Implementation of the Fair Housing Act's Discriminatory Effects Standard, 70921-70927 [2011-29515]

Download as PDF Federal Register / Vol. 76, No. 221 / Wednesday, November 16, 2011 / Proposed Rules 70921 erowe on DSK2VPTVN1PROD with PROPOSALS-1 Persons interested in being placed on a mailing list for future NPRM’s should contact the FAA’s Office of Rulemaking, (202) 267–9677, for a copy of Advisory Circular No. 11–2A, Notice of Proposed Rulemaking Distribution System, which describes the application procedure. airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it would amend controlled airspace at City of Colorado Springs Municipal Airport, Colorado Springs, CO. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT The Proposal The FAA is proposing an amendment to Title 14 Code of Federal Regulations (14 CFR) part 71 by amending Class E airspace designated as an extension to Class C airspace area for City of Colorado Springs Municipal Airport, Colorado Springs, CO. Airspace reconfiguration is necessary due to the decommissioning of the Black Forest TACAN. Also, the geographic coordinates of the airport would be updated to coincide with the FAA’s aeronautical database. Controlled airspace is necessary for the safety and management of IFR operations at the Airport. Class E airspace designations are published in paragraph 6003, of FAA Order 7400.9V, dated August 9, 2011, and effective September 15, 2011, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designation listed in this document will be published subsequently in this Order. The FAA has determined this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. Therefore, this proposed regulation; (1) is not a ‘‘significant regulatory action’’ under Executive Order 12866; (2) is not a ‘‘significant rule’’ under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified this proposed rule, when promulgated, would not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. The FAA’s authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, section 106, describes the authority for the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency’s authority. This rulemaking is promulgated under the authority described in subtitle VII, part A, subpart I, section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of the List of Subjects in 14 CFR Part 71 Airspace, Incorporation by reference, Navigation (air). Implementation of the Fair Housing Act’s Discriminatory Effects Standard AGENCY: VerDate Mar<15>2010 15:39 Nov 15, 2011 Jkt 226001 The Proposed Amendment Accordingly, pursuant to the authority delegated to me, the Federal Aviation Administration proposes to amend 14 CFR part 71 as follows: PART 71—DESIGNATION OF CLASS A, B, C, D AND E AIRSPACE AREAS; AIR TRAFFIC SERVICE ROUTES; AND REPORTING POINTS 1. The authority citation for 14 CFR part 71 continues to read as follows: Authority: 49 U.S.C. 106(g), 40103, 40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959– 1963 Comp., p. 389. § 71.1 [Amended] 2. The incorporation by reference in 14 CFR 71.1 of the Federal Aviation Administration Order 7400.9V, Airspace Designations and Reporting Points, dated August 9, 2011, and effective September 15, 2011 is amended as follows: Paragraph 6003 Class E airspace designated as an extension to Class C surface areas. * * * ANM CO E3 [Amended] * * Colorado Springs, CO City of Colorado Springs Municipal Airport, CO (Lat. 38°48′21″ N., long. 104°42′03″ W.) That airspace extending upward from the surface within 2.4 miles northwest and 1.2 miles southeast of the City of Colorado Springs Municipal Airport 025° bearing extending from the 5-mile radius of the airport to 8.9 miles northeast and within 1.4 miles each side of the airport 360° bearing extending from the 5-mile radius of the airport to 7.7 miles north of the airport. Issued in Seattle, Washington, on November 8, 2011. William Buck, Acting Manager, Operations Support Group, Western Service Center. [FR Doc. 2011–29635 Filed 11–15–11; 8:45 am] 24 CFR Part 100 [Docket No. FR–5508–P–01] RIN 2529–AA96 Office of the Assistant Secretary for Fair Housing and Equal Opportunity, HUD. ACTION: Proposed rule. Title VIII of the Civil Rights Act of 1968, as amended (Fair Housing Act or Act), prohibits discrimination in the sale, rental, or financing of dwellings and in other housing-related activities on the basis of race, color, religion, sex, disability, familial status, or national origin.1 HUD, to which Congress gave the authority and responsibility for administering the Fair Housing Act and the power to make rules implementing the Act, has long interpreted the Act to prohibit housing practices with a discriminatory effect, even where there has been no intent to discriminate. The reasonableness of HUD’s interpretation is confirmed by eleven United States Courts of Appeals, which agree that the Fair Housing Act imposes liability based on discriminatory effects. By the time the Fair Housing Amendments Act became effective in 1989, nine of the thirteen United States Courts of Appeals had determined that the Act prohibits housing practices with a discriminatory effect even absent an intent to discriminate. Two other United States Courts of Appeals have since reached the same conclusion, while another has assumed the same but did not need to reach the issue for purposes of deciding the case before it. Although there has been some variation in the application of the discriminatory effects standard, neither HUD nor any Federal court has ever determined that liability under the Act requires a finding of discriminatory intent. The purpose of this proposed rule, therefore, is to establish uniform standards for determining when a housing practice with a discriminatory effect violates the Fair Housing Act. DATES: Comment due date: January 17, 2012. ADDRESSES: Interested persons are invited to submit written comments regarding this proposed rule to the SUMMARY: BILLING CODE 4910–13–P PO 00000 1 This preamble uses the term ‘‘disability’’ to refer to what the Act and its implementing regulations term a ‘‘handicap.’’ Frm 00009 Fmt 4702 Sfmt 4702 E:\FR\FM\16NOP1.SGM 16NOP1 70922 Federal Register / Vol. 76, No. 221 / Wednesday, November 16, 2011 / Proposed Rules Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 20410. All communications should refer to the above docket number and title. There are two methods for submitting public comments. 1. Electronic Submission of Comments. Interested persons may submit comments electronically through the Federal eRulemaking Portal at http://www.regulations.gov. HUD strongly encourages commenters to submit comments electronically. Electronic submission of comments allows the commenter maximum time to prepare and submit a comment, ensures timely receipt by HUD, and enables HUD to make them immediately available to the public. Comments submitted electronically through the http://www.regulations.gov Web site can be viewed by other commenters and interested members of the public. Commenters should follow the instructions provided on that site to submit comments electronically. 2. Submission of Comments by Mail. Comments may be submitted by mail to the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 20410–0500. erowe on DSK2VPTVN1PROD with PROPOSALS-1 Note: To receive consideration as public comments, comments must be submitted through one of the two methods specified above. Again, all submissions must refer to the docket number and title of the rule. No Facsimile Comments. Facsimile (FAX) comments are not acceptable. Public Inspection of Public Comments. All properly submitted comments and communications submitted to HUD will be available for public inspection and copying between 8 a.m. and 5 p.m. weekdays at the above address. Due to security measures at the HUD Headquarters building, an appointment to review the public comments must be scheduled in advance by calling the Regulations Division at (202) 708–3055 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Relay Service at (800) 877– 8339. Copies of all comments submitted are available for inspection and downloading at http:// www.regulations.gov. FOR FURTHER INFORMATION CONTACT: Jeanine Worden, Associate General Counsel for Fair Housing, Office of General Counsel, U.S. Department of Housing and Urban Development, 451 7th Street SW., Washington, DC 20410– VerDate Mar<15>2010 15:39 Nov 15, 2011 Jkt 226001 0500, telephone number (202) 402– 5188. Persons with hearing and speech impairments may contact this phone number via TTY by calling the Federal Information Relay Service at (800) 877– 8399. SUPPLEMENTARY INFORMATION: I. Background A. History of Discriminatory Effects Liability Under the Fair Housing Act The Fair Housing Act declares it to be ‘‘the policy of the United States to provide, within constitutional limitations, for fair housing throughout the United States.’’ 2 Congress considered the realization of this policy ‘‘to be of the highest priority.’’ 3 The language of the Fair Housing Act prohibiting discrimination in housing is ‘‘broad and inclusive’’;4 the purpose of its reach is to replace segregated neighborhoods with ‘‘truly integrated and balanced living patterns.’’ 5 In commemorating the 40th anniversary of the Fair Housing Act and the 20th anniversary of the Fair Housing Amendments Act, the House of Representatives recognized that ‘‘the intent of Congress in passing the Fair Housing Act was broad and inclusive, to advance equal opportunity in housing and achieve racial integration for the benefit of all people in the United States.’’ 6 In keeping with the ‘‘broad remedial intent’’ of Congress in passing the Fair Housing Act,7 and consequently the Act’s entitlement to a ‘‘generous construction,’’ 8 HUD, to which Congress gave the authority and responsibility for administering the Fair Housing Act and the power to make rules to carry out the Act,9 has repeatedly determined that the Fair Housing Act is directed to the consequences of housing practices, not simply their purpose. Under the Act, housing practices—regardless of any discriminatory motive or intent—cannot be maintained if they operate to deny protected groups equal housing opportunity or they create, perpetuate, or increase segregation without a legally sufficient justification. Accordingly, HUD has concluded that the Act provides for liability based on 2 See 42 U.S.C. 3601. v. Metro. Life Ins. Co., 409 U.S. 205, 211 (1972) (internal citation omitted). 4 Id. at 209. 5 Id. at 211. 6 H. Res. 1095, 110th Cong., 2d Sess., 154 Cong. Rec. H2280–01 (April 15, 2008) (2008 WL 1733432). 7 Havens Realty Corp. v. Coleman, 455 U.S. 363, 380 (1982). 8 City of Edmonds v. Oxford House, Inc., 514 U.S. 725, 731–732 (1995). 9 See 42 U.S.C. 3608(a) and 42 U.S.C. 3614a. 3 Trafficante PO 00000 Frm 00010 Fmt 4702 Sfmt 4702 discriminatory effects without the need for a finding of intentional discrimination. For example, HUD’s Title VIII Complaint Intake, Investigation and Conciliation Handbook (Handbook), which sets forth HUD’s guidelines for investigating and resolving Fair Housing Act complaints, recognizes the discriminatory effects theory of liability and requires HUD investigators to apply it in appropriate cases.10 In adjudicating charges of discrimination filed by HUD under the Fair Housing Act, HUD administrative law judges have held that the Act is violated by facially neutral practices that have a disparate impact on protected classes.11 HUD’s regulations interpreting the Fair Housing Act prohibit practices that create, perpetuate, or increase segregated housing patterns.12 HUD also joined with the Department of Justice and nine other Federal enforcement agencies to recognize that disparate impact is among the ‘‘methods of proof of lending discrimination under the * * * Act’’ and provide guidance on how to prove a disparate impact fair lending claim.13 In addition, in regulations implementing the Federal Housing Enterprises Financial Safety and Soundness Act, HUD prohibited mortgage purchase activities that have a discriminatory effect. In enacting these regulations,14 which prescribe the fair lending responsibilities of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), HUD noted that ‘‘the disparate impact (or discriminatory effect) theory is firmly established by Fair Housing Act case law’’ and concluded that disparate impact law ‘‘is applicable to all 10 See, e.g., Handbook at 3–25 (the Act is violated by an ‘‘action or policy [that] has a disproportionately negative effect upon persons of a particular race, color, religion, sex, familial status, national origin or handicap status’’); id. at 2–27 (‘‘a respondent may be held liable for violating the Fair Housing Act even if his action against the complainant was not even partly motivated by illegal considerations’’); id. at 2–27 to 2–45 (HUD guidelines for investigating a disparate impact claim and establishing its elements). 