Taking up a case closely watched by banks and insurance companies, the U.S. Supreme Court agreed last week to decide whether federal housing law permits racial bias claims based on seemingly neutral practices that may have a discriminatory effect.

The court’s decision to hear the case involving so-called disparate impact claims is a blow to civil rights groups that have sought to keep the issue away from the conservative-leaning high court.

The nine justices will consider whether the state of Texas violated the Fair Housing Act by disproportionately awarding low-income housing tax credits to developers who own properties in poor, minority-dominated neighborhoods.

The disparate impact theory is opposed by business interests because it allows for a broad range of business decisions related to housing to be subject to civil rights litigation.

For example, 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 houses.

Banks can be sued if decisions over who to lend to, based on credit assessments and down-payment requirements, can be shown to disproportionately affect minorities.

Michael Skojec, an attorney at the Ballard Spahr law firm, noted widespread discontent among developers he represents about the broad nature of some disparate impact claims. “Ultimately, it is so hard for them to do their business with that theory out there,” he said.

President Barack Obama’s administration contends disparate impact claims are allowed under the law. Conservative advocacy organizations and business groups assert they are not. The 1968 law was intended to prohibit racial discrimination in the sale or rental of housing and related services.

For decades, disparate impact claims have been a way for lawyers representing African Americans and other minorities to target policies that do not directly discriminate yet have the effect of putting certain groups at a disadvantage.

National Fair Housing Alliance official Lisa Rice said if the court finds disparate impact claims can no longer be made, advocates “will lose an important method of addressing discrimination that permeates our nation’s housing market.”

The case gives the justices a third opportunity in as many years to decide whether the Fair Housing Act allows for disparate impact claims. In recent years, the court has twice agreed to hear a case on the issue but both times the dispute was settled before the justices could rule.

The nine justices will weigh a lawsuit filed against Texas by Inclusive Communities Project Inc, which works to place low-income tenants in wealthy, majority white suburbs of Dallas.

Inclusive Communities says Texas broke the law through its process for allocating the credits made available under the federal Low Income Housing Tax Credit Program, which gives credits to developers providing housing for low-income people.

A ruling is expected by the end of June.

The case is Texas Department of Housing and Community Affairs v. Inclusive Communities Project, U.S. Supreme Court, No. 13-1371.

(Reporting by Lawrence Hurley; Editing by Will Dunham)
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