Source of Income Discrimination Liability Risks & How to Avoid Them

Litigation in this area is fast growing—and very costly.


Litigation in this area is fast growing—and very costly.


It’s perfectly legitimate to reject rental applicants because they can’t afford to pay rent. Fair housing laws come into play when rejection is based not on an applicant’s financial resources but what those resources are. Excluding otherwise qualified people because you don’t like the money they use to pay rent is called “source of income” discrimination. While refusal to accept housing vouchers is its most common form, the practice can happen in many different ways, some of which are so subtle that you might not even realize they’re discriminatory.

Unfortunately, source of income discrimination tends to fly under the compliance radar. That’s due, in part, to the misleading fact that it isn’t expressly banned by the federal Fair Housing Act (FHA). However, as landlords around the country are learning, source of income discrimination is a major liability risk that can result in significant penalties, especially under state and local fair housing laws. It’s also among the fastest growing areas of fair housing litigation, generating 1,713 complaints nationwide in 2022, according to the National Fair Housing Alliance. That’s a year-over-year increase of 39.8 percent.  

This month’s Coach is dedicated to eliminating the source of income compliance blind spot. First, we’ll give you a survey of state and local laws so you’ll have a good sense of your current liability risks, no matter where in the U.S. you operate. Then, we’ll outline eight rules to follow to manage those liability risks. At the end of the lesson, we’ll give you a Quiz so that you can apply the analysis to real-life situations and determine how well you’ve learned the material.  


Contrary to common perception, you can be liable for source of income discrimination under federal law. However, the principal risk stems from state and local fair housing laws.

Under Federal Fair Housing Laws

The FHA ban on discrimination covers only seven characteristics, or “protected classes”: race, color, religion, sex, handicap (disability), familial status, and national origin. Notice that source of income isn’t on the list. However, over the years, there’s been a lot of litigation claiming that excluding people based on their source of income is actually a form of racial, national origin, color, or disability discrimination that the FHA does ban. The typical contention is that rental policies that exclude vouchers, Social Security, and other forms of income other than wages have the effect of discriminating against FHA-protected groups that rely on these sources of income in disproportionate numbers.

Example: A landlord stopped accepting voucher users as part of a plan to upgrade the community. A group of tenants sued, claiming that the no-voucher rule had a discriminatory effect on people of color. The landlord asked the court to toss the case because the FHA doesn’t bar source of income discrimination. The court refused, finding that the tenants had a valid FHA claim for disparate impact discrimination and deserved the chance to prove it at trial. Rather than risk a trial, the landlord ended up paying $600,000 to settle the case [Crossroads Residents Organized for Stable and Secure Residencies v. MSP Crossroads Apartments LLC, No. CV 16-233 ADM/KMM, 2016 WL 3661146 (D. Minn. July 5, 2016)].

In spite of this, cases alleging that source of income restrictions run afoul of the FHA have had mixed results. Courts in many different federal circuits, including the Second, Third, Fifth, Sixth, and Seventh have rejected these claims, some of them categorically, at least in the context of housing vouchers.

Cases have also been made that refusing to accept Social Security, insurance, or other benefits or assistance toward payment of rent violates a landlord’s duty to make reasonable accommodations for a disabled prospect or tenant who relies on these income sources. As with disparate impact, federal courts are split on whether these reasonable accommodation claims are valid under the FHA.


Attempts to Make Source of Income an FHA-Protected Class

Since 2013, there have been at least nine proposed bills in the U.S. Congress to amend the FHA by making source of income a protected class. The most recent bill, called the Fair Housing Improvement Act, which was introduced in June 2023 by Senator Tim Kaine (D-VA) and Representative Scott Peters (D-CA), would add not only source of income but also veteran status as protected classes. Whether the new bill will be any more successful than its predecessors in garnering the support necessary to pass remains very much in doubt.