11 See e.g., HUD v. Twinbrook Village Apts., 2001 WL 1632533, at *17 (HUD ALJ Nov. 9, 2001) (‘‘A violation of the [Act] may be premised on a theory of disparate impact.’’); HUD v. Ross, 1994 WL 326437, at *5 (HUD ALJ July 7, 1994) (‘‘Absent a showing of business necessity, facially neutral policies which have a discriminatory impact on a protected class violate the Act.’’); HUD v. Carter, 1992 WL 406520, at *5 (HUD ALJ May 1, 1992) (‘‘The application of the discriminatory effects standard in cases under the Fair Housing Act is well established.’’). 12 See 24 CFR 100.70. 13 Policy Statement on Discrimination in Lending, 59 FR 18,266, 18,268 (Apr. 15, 1994). 14 See 24 CFR 81.42. E:\FR\FM\16NOP1.SGM 16NOP1 Federal Register / Vol. 76, No. 221 / Wednesday, November 16, 2011 / Proposed Rules erowe on DSK2VPTVN1PROD with PROPOSALS-1 segments of the housing marketplace, including the GSEs.’’ 15 Moreover, all Federal courts of appeals to have addressed the question have held that liability under the Act may be established based on a showing that a neutral policy or practice either has a disparate impact on a protected group 16 or creates, perpetuates, or increases segregation,17 even if such a policy or practice was not adopted for a discriminatory purpose. The Fair Housing Act’s discriminatory effects standard is analogous to the discriminatory effects standard under Title VII of the Civil Rights Act of 1964 (42 U.S.C. 2000e), which prohibits discriminatory employment practices. The U.S. Supreme Court held that Title VII reaches beyond intentional discrimination to include employment practices that have a discriminatory effect.18 The Supreme Court explained that Title VII ‘‘proscribes not only overt discrimination but also practices that are fair in form, but discriminatory in operation.’’ 19 It is thus well established that liability under the Fair Housing Act can arise where a housing practice is intentionally discriminatory or where it has a discriminatory effect.20 A 15 The Secretary of HUD’s Regulation of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), 60 FR. 61,846, 61,867 (Dec. 1, 1995). 16 See, e.g., Graoch Assocs. #33, L.P. v. Louisville/ Jefferson County Metro Human Relations Comm’n, 508 F.3d 366, 374 (6th Cir. 2007); Reinhart v. Lincoln County, 482 F.3d 1225, 1229 (10th Cir. 2007); Charleston Housing Auth. v. U.S. Dep’t of Agric., 419 F.3d 729, 740–41 (8th Cir. 2005); Langlois v. Abington Hous. Auth., 207 F.3d 43, 49– 50 (1st Cir. 2000); Simms v. First Gibraltar Bank, 83 F.3d 1546, 1555 (5th Cir. 1996); Jackson v. Okaloosa County, Fla., 21 F.3d 1531, 1543 (11th Cir. 1994); Keith v. Volpe, 858 F.2d 467, 484 (9th Cir. 1988); Huntington Branch, NAACP v. Town of Huntington, 844 F.2d 926, 938 (2d Cir. 1988), judgment aff’d, 488 U.S. 15 (1988); Resident Advisory Board v. Rizzo, 564 F.2d 126, 149–50 (3d Cir. 1977); Betsey v. Turtle Creek Assocs., 736 F.2d 983, 988–89 (4th Cir. 1984); Metro. Housing Dev. Corp. v. Village of Arlington Heights, 558 F.2d 1283, 1290 (7th Cir. 1977). 17 See, e.g., Graoch Associates #33, L.P. v. Louisville/Jefferson County Metro Human Relations Comm’n, 508 F.3d 366, 378 (6th Cir. 2007); Hallmark Developers, Inc. v. Fulton County, Ga., 466 F.3d 1276, 1286 (11th Cir. 2006); Huntington Branch, NAACP v. Town of Huntington, 844 F.2d 926, 937 (2d Cir. 1988), aff’d, 488 U.S. 15 (1988) (per curium); Betsey v. Turtle Creek Assocs., 736 F.2d 983, 987 n.3 (4th Cir. 1984); Metro. Housing Dev. Corp. v. Village of Arlington Heights, 558 F.2d 1283, 1290–1291 (7th Cir. 1977); United States. v. City of Black Jack, Missouri, 508 F.2d 1179, 1184– 86 (8th Cir. 1974); see also Trafficante, 409 U.S. at 209–210. 18 See Griggs v. Duke Power Co., 401 U.S. 424, 433–34 (1971). 19 Id. at 431. 20 See, e.g., 42 U.S.C. 3604(a), (b), (f)(1), (f)(2); 42 U.S.C. 3605; 42 U.S.C. 3606. Liability under the Fair Housing Act can also arise in other ways, for VerDate Mar<15>2010 17:11 Nov 15, 2011 Jkt 226001 discriminatory effect may be found where a housing practice has a disparate impact on a group of persons protected by the Act, or where a housing practice has the effect of creating, perpetuating, or increasing segregated housing patterns on a protected basis.21 B. Application of the Discriminatory Effects Standard Under the Fair Housing Act While the discriminatory effects theory of liability under the Fair Housing Act is well established, there is minor variation in how HUD and the courts have applied that theory. For example, HUD has always used a threestep burden-shifting approach,22 as do many Federal courts of appeals.23 But some courts apply a multi-factor balancing test,24 other courts apply a hybrid between the two,25 and one court example, where a reasonable person would find a notice, statement, advertisement, or representation to be discriminatory, see 42 U.S.C. 3604(c), or where a reasonable accommodation is refused, see 42 U.S.C. 3604(f)(3). The Act also imposes an affirmative obligation on HUD and other executive departments and agencies to administer their programs and activities related to housing and urban development in a manner affirmatively to further the purposes of the Fair Housing Act. See 42 U.S.C. 3608(d); see also 3608(e)(5). 21 A ‘‘discriminatory effect’’ prohibited by the Act refers to either a ‘‘disparate impact’’ or the ‘‘perpetuation of segregation.’’ See, e.g. Graoch Associates #33, L.P. v. Louisville/Jefferson County Metro Human Relations Comm’n, 508 F.3d 366, 378 (6th Cir. 2007) (there are ‘‘two types of discriminatory effects which a facially neutral housing decision can have: The first occurs when that decision has a greater adverse impact on one racial group than on another. The second is the effect which the decision has on the community involved; if it perpetuates segregation and thereby prevents interracial association it will be considered invidious under the Fair Housing Act independently of the extent to which it produces a disparate effect on different racial groups.’’). 22 See, e.g., HUD v. Pfaff, 1994 WL 592199, at *8 (HUD ALJ Oct. 27, 1994); HUD v. Mountain Side Mobile Estates P’ship, 1993 WL 367102, at *6 (HUD ALJ Sept. 20, 1993); HUD v. Carter, 1992 WL 406520, at *6 (HUD ALJ May 1, 1992); Twinbrook Village Apts., 2001 WL 1632533, at *17 (HUD ALJ Nov. 9, 2001); see also Policy Statement on Discrimination in Lending, 59 FR. 18,266, 18,269 (Apr. 15, 1994) (applying three-step test without specifying where the burden lies at each step). 23 See, e.g., Oti Kaga, Inc. v. S. Dakota Hous. Dev. Auth., 342 F.3d 871, 883 (8th Cir. 2003); Lapid –Laurel, L.L.C. v. Zoning Bd. of Adjustment of Twp. of Scotch Plains, 284 F.3d 442, 466–67 (3d Cir. 2002); Langlois v. Abington Hous. Auth., 207 F.3d 43, 49–50 (1st Cir. 2000); Huntington Branch NAACP v. Town of Huntington, N.Y., 844 F.2d 926, 939 (2d Cir. 1988). 24 See, e.g., Metro. Housing Dev. Corp. v. Village of Arlington Heights, 558 F.2d 1283, 1290 (7th Cir. 1977) (four-factor balancing test). 25 See, e.g., Mountain Side Mobile Estates v. Sec’y HUD, 56 F.3d 1243, 1252, 1254 (10th Cir. 1995) (three-factor balancing test incorporated into burden shifting framework to weigh defendant’s justification); Graoch Associates #33, L.P. v. Louisville/Jefferson County Metro Human Relations Comm’n, 508 F.3d 366, 373 (6th Cir. 2007) (balancing test incorporated as elements of proof after second step of burden shifting framework). PO 00000 Frm 00011 Fmt 4702 Sfmt 4702 70923 applies a different test for public and private defendants.26 Another source of variation is in the application of the burden-shifting test. Under the burden-shifting approach, the plaintiff (or, in administrative proceedings, the complainant) must make a prima facie showing of either disparate impact or perpetuation of segregation. If the discriminatory effect is shown, the burden of proof shifts to the defendant (or respondent) to justify its actions. If the defendant or respondent satisfies its burden, courts and HUD administrative law judges have differed as to which party bears the burden of proving whether a less discriminatory alternative to the challenged practice exists. The majority of Federal courts of appeals that use a burden-shifting approach place this burden on the plaintiff,27 analogizing to Title VII’s burden-shifting framework.28 Other Federal courts of appeals have kept the burden with the defendant.29 HUD has, at times, placed this burden of proving a less discriminatory alternative on the respondent and, at other times, on the complainant.30 C. Scope of the Proposed Rule This proposed rule establishes a uniform standard of liability for facially neutral housing practices that have a discriminatory effect. Under this rule, liability is determined by a burdenshifting approach. The plaintiff or complainant first must bear the burden 26 The Fourth Circuit has applied a four-factor balancing test to public defendants and a burdenshifting approach to private defendants. See e.g., Betsey v. Turtle Creek Assocs., 736 F.2d 983, 989 n.5 (4th Cir. 1984). 27 See, e.g., Gallagher v. Magner, 619 F.3d 823, 834 (8th Cir. 2010); Graoch Associates # 33, L.P. v. Louisville/Jefferson County Metro Human Relations Comm’n, 508 F.3d 366, 373–74 (6th Cir. 2007); Mountain Side Mobile Estates v. Sec’y HUD, 56 F.3d 1243, 1254 (10th Cir. 1995). 28 See, e.g., Graoch, 508 F.3d at 373 (6th Cir. 2007) (‘‘claims under Title VII and the [Fair Housing Act] generally should receive similar treatment’’); Mountain Side Mobile Estates v. Sec’y HUD, 56 F.3d 1243, 1254 (10th Cir. 1995) (explaining that in interpreting Title VII, ‘‘the Supreme Court has repeatedly stated that the ultimate burden of proving that discrimination against a protected group has been caused by a specific * * * practice remains with the plaintiff at all times’’) (internal citation omitted). 29 See, e.g., Huntington Branch NAACP v. Town of Huntington, N.Y., 844 F.2d 926, 939 (2d Cir. 1988); Resident Advisory Board v. Rizzo, 564 F.2d 126, 146–48 (3d Cir. 1977). 30 Compare, e.g., HUD v. Carter, 1992 WL 406520, at *6 (HUD ALJ May 1, 1992) (respondent bears the burden of showing that no less discriminatory alternative exists), and Twinbrook Village Apts., 2001 WL 1632533, at *17 (HUD ALJ Nov. 9, 2001) (same), with HUD v. Mountain Side Mobile Estates P’ship, 1993 WL 367102, at *6 (HUD ALJ Sept. 20, 1993) (complainant bears the burden of showing that a less discriminatory alternative exists), and HUD v. Pfaff, 1994 WL 592199, at *8 (HUD ALJ Oct. 27, 1994) (same). E:\FR\FM\16NOP1.SGM 16NOP1 70924 Federal Register / Vol. 76, No. 221 / Wednesday, November 16, 2011 / Proposed Rules erowe on DSK2VPTVN1PROD with PROPOSALS-1 of proving its prima facie case of either disparate impact or perpetuation of segregation, after which the burden shifts to the defendant or respondent to prove that the challenged practice has a necessary and manifest relationship to one or more of the defendant’s or respondent’s legitimate, nondiscriminatory interests. If the defendant or respondent satisfies its burden, the plaintiff or complainant may still establish liability by demonstrating that these legitimate nondiscriminatory interests could be served by a policy or decision that produces a less discriminatory effect.31 HUD proposes this standard for several reasons. First, Title VII, enacted four years before the Fair Housing Act, has often been looked to for guidance in interpreting analogous provisions of the Fair Housing Act.32 HUD’s proposal is consistent with the discriminatory effects standard confirmed by Congress in the 1991 amendments to Title VII.33 Second, HUD’s proposal is consistent with the discriminatory effects standard applied under the Equal Credit Opportunities Act (ECOA),34 which borrows from Title VII’s burden-shifting framework.35 There is significant overlap in coverage between ECOA, which prohibits discrimination in credit, and the Fair Housing Act, which 31 See Graoch Associates #33, L.P. v. Louisville/ Jefferson County Metro Human Relations Comm’n, 508 F.3d 366, 373–74 (6th Cir. 2007); Oti Kaga, Inc. v. S. Dakota Hous. Dev. Auth., 342 F.3d 871, 883 (8th Cir. 2003); Mountain Side Mobile Estates v. Sec’y HUD, 56 F.3d 1243, 1254 (10th Cir. 1995). 32 See, e.g., Trafficante, 409 U.S. at 205; The Secretary of HUD’s Regulation of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), 60 FR 61,846, 61,868 (Dec. 1, 1995). Short form cite see n. 15. 33 See 42 U.S.C. 2000e–2(k). 34 ECOA prohibits discrimination in credit on the basis of race and other enumerated criteria. See 15 U.S.C. 1691. 