday, May 13, 2013

Nobody wants to be sued!


Recently HUD issued a Final Ruling on disparate impact, which went into effect March 18, 2013.

If you’re not sure what disparate impact is let’s start at the beginning... Congress enacted the Fair Housing Act-FHA in 1968 and revised it in 1988 "to provide, within constitutional limitations, for fair housing throughout the United States." The key provisions prohibit discrimination on the basis of race, color, religion, sex, disability, familial status or national origin in connection with residential real estate transactions.

The courts have recognized two forms of discrimination. The first is Disparate Treatment. This is an intentional discriminatory act. The second is Disparate Impact. This is a practice that is seemingly neutral in its treatment of different groups but may result in one group of people being more harshly treated than another.

HUD’s Final Ruling on disparate impact states that a practice is deemed to have a discriminatory effect “where it actually or predictably results in a disparate impact on a group of persons or creates, increases, reinforces or perpetuates segregated housing patterns in protected classes.”

Disparate impact liability is established through a three part burden shifting test. The charging party has the burden of proving that a practice has caused, or will predictably cause, a discriminatory effect. If the charging party satisfies the burden, the respondent must then prove the practice is necessary. If the respondent proves necessity, then the charging party can still prevail if it can show that the respondent interests could have been served by another practice with a less discriminatory effect.

Let’s look at this example: If you review criminal justice statistics you will find that people of color represent 30% of the total population but they represent 60% of those currently incarcerated. If a property owner conducts a background check on a prospective renter that includes a criminal report and denies the applicant based on criminal information found in that report, they may be discriminating by disparate impact. Should this be a Fair Housing Violation?

I believe HUD is overstepping the law's authority and intent.

HUD has stated it will assess the discriminatory effect of using criminal background screening on a case by case basis.

During a recent meeting with Congressman Ed Perlmutter we discussed disparate impact and as he put it “the horse is out of the barn” since the Final Ruling went into effect in March. However he has assured me that he will look into HUDs reasoning. Congressman Perlmutter does agree that criminal reports are an important part of a rental background screening process. He also brought up the point of increased liability to the property owner if they don't screen applicants.

So the big question… Can you use criminal records as part of a rental background check? I believe the answer is YES. The liability issues are greater if you don’t screen applicants for criminal behavior. I would recommend having a policy in place that outlines a procedure for handling criminal records. The policy should take into consideration the severity of the criminal offense. Denying a sex offender makes sense, but denying someone for shoplifting could unnecessarily draw the attention of HUD.   

As Rental Services, Inc. learns more about HUDs intentions we will update this post.