Proposed Accord Would End Supreme Court Housing-Bias Case

A New Jersey town council may vote as early as today on a proposal to settle a U.S. Supreme Court case that has threatened to undercut the Obama administration’s crackdown on lending discrimination.

A notice on the town of Mount Holly’s website says its council will hold a special meeting at 7 p.m. tonight to consider what it called a tentative settlement in the housing-bias case.

An accord would avert what might have been a sweeping change in the enforcement of the 1968 Fair Housing Act. The town has asked the court to rule that people suing under the law must prove intent to discriminate and not just show that a policy has had a disproportionate effect on racial minorities.

President Barack Obama’s administration has repeatedly used what are known as “disparate impact” arguments in lawsuits against banks over housing and auto loans. Bank of America Corp., Wells Fargo & Co. (WFC) and SunTrust Banks Inc. (STI) have agreed to pay at least $480 million to settle claims since December 2011.

“This settlement is basically a stay of execution for an essential part of our civil rights laws,” said Deepak Gupta, a Washington lawyer who filed a brief for current and former members of Congress supporting the disparate-impact theory. “At least for now, the law will continue to prohibit discrimination in housing and lending even where there’s no smoking-gun proof of bias.”

The Consumer Financial Protection Bureau has also embraced the disparate-impact approach under a statute with similar language, the Equal Credit Opportunity Act.

Roberts Court

Eleven courts of appeals have ruled on the issue, and all have said the Fair Housing Act allows disparate-impact claims.

The Supreme Court under Chief Justice John Roberts has cut back legal protections for racial minorities in other contexts. In June, a divided court struck down a core part of the 1965 Voting Rights Act, which opened the polls to millions of Southern blacks.

The Mount Holly case is on the Supreme Court’s calendar for argument on Dec. 4. A settlement of the dispute would mark the second time the high court has agreed to rule on the issue, only to see a case disappear. A dispute involving St. Paul, Minnesota, was scuttled in 2012 when the city dropped its appeal at the Obama administration’s urging.

Mount Holly officials, including Mayor Richard Dow, didn’t immediately respond to phone messages and e-mails seeking comment about the meeting and proposed settlement. Olga Pomar, the lead lawyer for the suing residents, didn’t respond to an e-mail.

Redevelopment Plan

The housing case stems from an effort by Mount Holly to redevelop what it said was a blighted, high-crime area. Known as the Gardens, the neighborhood was originally built to provide homes for returning World War II veterans and their growing families. In more recent years, the Gardens was the only predominantly black and Hispanic area in town, with 75 percent minority residents in 329 residential units.

The town began buying homes in the Gardens, in most cases paying between $30,000 and $50,000, until only 70 remained in private hands. The redevelopment effort has since stalled, even as the town has destroyed scores of homes and accumulated $18 million in debt. No new houses have been built, and the remaining structures now form a patchwork amid vacant lots.

A group of current and former residents sued, claiming the effort had a disparate impact on minorities. A federal appeals court said the case could go forward.

The case is Township of Mount Holly v. Mount Holly Gardens Citizens in Action, 11-1507.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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