35 See S. Rep. 94–589, 94th Cong., 2d Sess. (1976) (‘‘judicial constructions of antidiscrimination legislation in the employment field, in cases such as Griggs v. Duke Power Company, 401 U.S. 424 (1971), and Albemarle Paper Co. v. Moody (U.S. Supreme Court, June 25, 1975) [422 U.S. 405], are intended to serve as guides in the application of [ECOA], especially with respect to the allocations of burdens of proof.’’); 12 CFR 202.6(a), n. 2 (1997) (‘‘The legislative history of [ECOA] indicates that the Congress intended an ‘‘effects test’’ concept, as outlined in the employment field by the Supreme Court in the cases of Griggs v. Duke Power Co., 401 U.S. 424 (1971) and Albemarle Paper Co. v. Moody, 422 U.S. 405 (1975), to be applicable to a creditor’s determination of creditworthiness.’’); 12 CFR part 202, Supp. I, Official Staff Commentary, Comment 6(a)–2 (‘‘Effects test. The effects test is a judicial doctrine that was developed in a series of employment cases decided by the Supreme Court under Title VII of the Civil Rights Act of 1964 (42 U.S.C. 2000e et seq.), and the burdens of proof for such employment cases were codified by Congress in the Civil Rights Act of 1991 (42 U.S.C. 2000e– 2).’’). VerDate Mar<15>2010 15:39 Nov 15, 2011 Jkt 226001 prohibits discrimination in residential real estate-related transactions.36 The interagency Policy Statement on Discrimination in Lending analyzed the standard for proving disparate impact discrimination in lending under the Fair Housing Act and under ECOA without differentiation.37 Under HUD’s proposed framework, parties litigating a claim brought under both the Fair Housing Act and ECOA will not face the burden of applying inconsistent methods of proof to factually indistinguishable claims. Third, by placing the burden of proving a necessary and manifest relationship to a legitimate, nondiscriminatory interest on the defendant or respondent and the burden of proving a less discriminatory alternative on the plaintiff or complainant, ‘‘neither party is saddled with having to prove a negative.’’ 38 II. This Proposed Rule A. Subpart G—Discriminatory Effect 1. Discriminatory Effect Prohibited (§ 100.500) HUD proposes adding a new subpart G, entitled ‘‘Prohibiting Discriminatory Effects,’’ to its Fair Housing Act regulations in 24 CFR part 100. Subpart G would confirm that the Fair Housing Act may be violated by a housing practice that has a discriminatory effect, as defined in § 100.500(a), regardless of whether the practice was adopted for a discriminatory purpose. The housing practice may still be lawful if supported by a legally sufficient justification, as defined in § 100.500(b). The respective burdens of proof for establishing or refuting an effects claim are set forth in § 100.500(c). Subsection 100.500(d) clarifies that a legally sufficient justification does not defeat liability for a discriminatory intent claim once the intent to discriminate has been established.39 This proposed rule would apply to both public and private entities because the definition of ‘‘discriminatory housing practice’’ under the Act makes no distinction between the two.40 36 See 59 FR 18,266. 59 FR 18,266, 18,269 (Apr. 15, 1994). 38 Hispanics United of DuPage Cnty. v. Vill. of Addison, Ill., 988 F.Supp. 1130, 1162 (N.D. Ill. 1997). 39 It is possible to bring a claim alleging both discriminatory effect and discriminatory intent as alternative theories of liability. In addition, the discriminatory effect of a challenged practice may provide evidence of the discriminatory intent behind the practice. See, e.g., Vill. of Arlington Heights v. Metro. Housing Dev. Corp., 429 U.S. 252, 266 (1977). But proof of intent to discriminate is not necessary to prevail on a discriminatory effects claim. See, e.g., Black Jack, 508 F.2d at 1184–85. 40 See 42 U.S.C. 3602(f) (defining ‘‘discriminatory housing practice’’ as ‘‘an act that is unlawful under 37 See PO 00000 Frm 00012 Fmt 4702 Sfmt 4702 2. Discriminatory Effect Defined (§ 100.500(a)) Under the Fair Housing Act and this proposed rule, a ‘‘discriminatory effect’’ occurs where a facially neutral housing practice actually or predictably results in a discriminatory effect on a group of persons (that is, a disparate impact), or on the community as a whole (perpetuation of segregation).41 Any facially neutral action, e.g. laws, rules, decisions, standards, policies, practices, or procedures, including those that allow for discretion or the use of subjective criteria, may result in a discriminatory effect actionable under the Fair Housing Act and this rule. Disparate Impact. Examples of a housing policy or practice that may have a disparate impact on a class of persons delineated by characteristics protected by the Act include a zoning ordinance restricting private construction of multifamily housing to a largely minority area (see Huntington Branch, 844 F.2d at 937); the provision and pricing of homeowner’s insurance (see Ojo v. Farmers Group, Inc., 600 F.3d 1205, 1207–8 (9th Cir. 2010) (en banc)); mortgage pricing policies that give lenders or brokers discretion to impose additional charges or higher interest rates unrelated to a borrower’s creditworthiness (see Miller v. Countrywide Bank, N.A., 571 F. Supp. 2d 251, 253 (D. Mass. 2008)); credit scoring overrides provided by a purchaser of loans (see Beaulialice v. Federal Home Loan Mortg. Corp., 2007 WL 744646, *4 (M.D. Fla. Mar. 6, 2007)); and credit offered on predatory terms, (see Hargraves v. Capitol City Mortgage, 140 F. Supp. 2d 7, 20–21 (D.D.C. 2000)). Further examples of such claims can be found in the following court cases: Keith v. Volpe, 858 F.2d 467, 484 (9th Cir. 1988), where the city’s land-use decisions that prevented the construction of two housing developments for city residents displaced by a freeway had a greater adverse impact on minorities than on whites because two-thirds of the persons who would have benefited from the housing were minorities; (Langlois, 207 F.3d at 50, where public housing authorities’ use of local residency preferences to award Section 8 Housing Section 804, 805, 806, or 818,’’ none of which distinguish between public and private entities); see also Nat’l Fair Housing Alliance, Inc. v. Prudential Ins. Co. of Am., 208 F. Supp. 2d 46, 59–60 & n.7 (D.D.C. 2002) (applying the same impact analysis to a private entity as to public entities, noting that a ‘‘distinction between governmental and nongovernmental bodies finds no support in the language of the [Act] or in [its] legislative history’’). 41 See, e.g., Graoch Associates # 33, L.P., 508 F.3d at 378. E:\FR\FM\16NOP1.SGM 16NOP1 erowe on DSK2VPTVN1PROD with PROPOSALS-1 Federal Register / Vol. 76, No. 221 / Wednesday, November 16, 2011 / Proposed Rules Choice Vouchers likely would result in an adverse impact based on race; United States v. Incorporated Village of Island Park, 888 F. Supp. 419, 447 (E.D.N.Y. 1995), where a housing program’s preference for residents of the Village, most of whom were white, had a disparate impact on African-Americans; Charleston Housing Auth., 419 F.3d at 741–42, where the housing authority’s plan to demolish 50 low-income public housing units—46 of which were occupied by African Americans—would disproportionately impact African Americans based on an analysis of the housing authority’s waiting list population, the population of individuals income-eligible for public housing, or the current tenant population; and Smith v. Town of Clarkton, N.C., 682 F.2d 1055, 1065–66 (4th Cir. 1982), where the town’s withdrawal from a multi-municipality housing authority effectively blocked construction of 50 units of public housing, adversely affecting African American residents of the county, who were those most in need of new construction to replace substandard dwellings). Perpetuation of Segregation. A person or entity may be liable for a housing policy or practice that has a discriminatory effect on the community because the practice has the effect of creating, perpetuating, or increasing housing patterns that segregate by race, color, religion, sex, familial status, national origin, or disability. Examples of such claims can be found in the following court cases: Huntington Branch, 844 F.2d at 934, 937, where the town’s zoning ordinance, which limited private construction of multifamily housing to a largely minority neighborhood, had the effect of perpetuating segregation ‘‘by restricting low-income housing needed by minorities to an area already 52% minority’’; Dews v. Town of Sunnyvale, Tex., 109 F. Supp. 2d 526, 567 (N.D. Tex. 2000), where the town’s zoning ordinance that banned multifamily housing and required single-family lots of at least one acre had the effect of perpetuating segregation by keeping minorities out of a town that was 94 percent white; Black Jack, 508 F.2d at 1186, where a city ordinance preventing the construction of low-income multifamily housing ‘‘would contribute to the perpetuation of segregation in a community which was 99% white’’; and Inclusive Communities Projects, Inc. v. Texas Dep’t of Housing & Community Affairs, 749 F. Supp. 2d 486, 500 (N.D. Tex. 2010), where the state’s disproportionate denial of tax credits for VerDate Mar<15>2010 15:39 Nov 15, 2011 Jkt 226001 nonelderly housing in predominately white neighborhoods had a segregative impact on the community. 3. Legally Sufficient Justification (§ 100.500(b)) A housing practice or policy found to have a discriminatory effect may still be lawful if it has a ‘‘legally sufficient justification.’’ A ‘‘legally sufficient justification’’ exists where the housing practice or policy: (1) Has a necessary and manifest relationship to the defendant’s or respondent’s legitimate, nondiscriminatory interests; 42 and (2) those interests cannot be served by another practice that has a less discriminatory effect.43 A legally sufficient justification may not be hypothetical or speculative. In addition, a legally sufficient justification does not defeat liability for a discriminatory intent claim once the intent to discriminate has been established. 4. Burdens of Proof (§ 100.500(c)) The burden-shifting framework set forth in the proposed rule for discriminatory effect claims finds support in judicial interpretations of the Act, and is also consistent with the burdens of proof Congress assigned in disparate impact employment discrimination cases. See 42 U.S.C. § 2000e-2(k). In the proposed rule, the complainant or plaintiff first bears the burden of proving its prima facie case, that is, that a housing practice caused, causes, or will cause a discriminatory effect on a group of persons or a community on the basis of race, color, religion, sex, disability, familial status, or national origin. Once the complainant or plaintiff has made its prima facie case, the burden of proof shifts to the respondent or defendant to prove that the challenged practice has a necessary and manifest relationship to one or more of the housing provider’s legitimate, nondiscriminatory interests. If the respondent or defendant satisfies its burden, the complainant or plaintiff may still establish liability by demonstrating that these legitimate, nondiscriminatory interests could be 42 See, e.g., Charleston Housing Auth., 419 F.3d at 741 (‘‘[u]nder the second step of the disparate impact burden shifting analysis, the [defendant] must demonstrate that the proposed action has a manifest relationship to the legitimate nondiscriminatory policy objectives’’ and ‘‘is necessary to the attainment of these objectives’’) (internal quotation marks omitted); Betsey v. Turtle Creek Assocs., 736 F.2d 983, 988–89 (4th Cir. 1984); 24 CFR 100.125(c); 59 FR 18,266, 18,269; see also 60 FR at 61,868. 43 See, e.g., Oti Kaga, Inc. v. South Dakota Housing Dev. Auth., 342 F.3d 871, 883 (8th Cir. 2003). PO 00000 Frm 00013 Fmt 4702 Sfmt 4702 70925 served by a policy or decision that produces a less discriminatory effect. B. Examples of Housing Practices With Discriminatory Effects Violations of various provisions of the Act may be established by proof of discriminatory effects. For example, under 42 U.S.C. subsections 3604(a) and 3604(f)(1), discriminatory effects claims may be brought under the Act’s provisions that make it unlawful to ‘‘otherwise make unavailable or deny [ ] a dwelling’’ because of a protected characteristic. Discriminatory effects claims may be brought pursuant to subsections 3604(b) and 3604(f)(2) of the Act prohibiting discrimination ‘‘in the terms, conditions, or privileges of sale or rental of a dwelling, or in the provision of services or facilities in connection therewith, because of’’ a protected characteristic. For residential real estate-related transactions, discriminatory effects claims may be brought under section 3605, which bars ‘‘discrimination against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of’’ a protected characteristic. Discriminatory effects claims may also be brought under section 3606, prohibiting discrimination in the provision of brokerage services. HUD’s existing Fair Housing Act regulations provide examples of housing practices that may violate the Act, based on an intent theory, an effects theory, or both. The proposed rule adds examples of discriminatory housing practices that may violate the new subsection G because they have a discriminatory effect. The cases cited in Section II.A.2 of this preamble identify housing practices found by courts to create discriminatory effects that violate or may violate the Act. These cases are provided as examples only and should not be viewed as the only ways to establish a violation of the Act based on a discriminatory effects theory. III. Solicitation of Comments The Department welcomes