Under State Fair Housing Laws

The vast majority of source of income cases arise under not federal but state and local laws. Twenty states and the District of Columbia have adopted laws banning source of income discrimination in housing:

  • California
  • Connecticut
  • Colorado
  • Delaware
  • District of Columbia
  • Hawaii
  • Maryland
  • Massachusetts
  • Minnesota
  • New Jersey
  • New York
  • North Dakota
  • Oklahoma
  • Oregon
  • Rhode Island
  • Texas (covers homeowners associations only)
  • Utah
  • Vermont
  • Virginia
  • Washington
  • Wisconsin (doesn’t cover housing vouchers)

State protection against source of income discrimination varies, as do levels of enforcement. Many, but not all, state laws extend to housing subsidies, most notably, the Housing Choice Voucher (HCV) program, a.k.a., “Section 8” vouchers. In some states, source of income discrimination covers only Section 8 voucher recipients; in others, it covers all forms of government assistance, housing and otherwise; and in still others, it covers no form of housing vouchers.


The Section 8 Program

Section 8 is the federal government’s biggest program to help the low-income, elderly, and disabled afford housing in the private market, serving over 2.3 million households and 5.3 million individuals. The main component of Section 8 is “tenant-based” assistance in the form of vouchers that low-income tenants can apply to their rent. The way it works: The receiving family contributes a specific amount toward their rental payment with the government paying the balance up to an amount capped by statute.

Low-income families apply for a voucher from their local public housing authority (PHA), which screens them for income and other eligibility requirements. If the family meets the criteria, the PHA issues a voucher or puts them on a waiting list. Once a family is selected, the PHA provides them with a list of landlords “who may be willing to lease a unit to the family or . . . assist the family in locating a unit.” A family with a voucher then goes out seeking housing on its own, generally paying no more than 30 percent of their income on rent, with the PHA paying the remainder to the landlord with HUD funds.

Landlords screen voucher applicants just as they do those seeking non-HUD-assisted housing. Most Section 8 discrimination cases arise out of the screening process. Vouchers are good for at least 60 days. In addition to being renewable, vouchers are portable and can be used anywhere in the country as long as the chosen rental unit is located in the jurisdiction of a PHA that administers a Housing Choice Voucher program.

Under Local Fair Housing Laws

More than 70 cities have passed local ordinances that prohibit housing discrimination on the basis of source of income, including some of the nation’s most populous cites like Boston, Chicago, Dallas, Denver, Los Angeles, Miami, Memphis, Milwaukee, Minneapolis, New York City, Philadelphia, Pittsburgh, San Diego, San Francisco, and Seattle. As with state laws, the scope and enforcement of local fair housing laws vary significantly from city to city.   

Bottom Line: Because the laws vary so much, it’s crucial to consult an attorney knowledgeable of local laws in each state and municipality where you operate to avoid potential source of income discrimination liability.



Landlords have a legitimate interest in verifying that their tenants can pay rent and meet the other financial obligations of their lease, for example, with regard to security deposits or property insurance. Where that income comes from, however, is none of the landlord’s business. Here are eight rules to follow to stay within these parameters.

Rule #1: Accept All Forms of Legal Income

Avoiding source of income discrimination starts with recognizing that the first two words of the phrase (“source of”) are the operable ones. You have every right to establish income criteria and screen prospects to ensure they meet them. If they’re not financially qualified, you may reject them. What you may not do is reject those who do meet your income criteria because of the kind of income they have. More specifically, you can’t exclude qualified prospects simply because they’re unemployed, hold housing vouchers, or receive other forms of financial assistance other than wages (for simplicity’s sake, we’ll refer to these people as “non-cash prospects”).

While denial is the typical m.o. of those sued for fair housing violations, many landlords accused of source of income discrimination admit to excluding voucher recipients but claim it’s justified due to the burdens of renting to government-assisted tenants. This is particularly true in Section 8 cases. Of course, that argument doesn’t work where source of income discrimination is illegal under state or local fair housing law.

