06/17/2025 | News release | Distributed by Public on 06/17/2025 07:02
This article is part of The Rooftop, a blog and multimedia series from New America's Future of Land and Housing program. Featuring insights from experts across diverse fields, the series is a home for bold ideas to improve housing in the United States and globally.
The Trump administration issued an executive order (EO) this spring attacking a decades-old cornerstone of civil rights law called "disparate impact," which addresses policies that seem neutral but unnecessarily exclude qualified people from opportunities. The EO doesn't have any immediate effect on disparate impact law. Regardless, there's a lot to critique about the EO, and other pieces succinctly explain its legal flaws and gross mischaracterizations. Lawyers are right to advise their clients that disparate impact is the law, and companies including mortgage lenders, housing providers, and landlords should continue to comply with it.
This piece addresses a different issue: Many companies value and rely on this doctrine because it provides a framework to explore whether their own systems are effective, and if not, to modify them. Companies that don't evolve to serve our nation's changing demographics will get left behind.
For this reason, the EO's unsupported claim that disparate impact has hindered businesses from making decisions "based on merit and skill, their needs, or the needs of their customers" is simply wrong. Disparate impact does just the opposite. It prompts business and government entities to ensure their decisions are based on factors that matter and are in fact furthering the needs of customers, rather than perpetuating outdated assumptions or stereotypes. This is why many companies and trade groups-including mortgage lenders and realtors-have supported disparate impact, and FinTech lenders have repeatedly described it as pro-innovation.
Under the disparate impact doctrine, companies can and should maintain policies that help them achieve legitimate goals like providing housing and mortgages to qualified applicants. But companies are required to change arbitrary or unnecessary policies that systematically exclude qualified people from those opportunities. If effective and less discriminatory ways to achieve those goals exist, companies should adopt those alternatives.
Disparate impact has proven critical in two scenarios: First, as Tara K. Ramchandani explains in a companion Rooftop piece, it helps uncover hidden intentional discrimination-for example that a locality's moratorium on new construction was intended to exclude Black residents. Second, as discussed here, it prompts businesses and governments to improve and refine their policies so they don't unnecessarily "freeze the status quo of prior discrimination," as explained in the landmark Supreme Court case Griggs v. Duke Power Co. This scenario produces a win-win: It safeguards equal opportunities and helps entities make smarter decisions that are good for business.
Take one example from the housing context. Even after the Fair Housing Act of 1968 banned denying mortgage loans to homeowners in Black communities, many lenders refused to make home loans for row houses because, in some areas, row houses had been the subject of fraudulent appraisals that facilitated "flipping" at inflated prices. In response, some lenders adopted blanket bans for row houses, excluding broad swaths of qualified applicants in predominantly Black and Hispanic neighborhoods. Even after the flipping issues were no longer a major concern, lenders failed to reexamine the policies, unjustifiably "freezing the status quo." The disparate impact doctrine eventually prompted these lenders to drop their unnecessary blanket bans on row houses, creating new business for the lenders and homeownership opportunities for the consumers.
Smart companies use the disparate impact framework to identify flaws in and improve their policies. Overbroad approaches are just bad for business. For example, years ago lenders realized that treating taxable and nontaxable income the same in underwriting unfairly excluded people with disabilities and the elderly, both of who are more likely than the general applicant pool to receive substantial nontaxable income. Lenders now "gross up" nontaxable income, which eliminates the disparate impacts, results in more accurate underwriting, and increases the pool of qualified loan applicants.
More recently, responsible lenders have removed or tailored policies that unnecessarily exclude immigrants or consumers with criminal histories, both because of the likely disparate impact and negative effects on financial inclusion and also because immigrants or consumers with criminal history are not bad credit risks. Of course, a company that chooses to maintain a policy that unnecessarily harms protected groups could be liable for discrimination. (See, for example, a 2024 Fourth Circuit Court of Appeals decision in Reyes v. Waples Mobile Home Park Limited Partnership addressing a mobile home park's policy of verifying legal status that had a disparate impact and did not serve a valid interest.) But even absent that risk, growth-minded companies know it doesn't make sense to turn away whole categories of customers without a good reason.