comments on the standards proposed in this rule, including whether a burden-shifting approach should be used to determine when a housing practice with a discriminatory effect violates the Fair Housing Act and, where proof is required of the existence or nonexistence of a less discriminatory alternative to the challenged practice, which party should bear that burden. These comments will help the Department in its effort to craft final regulations that best serve the broad, remedial goals of the Fair Housing Act. E:\FR\FM\16NOP1.SGM 16NOP1 70926 Federal Register / Vol. 76, No. 221 / Wednesday, November 16, 2011 / Proposed Rules IV. Findings and Certifications Executive Order 12866, Regulatory Planning and Review The Office of Management and Budget (OMB) reviewed this proposed rule under Executive Order 12866 (entitled ‘‘Regulatory Planning and Review’’). The proposed rule has been determined to be a ‘‘significant regulatory action,’’ as defined in section 3(f) of the Order, but not economically significant under section 3(f)(1) of the Order. The docket file is available for public inspection in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 20410–0500. Due to security measures at the HUD Headquarters building, please schedule an appointment to review the docket file by calling the Regulations Division at (202) 402–3055 (this is not a toll-free number). Individuals with speech or hearing impairments may access this number via TTY by calling the Federal Relay Service at (800) 877–8339. Regulatory Flexibility Act erowe on DSK2VPTVN1PROD with PROPOSALS-1 The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. This rule proposes to establish uniform standards for determining when a housing practice with a discriminatory effect violates the Fair Housing Act. Discriminatory effects liability is consistent with the position of other Executive Branch agencies and has been applied by every Federal court of appeals to have reached the question. Given the variation in how the courts have applied that standard, HUD’s objective in this proposed rule is to achieve consistency and uniformity in this area, and therefore reduce burden for all who may be involved in a challenged practice. Accordingly, the undersigned certifies that the proposed rule will not have a significant economic impact on a substantial number of small entities. Environmental Impact This proposed rule sets forth nondiscrimination standards. Accordingly, under 24 CFR 50.19(c)(3), this rule is categorically excluded from environmental review under the National Environmental Policy Act of 1969 (42 U.S.C. 4321). VerDate Mar<15>2010 15:39 Nov 15, 2011 Jkt 226001 Executive Order 13132, Federalism Executive Order 13132 (entitled ‘‘Federalism’’) prohibits an agency from publishing any rule that has federalism implications if the rule either: (i) Imposes substantial direct compliance costs on state and local governments and is not required by statute, or (ii) preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Executive Order. This proposed rule would not have federalism implications and would not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Executive Order. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531– 1538) (UMRA) establishes requirements for Federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments, and on the private sector. This proposed rule would not impose any Federal mandates on any state, local, or tribal governments, or on the private sector, within the meaning of the UMRA. List of Subjects in 24 CFR Part 100 Civil rights, Fair housing, Individuals with disabilities, Mortgages, Reporting and recordkeeping requirements. For the reasons discussed in the preamble, HUD proposes to amend 24 CFR part 100 as follows: PART 100—DISCRIMINATORY CONDUCT UNDER THE FAIR HOUSING ACT 1. The authority for 24 CFR part 100 continues to read as follows: Authority: 42 U.S.C. 3535(d), 3600–3620. 2. In § 100.65, a new paragraph (b)(6) is added to as follows: § 100.65 Discrimination in terms, conditions and privileges and in services and facilities. * * * * * (b) * * * (6) Providing different, limited, or no governmental services such as water, sewer, or garbage collection in a manner that has a disparate impact or has the effect of creating, perpetuating, or increasing segregated housing patterns on the basis of race, color, religion, sex, handicap, familial status, or national origin. 3. In § 100.70, add a new paragraph (d)(5) to read as follows: § 100.70 * PO 00000 * Other prohibited conduct. * Frm 00014 * Fmt 4702 * Sfmt 4702 (d) * * * (5) Implementing land-use rules, policies, or procedures that restrict or deny housing opportunities in a manner that has a disparate impact or has the effect of creating, perpetuating, or increasing segregated housing patterns on the basis of race, color, religion, sex, handicap, familial status, or national origin. 4. In § 100.120, amend paragraph (b) to read as follows: § 100.120 Discrimination in the making of loans and in the provision of other financial assistance. * * * * * (b) Prohibited practices under this section include, but are not limited to: (1) Failing or refusing to provide to any person, in connection with a residential real estate-related transaction, information regarding the availability of loans or other financial assistance, application requirements, procedures, or standards for the review and approval of loans or financial assistance, or providing information which is inaccurate or different from that provided others, because of race, color, religion, sex, handicap, familial status, or national origin. (2) Providing loans or other financial assistance in a manner that results in disparities in their cost, rate of denial, or terms or conditions, or that has the effect of denying or discouraging their receipt on the basis of race, color, religion, sex, handicap, familial status, or national origin. 5. In part 100, add a subpart G as follows: Subpart G—Discriminatory Effect § 100.500 Discriminatory Effect Prohibited Liability may be established under this subpart based on a housing practice’s discriminatory effect, as defined in § 100.500(a), even if the housing practice is not motivated by a prohibited intent. The housing practice may still be lawful if supported by a legally sufficient justification, as defined in § 100.500(b). The burdens of proof for establishing a violation under this subpart are set forth in § 100.500(c). (a) Discriminatory effect defined. A housing practice has a discriminatory effect where it actually or predictably: (1) Results in a disparate impact on a group of persons on the basis of race, color, religion, sex, handicap, familial status, or national origin; or (2) Has the effect of creating, perpetuating, or increasing segregated housing patterns on the basis of race, color, religion, sex, handicap, familial status, or national origin. E:\FR\FM\16NOP1.SGM 16NOP1 Federal Register / Vol. 76, No. 221 / Wednesday, November 16, 2011 / Proposed Rules (b) Legally sufficient justification. A legally sufficient justification exists where the challenged housing practice: (1) Has a necessary and manifest relationship to one or more legitimate, nondiscriminatory interests of the respondent, with respect to claims brought under 42 U.S.C. 3610, or defendant, with respect to claims brought under 42 U.S.C. 3613 or 3614; and (2) those interests cannot be served by another practice that has a less discriminatory effect. The burdens of proof for establishing each of the two elements of a legally sufficient justification are set forth in § 100.500(c)(2)–(c)(3). (c) Burdens of proof in discriminatory effects cases. (1) A complainant, with respect to claims brought under 42 U.S.C. 3610, or a plaintiff, with respect to claims brought under 42 U.S.C. 3613 or 3614, has the burden of proving that a challenged practice causes a discriminatory effect. (2) Once a complainant or plaintiff satisfies the burden of proof set forth in paragraph (c)(1) of this section, the respondent or defendant has the burden of proving that the challenged practice has a necessary and manifest relationship to one or more legitimate, nondiscriminatory interests of the respondent or defendant. (3) If the respondent or defendant satisfies the burden of proof set forth in paragraph (c)(2) of this section, the complainant or plaintiff may still prevail upon demonstrating that the legitimate, nondiscriminatory interests supporting the challenged practice can be served by another practice that has a less discriminatory effect. (d) Relationship to discriminatory intent. A demonstration that a housing practice is supported by a legally sufficient justification, as defined in § 100.500(b), may not be used as a defense against a claim of intentional discrimination. erowe on DSK2VPTVN1PROD with PROPOSALS-1 Dated: October 4, 2011. ˜ John Trasvina, Assistant Secretary for Fair Housing and Equal Opportunity. [FR Doc. 2011–29515 Filed 11–15–11; 8:45 am] BILLING CODE 4210–67–P DEPARTMENT OF DEFENSE Department of the Army, Corps of Engineers 33 CFR Chapter II USACE’s Plan for Retrospective Review Under E.O. 13563 AGENCY: U.S. Army Corps of Engineers, DoD. Notice of intent and request for comments. ACTION: The U.S. Army Corps of Engineers (USACE) is seeking public input on its plan to retrospectively review its Regulations implementing the USACE Regulatory Program at 33 CFR parts 320–332 and 334. Executive Order 13563, ‘‘Improving Regulation and Regulatory Review’’ (E.O.), issued on January 18, 2011, directs Federal agencies to review existing significant regulations and identify those that can be made more effective or less burdensome in achieving regulatory objectives. The Regulations are essential for implementation of the Regulatory mission; thus, USACE believes they are a significant rule warranting review pursuant to E.O. 13563. The E.O. further directs each agency to periodically review its existing significant regulations to determine whether any such regulations should be modified, streamlined, expanded, or repealed so as to make the agency’s regulatory program more effective or less burdensome in achieving the regulatory objectives. Section 404(e) of the Clean Water Act authorizes USACE to development general permits, including nationwide permits (NWPs), for minor activities in waters of the U.S. for a period of five years. Accordingly, every five years, USACE undergoes a reauthorization process for the NWP program and includes public notice and provides an opportunity for public hearing. Comments for the NWP program are submitted during the reauthorization process. Therefore, USACE is currently complying with the E.O. 13563 direction to periodically review its existing significant regulations. Other regulations will be reviewed on an as-needed basis in accordance with new laws, court cases, etc. SUMMARY: Written comments must be submitted on or before January 17, 2012. DATES: You may submit comments, identified by docket number COE– 2011–0028, by any of the following methods: ADDRESSES: VerDate Mar<15>2010 15:39 Nov 15, 2011 Jkt 226001 PO 00000 Frm 00015 Fmt 4702 Sfmt 4702 70927 Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. Email: regulatory.review@usace.army.mil Include the docket number, COE–2011– 0028, in the subject line of the message. Mail: U.S. Army Corps of Engineers, ATTN: CECW–CO–R (Ms. Amy S. Klein), 441 G Street NW., Washington, DC 20314–1000. Hand Delivery/Courier: Due to security requirements, we cannot receive comments by hand delivery or courier. Instructions: Direct your comments to docket number COE–2011–0028. All comments received will be included in the public docket without change and may be made available on-line at http://www.regulations.gov, including any personal information provided, unless the commenter indicates that the comment includes information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI, or otherwise protected, through regulations.gov or email. The regulations.gov Web site is an anonymous access system, which means we will not know your identity or contact information unless you provide it in the body of your comment. If you send an email directly to the Corps without going through regulations.gov, your email address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, we recommend that you include your name and other contact information in the body of your comment and with any disk or CD–ROM you submit. If we cannot read your comment because of technical difficulties and cannot contact you for clarification, we may not be able to consider your comment. Electronic comments should avoid the use of any special characters, any form of encryption, and be free of any defects or viruses. Docket: For access to the docket to read background documents or comments received, go to http:// www.regulations.gov. All documents in the docket are listed. Although listed in the index, some information is not publicly available, such as CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy form. E:\FR\FM\16NOP1.SGM 16NOP1

