HUD Issues New Guidance On Criminal Background Checks

On April 14, 2016, the United States Department of Housing and Urban Development (“HUD”) issued new guidance for interpreting the Fair Housing Act (the “Act”) for landlords and property managers who perform criminal background checks in connection with residential rental applications.

The Act, which applies nationwide, prohibits discrimination in rental housing based on race, color, religion, sex, disability, familial status, or national origin.  Although a convicted criminal is not a protected class under the Act, courts have held that it is illegal for a landlord to use a criminal conviction as a pretext to discriminate based on race or national origin.  An example of this would be a landlord who refuses to rent to an African-American with a criminal conviction; although the criminal conviction is stated as the basis for this denial, the landlord later rents to a Caucasian person with a similar or more serious criminal record.

Arising from recent court cases, the new HUD guidance expands this rule to provide that even if a landlord has no intent to discriminate, a policy that denies all applicants with a criminal history will likely be a violation of the Act. The new HUD guidance warns that where application of a criminal background check policy results in a disparate impact on entire classes of individuals protected under the Act, the policy is likely unlawful. This means that if a landlord’s criminal history-based restrictions apply more often to renters of one race or national origin than another, without justification, such criminal history checks likely violate the Act.  Because African-American and Hispanic populations in the United States are subject to significantly higher rates of conviction, a blanket policy of denying rental applications of all persons with criminal convictions may subject the landlord to a disparate impact claim under the Act, even if the landlord had no intent to discriminate, due to the adverse impact such a policy will have on the African-American and Hispanic community.

When courts evaluate disparate impact claims, a burden-shifting process is employed that may be challenging when applied to landlords. First the plaintiff must establish that a landlord’s criminal history policy has a discriminatory effect on a protected class of individuals. If the plaintiff can establish this, the landlord must then demonstrate to the court that such a policy is necessary to achieve a substantial, legitimate, and nondiscriminatory purpose. Courts have held that a criminal background check may be a legitimate method to provide for the security and safety of building residents. If the landlord is able to establish that use of criminal history is needed to satisfy a substantial, legitimate, nondiscriminatory interest of the landlord, the burden then shifts back to the plaintiff to establish that the landlord could achieve its goals using another practice that has a less discriminatory effect. If the plaintiff can argue a plausible alternative, then the landlord can be found to be discriminating against a protected class.

There is an exception to this rule – landlords can deny applicants who have been convicted of crimes relating to the manufacture or distribution of certain controlled substances, without exposing themselves to charges of undue discrimination.  However, this exception does not apply to convictions for possession of controlled substances or arrests without conviction.  The HUD guidance warns that denial of a rental application merely due to an arrest without a conviction will not satisfy the landlord’s burden of proof described above.

In light of these cases and the new HUD guidance, we recommend that landlords and property managers carefully consider how criminal background checks are used as part of the application process – given the potential risk under the Fair Housing Act of a disparate impact claim, as well as the possibility of a claim by an existing tenant against the landlord for failure to properly screen new tenants with criminal convictions.  We recommend that the landlord maintain and implement written policies and procedures designed to mitigate risk under the Fair Housing Act, while still providing a safe and secure environment for all tenants in the building.

For assistance in formulating a criminal background check policy that complies with the Fair Housing Act, please contact Brad Ader at (312) 840-7137 or bader@burkelaw.com.