November 3, 2014 / 9:53 PM / 5 years ago

Court rejects Obama housing bias rule as 'wishful thinking'

U.S. President Barack Obama campaigns for U.S. Representative Gary Peters (D-MI), candidate for U.S. Senate, and former U.S. Representative Mark Schauer (D-MI), candidate for governor of Michigan, at Wayne State University in Detroit, Michigan November 1, 2014. REUTERS/Jonathan Ernst

WASHINGTON (Reuters) - A federal judge on Monday threw out a housing regulation issued by President Barack Obama’s administration that said racial bias claims can be based on seemingly neutral practices that may have a discriminatory effect.

U.S. District Judge Richard Leon said the Fair Housing Act allows for only direct discrimination claims and not those based on so-called disparate impact allegations. Leon wrote that the administration’s view that the language of the Fair Housing Act assumes that disparate impact claims are permitted “appears to be nothing more than wishful thinking on steroids.”

The ruling was a win for the American Insurance Association and other business groups that oppose disparate impact claims, which allow for a broad range of business decisions related to housing to be subject to civil rights litigation.

As an example of such a claim, the National Fair Housing Alliance sued Allstate Corp in 2012 for refusing to insure flat-roofed houses in Delaware, claiming the practice had a discriminatory effect on poor minorities most likely to live in such buildings.

The immediate impact of Leon’s decision is limited as the U.S. Supreme Court last month said it would take up a related case and is likely to decide by the end of June once and for all whether the Fair Housing Act allows for disparate impact lawsuits.

The Fair Housing Act, passed in 1968, does not specifically allow disparate impact claims but courts have permitted lawsuits making such allegations for decades. The Supreme Court has never ruled on the issue.

In recent years, the high court has twice agreed to hear a disparate impact case but both times the dispute was settled before the justices could rule.

The U.S. Department of Housing and Urban Development issued the rule in 2013 to codify the administration’s position that disparate impact claims should be allowed. The move came after it became clear the Supreme Court was likely to rule on the issue.

The case is American Insurance Association v. U.S. Department of Housing and Urban Development, U.S. District Court for the District of Columbia, No. 13-00966.

Reporting by Lawrence Hurley; Editing by Will Dunham

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