Agencies

[Federal Register Volume 76, Number 221 (Wednesday, November 16, 2011)]
[Proposed Rules]
[Pages 70921-70927]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-29515]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 100

[Docket No. FR-5508-P-01]
RIN 2529-AA96


Implementation of the Fair Housing Act's Discriminatory Effects 
Standard

AGENCY: Office of the Assistant Secretary for Fair Housing and Equal 
Opportunity, HUD.

ACTION: Proposed rule.

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SUMMARY: Title VIII of the Civil Rights Act of 1968, as amended (Fair 
Housing Act or Act), prohibits discrimination in the sale, rental, or 
financing of dwellings and in other housing-related activities on the 
basis of race, color, religion, sex, disability, familial status, or 
national origin.\1\ HUD, to which Congress gave the authority and 
responsibility for administering the Fair Housing Act and the power to 
make rules implementing the Act, has long interpreted the Act to 
prohibit housing practices with a discriminatory effect, even where 
there has been no intent to discriminate.
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    \1\ This preamble uses the term ``disability'' to refer to what 
the Act and its implementing regulations term a ``handicap.''
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    The reasonableness of HUD's interpretation is confirmed by eleven 
United States Courts of Appeals, which agree that the Fair Housing Act 
imposes liability based on discriminatory effects. By the time the Fair 
Housing Amendments Act became effective in 1989, nine of the thirteen 
United States Courts of Appeals had determined that the Act prohibits 
housing practices with a discriminatory effect even absent an intent to 
discriminate. Two other United States Courts of Appeals have since 
reached the same conclusion, while another has assumed the same but did 
not need to reach the issue for purposes of deciding the case before 
it.
    Although there has been some variation in the application of the 
discriminatory effects standard, neither HUD nor any Federal court has 
ever determined that liability under the Act requires a finding of 
discriminatory intent. The purpose of this proposed rule, therefore, is 
to establish uniform standards for determining when a housing practice 
with a discriminatory effect violates the Fair Housing Act.

DATES: Comment due date: January 17, 2012.

ADDRESSES: Interested persons are invited to submit written comments 
regarding this proposed rule to the

[[Page 70922]]

Regulations Division, Office of General Counsel, Department of Housing 
and Urban Development, 451 7th Street SW., Room 10276, Washington, DC 
20410. All communications should refer to the above docket number and 
title. There are two methods for submitting public comments.
    1. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make them immediately 
available to the public. Comments submitted electronically through the 
http://www.regulations.gov Web site can be viewed by other commenters 
and interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.
    2. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW., Room 10276, 
Washington, DC 20410-0500.

    Note:  To receive consideration as public comments, comments 
must be submitted through one of the two methods specified above. 
Again, all submissions must refer to the docket number and title of 
the rule.