Example: A Washington, D.C., landlord paid $125,000 to settle charges of refusing to accept Section 8 vouchers as a lawful source of income. The lawsuit was based on a telephone testing investigation showing that the landlord refused to rent available units at several of its D.C. properties if they were Section 8 voucher recipients [The Lenkin Co., November 2017].  

Bottom Line: Avoiding source of income discrimination means being prepared to accept any and all forms of legal income from a prospect or tenant, including:

  • Wages;
  • Grants, both government and private;
  • Gifts;
  • Inheritance;
  • Retirement benefits;
  • Annuities;
  • Alimony;
  • Child support;
  • Unemployment benefits;
  • Veterans benefits;
  • Disability benefits; and
  • Other legal forms of government or private assistance.

Rule #2: Don’t Impose Less Favorable Rental Terms Based on Income Source

Another common form of discrimination is to impose different and less favorable rental terms on non-cash prospects. Common examples:

  • Giving waiting list or other preference to cash prospects;
  • Making non-cash prospects pay special fees or higher security deposits; and
  • Requiring non-cash prospects to get their lease guaranteed or co-signed due to their source of income.  

Example: The stakes are incredibly high. Exhibit A: Differential treatment of voucher holders recently led to a $10 million settlement, the largest in the history of U.S. fair housing litigation. The case began when a whistleblower tipped off the Washington, D.C., Office of the Tenant Advocate about three real estate firms that were allegedly violating the city’s source of income discrimination ordinance by charging Section 8 voucher recipients extra fees. The smoking gun was the set of emails among company executives discussing ways to keep Section 8 tenants out. In one, an investment director wrote, “No voucher/sec-8 – find ways to reject, applicant must meet every requirement (credit, security deposit, income, etc.), in the case that we have to lease to them which we should find every way out of, don’t put in renovated units. No transfers.” In another, an executive wrote that she was “doing everything I can to reduce if not eliminate the section 8 program from our communities.”

Facing such damning evidence, the companies and their principals accepted a $10 million settlement. The defendants also had to agree to dissolve the property management arm of their business and permanently stop managing residential property in D.C. In addition, one of the impugned executives had to surrender her local real estate license and agree not to seek reinstatement for at least 15 years [DARO Management Services, DARO Realty and Infinity Real Estate, Oct. 19, 2022].

Keep in mind that barriers against non-cash prospects may also be procedural in nature, such as requiring voucher recipients to go to a separate, less convenient location to complete an application or undergo more stringent income or credit screening than required of cash prospects.

Rule #3: Don’t Engage in Source of Income-Based Steering

Steering is a form of discrimination that occurs when you make housing unavailable to people based on race, religion, disability, etc. In the context of source of income discrimination, that would include limiting voucher recipients and other non-traditional rent payers to certain neighborhoods (typically in less affluent areas) buildings, floors, or types of units. A more subtle form of steering is to provide incomplete or inaccurate information to non-cash prospects with regard to available units—for instance, deliberately not telling a family about a suitable vacancy because they’re voucher recipients. The best compliance strategy is to consistently tell all prospects about all vacancies that meet their needs, regardless of their source of income.

A more subtle form of steering involves seeking to talk protected individuals out of their housing choices or directing them to where you think they should want to live based on their protected class—for example, by suggesting that voucher recipients would be “more comfortable” living in buildings that “accept vouchers.” This is illegal even if you think you’re only acting in the prospect’s best interests. Consequently, you should make leasing agents aware of steering risks and warn them not to try and unduly influence a prospect’s housing decision.

Rule #4: Beware of Source of Income Discrimination in Your Advertising

Fair housing liability is a risk to the extent that your advertising indicates any kind of preference, limitation, or exclusion based on source of income. The ban on discriminatory advertising covers spoken, written, and online statements, including words, phrases, pictures, symbols, and other graphic images that send the message that housing isn’t available to non-cash prospects. One obvious example is including “No Section 8” or similar statements in your ads.  

It's also important to recognize that the ban on discriminatory advertising extends to the communications made by your brokers, leasing agents, and other staff members, including the things they say to prospects.