"Growth-minded companies know it doesn't make sense to turn away whole categories of customers without a good reason."How does the disparate impact framework complement innovation? Consider the now infamous example of an automated model Amazon developed to screen job applicants. Amazon trained the system on resumes submitted over the prior 10 years. Reflecting gender disparities in tech jobs, the model penalized resumes with information suggesting applicants were women, like being captain of a women's chess club or graduating from an all-women's college. Amazon said it never deployed the model and scrapped the project once it identified the issue. Abandoning the model helped ensure that Amazon would not unnecessarily "freeze the status quo" of gender disparities in tech and that qualified women would not be excluded based on arbitrary criteria. It also made good business sense: If Amazon had used the model, it would have missed qualified candidates by rating applicants based on factors that had nothing to do with merit or skill.
The Amazon example is emblematic of more general compliance programs that responsible businesses use to improve algorithms that help decide who gets to participate in housing, credit, and employment markets. Many companies, particularly banks, have tested their credit models for disparate impact for years. It's common for these institutions to remove unnecessary adverse disparities-to ensure they are not "freezing the status quo" of prior discrimination-while still making effective and practical business decisions, like ensuring mortgage loans are offered to consumers who can repay them.
These advances would not have come to pass absent a structure requiring companies to revisit and modify policies that have discriminatory effects. Once required to adopt less discriminatory alternatives, companies have frequently found that such alternatives can even increase profits by identifying new customers and eliminating unnecessary legacy restrictions. While there are open questions about best practices for model testing, many entities agree that "all lenders should routinely assess their credit models for discrimination," and responsible entities have seen the benefits of conducting such testing.
These efforts are particularly important given the increasing adoption of sophisticated artificial intelligence and machine learning-based algorithms. These models can be extraordinarily powerful but must be carefully evaluated to avoid recreating discriminatory patterns, as Amazon's hiring model threatened to do.
"These efforts are particularly important given the increasing adoption of sophisticated artificial intelligence and machine learning-based algorithms."These models can recreate discriminatory patterns in less obvious ways as well. For example, minority borrowers have been disproportionately targeted for subprime lending products; among other things, redlining has limited opportunities for prime credit, leading payday and other nontraditional lenders to concentrate storefronts and marketing in minority communities. Credit models trained on this data can "learn" that borrowers that have had payday or other nontraditional loans can or "should" be charged higher-interest rates for traditional products like prime mortgage loans. This can happen to borrowers who have performed well on subprime products despite the odds.
Disparate impact has prompted responsible lenders to recognize and correct for this unfair result, ensuring they are actually identifying creditworthy borrowers for affordable prime credit rather than just inadvertently encoding discriminatory targeting by other unscrupulous actors. These lenders can make more quality loans and are more attractive to potential customers. It's good for their bottom line.
Unsurprisingly, the EO attacking disparate impact conjures a strawman. Disparate impact has never been a "near insurmountable presumption of unlawful discrimination [that] exists where there are any differences in outcomes." It does not prevent companies from acting in their "best interests" or from hiring "based on merit and skill." In reality, the Supreme Court confirmed in its 2015 decision in Texas Dept. of Housing & Community Affairs v. Inclusive Communities Project, Inc., disparate impact is "limited so employers and other regulated entities are able to make the practical business choices and profit-related decisions that sustain a vibrant and dynamic free-enterprise system."
The EO targets a caricature because it's hard to argue with the reasonableness and benefits of disparate impact as it's been applied for well over half a century. It's unsurprising that many companies, including those focused on innovation, have supported and touted the benefits of the doctrine.
Editor's note: The views expressed in the articles on The Rooftop are those of the authors alone and do not necessarily reflect the opinions or policy positions of New America.
You May Also Like
Why Disparate Impact Matters for Tackling Intentional Housing Discrimination (The Rooftop, 2025): Lawyer Tara K. Ramchandani breaks down how disparate impact helps catch intentional discrimination by bad actors.
The Future of Fair Housing in America: A Q&A with Chiraag Bains (The Rooftop, 2025): Future of Land and Housing director Yuliya Panfil spoke with former White House policy aide Chiraag Bains on housing antidiscrimination protections gutted by the Trump administration.