    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an appointment to review the public comments must be 
scheduled in advance by calling the Regulations Division at (202) 708-
3055 (this is not a toll-free number). Individuals with speech or 
hearing impairments may access this number via TTY by calling the 
Federal Relay Service at (800) 877-8339. Copies of all comments 
submitted are available for inspection and downloading at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Jeanine Worden, Associate General 
Counsel for Fair Housing, Office of General Counsel, U.S. Department of 
Housing and Urban Development, 451 7th Street SW., Washington, DC 
20410-0500, telephone number (202) 402-5188. Persons with hearing and 
speech impairments may contact this phone number via TTY by calling the 
Federal Information Relay Service at (800) 877-8399.

SUPPLEMENTARY INFORMATION:

I. Background

A. History of Discriminatory Effects Liability Under the Fair Housing 
Act

    The Fair Housing Act declares it to be ``the policy of the United 
States to provide, within constitutional limitations, for fair housing 
throughout the United States.'' \2\ Congress considered the realization 
of this policy ``to be of the highest priority.'' \3\ The language of 
the Fair Housing Act prohibiting discrimination in housing is ``broad 
and inclusive'';\4\ the purpose of its reach is to replace segregated 
neighborhoods with ``truly integrated and balanced living patterns.'' 
\5\ In commemorating the 40th anniversary of the Fair Housing Act and 
the 20th anniversary of the Fair Housing Amendments Act, the House of 
Representatives recognized that ``the intent of Congress in passing the 
Fair Housing Act was broad and inclusive, to advance equal opportunity 
in housing and achieve racial integration for the benefit of all people 
in the United States.'' \6\
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    \2\ See 42 U.S.C. 3601.
    \3\ Trafficante v. Metro. Life Ins. Co., 409 U.S. 205, 211 
(1972) (internal citation omitted).
    \4\ Id. at 209.
    \5\ Id. at 211.
    \6\ H. Res. 1095, 110th Cong., 2d Sess., 154 Cong. Rec. H2280-01 
(April 15, 2008) (2008 WL 1733432).
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    In keeping with the ``broad remedial intent'' of Congress in 
passing the Fair Housing Act,\7\ and consequently the Act's entitlement 
to a ``generous construction,'' \8\ HUD, to which Congress gave the 
authority and responsibility for administering the Fair Housing Act and 
the power to make rules to carry out the Act,\9\ has repeatedly 
determined that the Fair Housing Act is directed to the consequences of 
housing practices, not simply their purpose. Under the Act, housing 
practices--regardless of any discriminatory motive or intent--cannot be 
maintained if they operate to deny protected groups equal housing 
opportunity or they create, perpetuate, or increase segregation without 
a legally sufficient justification.
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    \7\ Havens Realty Corp. v. Coleman, 455 U.S. 363, 380 (1982).
    \8\ City of Edmonds v. Oxford House, Inc., 514 U.S. 725, 731-732 
(1995).
    \9\ See 42 U.S.C. 3608(a) and 42 U.S.C. 3614a.
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    Accordingly, HUD has concluded that the Act provides for liability 
based on discriminatory effects without the need for a finding of 
intentional discrimination. For example, HUD's Title VIII Complaint 
Intake, Investigation and Conciliation Handbook (Handbook), which sets 
forth HUD's guidelines for investigating and resolving Fair Housing Act 
complaints, recognizes the discriminatory effects theory of liability 
and requires HUD investigators to apply it in appropriate cases.\10\ In 
adjudicating charges of discrimination filed by HUD under the Fair 
Housing Act, HUD administrative law judges have held that the Act is 
violated by facially neutral practices that have a disparate impact on 
protected classes.\11\ HUD's regulations interpreting the Fair Housing 
Act prohibit practices that create, perpetuate, or increase segregated 
housing patterns.\12\ HUD also joined with the Department of Justice 
and nine other Federal enforcement agencies to recognize that disparate 
impact is among the ``methods of proof of lending discrimination under 
the * * * Act'' and provide guidance on how to prove a disparate impact 
fair lending claim.\13\
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    \10\ See, e.g., Handbook at 3-25 (the Act is violated by an 
``action or policy [that] has a disproportionately negative effect 
upon persons of a particular race, color, religion, sex, familial 
status, national origin or handicap status''); id. at 2-27 (``a 
respondent may be held liable for violating the Fair Housing Act 
even if his action against the complainant was not even partly 
motivated by illegal considerations''); id. at 2-27 to 2-45 (HUD 
guidelines for investigating a disparate impact claim and 
establishing its elements).
    \11\ See e.g., HUD v. Twinbrook Village Apts., 2001 WL 1632533, 
at *17 (HUD ALJ Nov. 9, 2001) (``A violation of the [Act] may be 
premised on a theory of disparate impact.''); HUD v. Ross, 1994 WL 
326437, at *5 (HUD ALJ July 7, 1994) (``Absent a showing of business 
necessity, facially neutral policies which have a discriminatory 
impact on a protected class violate the Act.''); HUD v. Carter, 1992 
WL 406520, at *5 (HUD ALJ May 1, 1992) (``The application of the 
discriminatory effects standard in cases under the Fair Housing Act 
is well established.'').
    \12\ See 24 CFR 100.70.
    \13\ Policy Statement on Discrimination in Lending, 59 FR 
18,266, 18,268 (Apr. 15, 1994).
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    In addition, in regulations implementing the Federal Housing 
Enterprises Financial Safety and Soundness Act, HUD prohibited mortgage 
purchase activities that have a discriminatory effect. In enacting 
these regulations,\14\ which prescribe the fair lending 
responsibilities of the Federal National Mortgage Association (Fannie 
Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), HUD 
noted that ``the disparate impact (or discriminatory effect) theory is 
firmly established by Fair Housing Act case law'' and concluded that 
disparate impact law ``is applicable to all

[[Page 70923]]

segments of the housing marketplace, including the GSEs.'' \15\
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    \14\ See 24 CFR 81.42.
    \15\ The Secretary of HUD's Regulation of the Federal National 
Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage 
Corporation (Freddie Mac), 60 FR. 61,846, 61,867 (Dec. 1, 1995).
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    Moreover, all Federal courts of appeals to have addressed the 
question have held that liability under the Act may be established 
based on a showing that a neutral policy or practice either has a 
disparate impact on a protected group \16\ or creates, perpetuates, or 
increases segregation,\17\ even if such a policy or practice was not 
adopted for a discriminatory purpose.
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    \16\ See, e.g., Graoch Assocs. #33, L.P. v. Louisville/Jefferson 
County Metro Human Relations Comm'n, 508 F.3d 366, 374 (6th Cir. 
2007); Reinhart v. Lincoln County, 482 F.3d 1225, 1229 (10th Cir. 
2007); Charleston Housing Auth. v. U.S. Dep't of Agric., 419 F.3d 
729, 740-41 (8th Cir. 2005); Langlois v. Abington Hous. Auth., 207 
F.3d 43, 49-50 (1st Cir. 2000); Simms v. First Gibraltar Bank, 83 
F.3d 1546, 1555 (5th Cir. 1996); Jackson v. Okaloosa County, Fla., 
21 F.3d 1531, 1543 (11th Cir. 1994); Keith v. Volpe, 858 F.2d 467, 
484 (9th Cir. 1988); Huntington Branch, NAACP v. Town of Huntington, 
844 F.2d 926, 938 (2d Cir. 1988), judgment aff'd, 488 U.S. 15 
(1988); Resident Advisory Board v. Rizzo, 564 F.2d 126, 149-50 (3d 
Cir. 1977); Betsey v. Turtle Creek Assocs., 736 F.2d 983, 988-89 
(4th Cir. 1984); Metro. Housing Dev. Corp. v. Village of Arlington 
Heights, 558 F.2d 1283, 1290 (7th Cir. 1977).
    \17\ See, e.g., Graoch Associates #33, L.P. v. Louisville/
Jefferson County Metro Human Relations Comm'n, 508 F.3d 366, 378 
(6th Cir. 2007); Hallmark Developers, Inc. v. Fulton County, Ga., 
466 F.3d 1276, 1286 (11th Cir. 2006); Huntington Branch, NAACP v. 
Town of Huntington, 844 F.2d 926, 937 (2d Cir. 1988), aff'd, 488 
U.S. 15 (1988) (per curium); Betsey v. Turtle Creek Assocs., 736 
F.2d 983, 987 n.3 (4th Cir. 1984); Metro. Housing Dev. Corp. v. 
Village of Arlington Heights, 558 F.2d 1283, 1290-1291 (7th Cir. 
1977); United States. v. City of Black Jack, Missouri, 508 F.2d 
1179, 1184-86 (8th Cir. 1974); see also Trafficante, 409 U.S. at 
209-210.
---------------------------------------------------------------------------

    The Fair Housing Act's discriminatory effects standard is analogous 
to the discriminatory effects standard under Title VII of the Civil 
Rights Act of 1964 (42 U.S.C. 2000e), which prohibits discriminatory 
employment practices. The U.S. Supreme Court held that Title VII 
reaches beyond intentional discrimination to include employment 
practices that have a discriminatory effect.\18\ The Supreme Court 
explained that Title VII ``proscribes not only overt discrimination but 
also practices that are fair in form, but discriminatory in 
operation.'' \19\
---------------------------------------------------------------------------

    \18\ See Griggs v. Duke Power Co., 401 U.S. 424, 433-34 (1971).
    \19\ Id. at 431.
---------------------------------------------------------------------------

    It is thus well established that liability under the Fair Housing 
Act can arise where a housing practice is intentionally discriminatory 
or where it has a discriminatory effect.\20\ A discriminatory effect 
may be found where a housing practice has a disparate impact on a group 
of persons protected by the Act, or where a housing practice has the 
effect of creating, perpetuating, or increasing segregated housing 
patterns on a protected basis.\21\
---------------------------------------------------------------------------