Example: A rental agent makes an appointment to show a prospect a unit advertised on Craigslist. As the phone conversation is ending the prospect mentions that he has a Section 8 voucher. All of the rental agent’s enthusiasm suddenly disappears. That’s “a problem,” he replies, suggesting that “no landlord is going to take” the voucher. He then rebukes the prospect for not mentioning this “right away” and wasting his time, indicating that he “wouldn’t show [the prospect] any apartments” before hanging up on the prospect.

Unfortunately for the agent, all of this unfolds in New York City, which bans source of income discrimination. Sure enough, the prospect files a complaint and the Human Rights Commission issues what was then a record high $100,000 civil penalty for source of income discrimination in New York City [Commission on Human Rights v. Best Apartments, March 2016].

Discrimination may not always be as in-your-face as it was in the Best Apartments case. A subtle or indirect message, whether made online, on the phone, or in person, conveying that non-cash prospects aren’t welcome may be enough to trigger a legal complaint and liability. Examples of things not to say:

  • “Applicants must provide written verification of employment”;
  • “Even if you have a Section 8 voucher, you still need to earn three times the full rent to qualify”;
  • “You just have alimony? What happens if your husband stops paying?”;
  • “Why didn’t you tell me right away that you have a voucher?;” and
  • “People on public assistance must go to our other office downtown to fill out a different application.”

Rule #5: Don’t Require Prospects to Be Employed

To repeat, the ban on source of income discrimination doesn’t mean you can’t have income standards for your renters, as long as your criteria are reasonable and nondiscriminatory. The problem is that certain kinds of financial criteria that look neutral on their face may have the effect of excluding certain kinds of income. A common example is a policy requiring prospects to provide verification that they’re currently employed, which indicates a preference for wages. As long as prospects have the legal income necessary to pay rent, you have no right to question what their sources are.

Rule #6: Beware of Imposing Minimum Income Requirements

Some landlords won’t rent to prospects unless they earn a minimum amount of income per year, such as 40 times the monthly rent. While verifying that renters have ample annual income provides assurance that they can afford your rent, it may also exclude non-cash prospects, including Section 8 voucher recipients.

Explanation: The voucher program requires tenants to pay only a portion of their rent based on their income. The government then pays the balance. Tenants won’t receive a voucher unless and until the government determines that they can pay their required portion of the rent (which, in some cases, may be nothing out of pocket). So, imposing minimum income or other additional income requirements has the effect of excluding voucher recipients who have the financial resources necessary to pay rent. As long as the rent will be paid, whether it comes from the tenant or the government is not of the landlord’s concern.

Rule #7: Beware of Imposing Credit Score Benchmarks

As with minimum annual income requirements, requiring prospects to meet minimum credit scores or benchmarks may also have the effect of excluding voucher recipients and other non-cash prospects. Again, the landlord’s only legitimate concern is to ensure that tenants will be able to pay their rent on time each month. As a matter of fair housing law at least, the voucher provides all of the assurance the landlord needs. Thus, landlords that impose credit score requirements on voucher recipients may be seen as seeking to frustrate the purpose of the fair housing law ban on source of income discrimination.

Rule #8: Consistency Is the Key

While potentially problematic, minimum income, credit score, and other financial criteria might be legal:

  • In jurisdictions where source of income discrimination isn’t banned; and/or
  • In jurisdictions where source of income discrimination is illegal to the extent these requirements actually do have a bearing on a tenant’s ability to pay rent, which wouldn’t be the case with a tenant holding a Section 8 voucher.

The one thing that’s true in all cases and jurisdictions is that you must consistently apply the same criteria to all prospects, regardless of their source of income. If prospects can’t adequately demonstrate their ability to pay rent, you can reject them. Of course, the same principle applies to non-financial qualification standards. Thus, for example, it may be legitimate to reject financially qualified prospects, cash and non-cash, who have been recently convicted of a violent felony.   

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October 2023 Coach's Quiz