This is a straightforward example of disparate impact, with none of the complications of machine learning or artificial intelligence that the new HUD rule anticipates. It is always good to confer with legal counsel.Sign up and keep in tune with the latest in Fair Housing news and topics By putting the onus of fairness on these vendors, HUD is establishing a perverse incentive for banks and vendors alike to decline to study the outcomes of automated decision-making systems, according to Jacob Metcalf, a researcher for “As long as the bank or lender is buying this tool from a third party that claims it has been adequately tested for algorithmic fairness, then the bank or lender is shielded from liability,” Metcalf says. A housing construction project in San Francisco, Calif., in 2015. As a way of explaining the legal analysis of a disparate impact case as described in the proposed regulations, let’s use a theoretical challenge against a multifamily housing community, Happy Village Apartments. The United States Department of Housing and Urban Development (HUD) released a sweeping proposed rule on August 1 seeking to amend HUD’s interpretation of the Fair Housing Act’s disparate impact standard. The Department of Housing and Urban Development plans to revise the “disparate impact” rule, which could fundamentally reshape federal fair housing enforcement. The National Fair Housing Alliance, Leadership Conference on Civil and Human Rights, NAACP Legal Defense Fund, and others are joining forces under the banner of Defend Civil Rights will not only advocate for protections in housing: The coalition also plans to address education, labor, healthcare, environmental justice, and other fronts. Third parties would be able to shield their practices behind trade secrets; any plaintiff looking to suss out whether an algorithm has a discriminatory impact might wind up “lost in a web of vendor relationships,” Metcalf says—with little recourse, especially prior to the discovery stage.This is the first federal regulation to directly address algorithms and disparate impact. This meant that any factor used by insurers to assess risk could be challenged if it produced statistically disproportionate outcomes among demographic groups. While NAMIC vehemently opposes illegal discrimination, this rule is not supported by any existing cases, is duplicative of current state prohibitions, ignores the basic mechanics of pricing and providing insurance, and would seriously disrupt the ability of property and casualty insurance companies to assign risk on objective and relevant factors. However, on June 25, 2015, the Supreme Court upheld the application of disparate impact under the FHA in a surprise five-to-four decision in the case of Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, Inc. But the new rule from HUD would substantially raise the burden of proof for parties claiming discrimination.The new regulation also goes further: The HUD rule carves out an unprecedented guidance for the automated decision-making systems that power the housing market. Recently, however, HUD proposed a rule that would change those updated criteria and place an even higher burden of proof on those claiming discrimination through disparate impact… Disparate impact theory under the FHA has long been recognized by courts and was recently upheld by the United States Supreme Court. Investing the time and money it takes to give that kind of guarantee would put a company at a comparative disadvantage. “If [plaintiffs] are using a defendant’s [Home Mortgage Disclosure Act] data, or regional HMDA data, that shows that a particular area is not being served by the defendant, that is not enough. “That’s a problem because there are no established standards—and the HUD rule doesn’t set out to establish any standards—about disparate impact.”If a bank isn't liable for discrimination that results from an algorithm that it uses, then it doesn’t have any incentive to shop for a company that will guarantee that its algorithms won’t discriminate. Housing Secretary Ben Carson appears in Baltimore in July.Housing Secretary Ben Carson appears in Baltimore in July.

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