    \20\ See, e.g., 42 U.S.C. 3604(a), (b), (f)(1), (f)(2); 42 
U.S.C. 3605; 42 U.S.C. 3606. Liability under the Fair Housing Act 
can also arise in other ways, for example, where a reasonable person 
would find a notice, statement, advertisement, or representation to 
be discriminatory, see 42 U.S.C. 3604(c), or where a reasonable 
accommodation is refused, see 42 U.S.C. 3604(f)(3). The Act also 
imposes an affirmative obligation on HUD and other executive 
departments and agencies to administer their programs and activities 
related to housing and urban development in a manner affirmatively 
to further the purposes of the Fair Housing Act. See 42 U.S.C. 
3608(d); see also 3608(e)(5).
    \21\ A ``discriminatory effect'' prohibited by the Act refers to 
either a ``disparate impact'' or the ``perpetuation of 
segregation.'' See, e.g. Graoch Associates #33, L.P. v. Louisville/
Jefferson County Metro Human Relations Comm'n, 508 F.3d 366, 378 
(6th Cir. 2007) (there are ``two types of discriminatory effects 
which a facially neutral housing decision can have: The first occurs 
when that decision has a greater adverse impact on one racial group 
than on another. The second is the effect which the decision has on 
the community involved; if it perpetuates segregation and thereby 
prevents interracial association it will be considered invidious 
under the Fair Housing Act independently of the extent to which it 
produces a disparate effect on different racial groups.'').
---------------------------------------------------------------------------

B. Application of the Discriminatory Effects Standard Under the Fair 
Housing Act

    While the discriminatory effects theory of liability under the Fair 
Housing Act is well established, there is minor variation in how HUD 
and the courts have applied that theory. For example, HUD has always 
used a three-step burden-shifting approach,\22\ as do many Federal 
courts of appeals.\23\ But some courts apply a multi-factor balancing 
test,\24\ other courts apply a hybrid between the two,\25\ and one 
court applies a different test for public and private defendants.\26\
---------------------------------------------------------------------------

    \22\ See, e.g., HUD v. Pfaff, 1994 WL 592199, at *8 (HUD ALJ 
Oct. 27, 1994); HUD v. Mountain Side Mobile Estates P'ship, 1993 WL 
367102, at *6 (HUD ALJ Sept. 20, 1993); HUD v. Carter, 1992 WL 
406520, at *6 (HUD ALJ May 1, 1992); Twinbrook Village Apts., 2001 
WL 1632533, at *17 (HUD ALJ Nov. 9, 2001); see also Policy Statement 
on Discrimination in Lending, 59 FR. 18,266, 18,269 (Apr. 15, 1994) 
(applying three-step test without specifying where the burden lies 
at each step).
    \23\ See, e.g., Oti Kaga, Inc. v. S. Dakota Hous. Dev. Auth., 
342 F.3d 871, 883 (8th Cir. 2003); Lapid -Laurel, L.L.C. v. Zoning 
Bd. of Adjustment of Twp. of Scotch Plains, 284 F.3d 442, 466-67 (3d 
Cir. 2002); Langlois v. Abington Hous. Auth., 207 F.3d 43, 49-50 
(1st Cir. 2000); Huntington Branch NAACP v. Town of Huntington, 
N.Y., 844 F.2d 926, 939 (2d Cir. 1988).
    \24\ See, e.g., Metro. Housing Dev. Corp. v. Village of 
Arlington Heights, 558 F.2d 1283, 1290 (7th Cir. 1977) (four-factor 
balancing test).
    \25\ See, e.g., Mountain Side Mobile Estates v. Sec'y HUD, 56 
F.3d 1243, 1252, 1254 (10th Cir. 1995) (three-factor balancing test 
incorporated into burden shifting framework to weigh defendant's 
justification); Graoch Associates #33, L.P. v. Louisville/Jefferson 
County Metro Human Relations Comm'n, 508 F.3d 366, 373 (6th Cir. 
2007) (balancing test incorporated as elements of proof after second 
step of burden shifting framework).
    \26\ The Fourth Circuit has applied a four-factor balancing test 
to public defendants and a burden-shifting approach to private 
defendants. See e.g., Betsey v. Turtle Creek Assocs., 736 F.2d 983, 
989 n.5 (4th Cir. 1984).
---------------------------------------------------------------------------

    Another source of variation is in the application of the burden-
shifting test. Under the burden-shifting approach, the plaintiff (or, 
in administrative proceedings, the complainant) must make a prima facie 
showing of either disparate impact or perpetuation of segregation. If 
the discriminatory effect is shown, the burden of proof shifts to the 
defendant (or respondent) to justify its actions. If the defendant or 
respondent satisfies its burden, courts and HUD administrative law 
judges have differed as to which party bears the burden of proving 
whether a less discriminatory alternative to the challenged practice 
exists. The majority of Federal courts of appeals that use a burden-
shifting approach place this burden on the plaintiff,\27\ analogizing 
to Title VII's burden-shifting framework.\28\ Other Federal courts of 
appeals have kept the burden with the defendant.\29\ HUD has, at times, 
placed this burden of proving a less discriminatory alternative on the 
respondent and, at other times, on the complainant.\30\
---------------------------------------------------------------------------

    \27\ See, e.g., Gallagher v. Magner, 619 F.3d 823, 834 (8th Cir. 
2010); Graoch Associates # 33, L.P. v. Louisville/Jefferson County 
Metro Human Relations Comm'n, 508 F.3d 366, 373-74 (6th Cir. 2007); 
Mountain Side Mobile Estates v. Sec'y HUD, 56 F.3d 1243, 1254 (10th 
Cir. 1995).
    \28\ See, e.g., Graoch, 508 F.3d at 373 (6th Cir. 2007) 
(``claims under Title VII and the [Fair Housing Act] generally 
should receive similar treatment''); Mountain Side Mobile Estates v. 
Sec'y HUD, 56 F.3d 1243, 1254 (10th Cir. 1995) (explaining that in 
interpreting Title VII, ``the Supreme Court has repeatedly stated 
that the ultimate burden of proving that discrimination against a 
protected group has been caused by a specific * * * practice remains 
with the plaintiff at all times'') (internal citation omitted).
    \29\ See, e.g., Huntington Branch NAACP v. Town of Huntington, 
N.Y., 844 F.2d 926, 939 (2d Cir. 1988); Resident Advisory Board v. 
Rizzo, 564 F.2d 126, 146-48 (3d Cir. 1977).
    \30\ Compare, e.g., HUD v. Carter, 1992 WL 406520, at *6 (HUD 
ALJ May 1, 1992) (respondent bears the burden of showing that no 
less discriminatory alternative exists), and Twinbrook Village 
Apts., 2001 WL 1632533, at *17 (HUD ALJ Nov. 9, 2001) (same), with 
HUD v. Mountain Side Mobile Estates P'ship, 1993 WL 367102, at *6 
(HUD ALJ Sept. 20, 1993) (complainant bears the burden of showing 
that a less discriminatory alternative exists), and HUD v. Pfaff, 
1994 WL 592199, at *8 (HUD ALJ Oct. 27, 1994) (same).
---------------------------------------------------------------------------

C. Scope of the Proposed Rule

    This proposed rule establishes a uniform standard of liability for 
facially neutral housing practices that have a discriminatory effect. 
Under this rule, liability is determined by a burden-shifting approach. 
The plaintiff or complainant first must bear the burden

[[Page 70924]]

of proving its prima facie case of either disparate impact or 
perpetuation of segregation, after which the burden shifts to the 
defendant or respondent to prove that the challenged practice has a 
necessary and manifest relationship to one or more of the defendant's 
or respondent's legitimate, nondiscriminatory interests. If the 
defendant or respondent satisfies its burden, the plaintiff or 
complainant may still establish liability by demonstrating that these 
legitimate nondiscriminatory interests could be served by a policy or 
decision that produces a less discriminatory effect.\31\
---------------------------------------------------------------------------

    \31\ See Graoch Associates #33, L.P. v. Louisville/Jefferson 
County Metro Human Relations Comm'n, 508 F.3d 366, 373-74 (6th Cir. 
2007); Oti Kaga, Inc. v. S. Dakota Hous. Dev. Auth., 342 F.3d 871, 
883 (8th Cir. 2003); Mountain Side Mobile Estates v. Sec'y HUD, 56 
F.3d 1243, 1254 (10th Cir. 1995).
---------------------------------------------------------------------------

    HUD proposes this standard for several reasons. First, Title VII, 
enacted four years before the Fair Housing Act, has often been looked 
to for guidance in interpreting analogous provisions of the Fair 
Housing Act.\32\ HUD's proposal is consistent with the discriminatory 
effects standard confirmed by Congress in the 1991 amendments to Title 
VII.\33\ Second, HUD's proposal is consistent with the discriminatory 
effects standard applied under the Equal Credit Opportunities Act 
(ECOA),\34\ which borrows from Title VII's burden-shifting 
framework.\35\ There is significant overlap in coverage between ECOA, 
which prohibits discrimination in credit, and the Fair Housing Act, 
which prohibits discrimination in residential real estate-related 
transactions.\36\ The interagency Policy Statement on Discrimination in 
Lending analyzed the standard for proving disparate impact 
discrimination in lending under the Fair Housing Act and under ECOA 
without differentiation.\37\ Under HUD's proposed framework, parties 
litigating a claim brought under both the Fair Housing Act and ECOA 
will not face the burden of applying inconsistent methods of proof to 
factually indistinguishable claims. Third, by placing the burden of 
proving a necessary and manifest relationship to a legitimate, 
nondiscriminatory interest on the defendant or respondent and the 
burden of proving a less discriminatory alternative on the plaintiff or 
complainant, ``neither party is saddled with having to prove a 
negative.'' \38\
---------------------------------------------------------------------------

    \32\ See, e.g., Trafficante, 409 U.S. at 205; The Secretary of 
HUD's Regulation of the Federal National Mortgage Association 
(Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie 
Mac), 60 FR 61,846, 61,868 (Dec. 1, 1995). Short form cite see n. 
15.
    \33\ See 42 U.S.C. 2000e-2(k).
    \34\ ECOA prohibits discrimination in credit on the basis of 
race and other enumerated criteria. See 15 U.S.C. 1691.
    \35\ See S. Rep. 94-589, 94th Cong., 2d Sess. (1976) (``judicial 
constructions of antidiscrimination legislation in the employment 
field, in cases such as Griggs v. Duke Power Company, 401 U.S. 424 
(1971), and Albemarle Paper Co. v. Moody (U.S. Supreme Court, June 
25, 1975) [422 U.S. 405], are intended to serve as guides in the 
application of [ECOA], especially with respect to the allocations of 
burdens of proof.''); 12 CFR 202.6(a), n. 2 (1997) (``The 
legislative history of [ECOA] indicates that the Congress intended 
an ``effects test'' concept, as outlined in the employment field by 
the Supreme Court in the cases of Griggs v. Duke Power Co., 401 U.S. 
424 (1971) and Albemarle Paper Co. v. Moody, 422 U.S. 405 (1975), to 
be applicable to a creditor's determination of creditworthiness.''); 
12 CFR part 202, Supp. I, Official Staff Commentary, Comment 6(a)-2 
(``Effects test. The effects test is a judicial doctrine that was 
developed in a series of employment cases decided by the Supreme 
Court under Title VII of the Civil Rights Act of 1964 (42 U.S.C. 
2000e et seq.), and the burdens of proof for such employment cases 
were codified by Congress in the Civil Rights Act of 1991 (42 U.S.C. 
2000e-2).'').
    \36\ See 59 FR 18,266.
    \37\ See 59 FR 18,266, 18,269 (Apr. 15, 1994).
    \38\ Hispanics United of DuPage Cnty. v. Vill. of Addison, Ill., 
988 F.Supp. 1130, 1162 (N.D. Ill. 1997).
---------------------------------------------------------------------------

II. This Proposed Rule

A. Subpart G--Discriminatory Effect

1. Discriminatory Effect Prohibited (Sec.  100.500)
    HUD proposes adding a new subpart G, entitled ``Prohibiting 
Discriminatory Effects,'' to its Fair Housing Act regulations in 24 CFR 
part 100. Subpart G would confirm that the Fair Housing Act may be 
violated by a housing practice that has a discriminatory effect, as 
defined in Sec.  100.500(a), regardless of whether the practice was 
adopted for a discriminatory purpose. The housing practice may still be 
lawful if supported by a legally sufficient justification, as defined 
in Sec.  100.500(b). The respective burdens of proof for establishing 
or refuting an effects claim are set forth in Sec.  100.500(c). 
Subsection 100.500(d) clarifies that a legally sufficient justification 
does not defeat liability for a discriminatory intent claim once the 
intent to discriminate has been established.\39\
---------------------------------------------------------------------------

    \39\ It is possible to bring a claim alleging both 
discriminatory effect and discriminatory intent as alternative 
theories of liability. In addition, the discriminatory effect of a 
challenged practice may provide evidence of the discriminatory 
intent behind the practice. See, e.g., Vill. of Arlington Heights v. 
Metro. Housing Dev. Corp., 429 U.S. 252, 266 (1977). But proof of 
intent to discriminate is not necessary to prevail on a 
discriminatory effects claim. See, e.g., Black Jack, 508 F.2d at 
1184-85.
---------------------------------------------------------------------------

    This proposed rule would apply to both public and private entities 
because the definition of ``discriminatory housing practice'' under the 
Act makes no distinction between the two.\40\
---------------------------------------------------------------------------

    \40\ See 42 U.S.C. 3602(f) (defining ``discriminatory housing 
practice'' as ``an act that is unlawful under Section 804, 805, 806, 
or 818,'' none of which distinguish between public and private 
entities); see also Nat'l Fair Housing Alliance, Inc. v. Prudential 
Ins. Co. of Am., 208 F. Supp. 2d 46, 59-60 & n.7 (D.D.C. 2002) 
(applying the same impact analysis to a private entity as to public 
entities, noting that a ``distinction between governmental and non-
governmental bodies finds no support in the language of the [Act] or 
in [its] legislative history'').
---------------------------------------------------------------------------

2. Discriminatory Effect Defined (Sec.  100.500(a))
    Under the Fair Housing Act and this proposed rule, a 
``discriminatory effect'' occurs where a facially neutral housing 
practice actually or predictably results in a discriminatory effect on 
a group of persons (that is, a disparate impact), or on the community 
as a whole (perpetuation of segregation).\41\ Any facially neutral 
action, e.g. laws, rules, decisions, standards, policies, practices, or 
procedures, including those that allow for discretion or the use of 
subjective criteria, may result in a discriminatory effect actionable 
under the Fair Housing Act and this rule.
---------------------------------------------------------------------------

    \41\ See, e.g., Graoch Associates # 33, L.P., 508 F.3d at 378.
---------------------------------------------------------------------------

    Disparate Impact. Examples of a housing policy or practice that may 
have a disparate impact on a class of persons delineated by 
characteristics protected by the Act include a zoning ordinance 
restricting private construction of multifamily housing to a largely 
minority area (see Huntington Branch, 844 F.2d at 937); the provision 
and pricing of homeowner's insurance (see Ojo v. Farmers Group, Inc., 
600 F.3d 1205, 1207-8 (9th Cir. 2010) (en banc)); mortgage pricing 
policies that give lenders or brokers discretion to impose additional 
charges or higher interest rates unrelated to a borrower's 
creditworthiness (see Miller v. Countrywide Bank, N.A., 571 F. Supp. 2d 
251, 253 (D. Mass. 2008)); credit scoring overrides provided by a 
purchaser of loans (see Beaulialice v. Federal Home Loan Mortg. Corp., 
2007 WL 744646, *4 (M.D. Fla. Mar. 6, 2007)); and credit offered on 
predatory terms, (see Hargraves v. Capitol City Mortgage, 140 F. Supp. 
2d 7, 20-21 (D.D.C. 2000)). Further examples of such claims can be 
found in the following court cases: Keith v. Volpe, 858 F.2d 467, 484 
(9th Cir. 1988), where the city's land-use decisions that prevented the 
construction of two housing developments for city residents displaced 
by a freeway had a greater adverse impact on minorities than on whites 
because two-thirds of the persons who would have benefited from the 
housing were minorities; (Langlois, 207 F.3d at 50, where public 
housing authorities' use of local residency preferences to award 
Section 8 Housing

[[Page 70925]]

Choice Vouchers likely would result in an adverse impact based on race; 
United States v. Incorporated Village of Island Park, 888 F. Supp. 419, 
447 (E.D.N.Y. 1995), where a housing program's preference for residents 
of the Village, most of whom were white, had a disparate impact on 
African-Americans; Charleston Housing Auth., 419 F.3d at 741-42, where 
the housing authority's plan to demolish 50 low-income public housing 
units--46 of which were occupied by African Americans--would 
disproportionately impact African Americans based on an analysis of the 
housing authority's waiting list population, the population of 
individuals income-eligible for public housing, or the current tenant 
population; and Smith v. Town of Clarkton, N.C., 682 F.2d 1055, 1065-66 
(4th Cir. 1982), where the town's withdrawal from a multi-municipality 
housing authority effectively blocked construction of 50 units of 
public housing, adversely affecting African American residents of the 
county, who were those most in need of new construction to replace 
substandard dwellings).
    Perpetuation of Segregation. A person or entity may be liable for a 
housing policy or practice that has a discriminatory effect on the 
community because the practice has the effect of creating, 
perpetuating, or increasing housing patterns that segregate by race, 
color, religion, sex, familial status, national origin, or disability. 
Examples of such claims can be found in the following court cases: 
Huntington Branch, 844 F.2d at 934, 937, where the town's zoning 
ordinance, which limited private construction of multifamily housing to 
a largely minority neighborhood, had the effect of perpetuating 
segregation ``by restricting low-income housing needed by minorities to 
an area already 52% minority''; Dews v. Town of Sunnyvale, Tex., 109 F. 
Supp. 2d 526, 567 (N.D. Tex. 2000), where the town's zoning ordinance 
that banned multifamily housing and required single-family lots of at 
least one acre had the effect of perpetuating segregation by keeping 
minorities out of a town that was 94 percent white; Black Jack, 508 
F.2d at 1186, where a city ordinance preventing the construction of 
low-income multifamily housing ``would contribute to the perpetuation 
of segregation in a community which was 99% white''; and Inclusive 
Communities Projects, Inc. v. Texas Dep't of Housing & Community 
Affairs, 749 F. Supp. 2d 486, 500 (N.D. Tex. 2010), where the state's 
disproportionate denial of tax credits for nonelderly housing in 
predominately white neighborhoods had a segregative impact on the 
community.
3. Legally Sufficient Justification (Sec.  100.500(b))
    A housing practice or policy found to have a discriminatory effect 
may still be lawful if it has a ``legally sufficient justification.'' A 
``legally sufficient justification'' exists where the housing practice 
or policy: (1) Has a necessary and manifest relationship to the 
defendant's or respondent's legitimate, nondiscriminatory interests; 
\42\ and (2) those interests cannot be served by another practice that 
has a less discriminatory effect.\43\ A legally sufficient 
justification may not be hypothetical or speculative. In addition, a 
legally sufficient justification does not defeat liability for a 
discriminatory intent claim once the intent to discriminate has been 
established.
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    \42\ See, e.g., Charleston Housing Auth., 419 F.3d at 741 
(``[u]nder the second step of the disparate impact burden shifting 
analysis, the [defendant] must demonstrate that the proposed action 
has a manifest relationship to the legitimate non-discriminatory 
policy objectives'' and ``is necessary to the attainment of these 
objectives'') (internal quotation marks omitted); Betsey v. Turtle 
Creek Assocs., 736 F.2d 983, 988-89 (4th Cir. 1984); 24 CFR 
100.125(c); 59 FR 18,266, 18,269; see also 60 FR at 61,868.
    \43\ See, e.g., Oti Kaga, Inc. v. South Dakota Housing Dev. 
Auth., 342 F.3d 871, 883 (8th Cir. 2003).
---------------------------------------------------------------------------

4. Burdens of Proof (Sec.  100.500(c))
    The burden-shifting framework set forth in the proposed rule for 
discriminatory effect claims finds support in judicial interpretations 
of the Act, and is also consistent with the burdens of proof Congress 
assigned in disparate impact employment discrimination cases. See 42 
U.S.C. Sec.  2000e-2(k). In the proposed rule, the complainant or 
plaintiff first bears the burden of proving its prima facie case, that 
is, that a housing practice caused, causes, or will cause a 
discriminatory effect on a group of persons or a community on the basis 
of race, color, religion, sex, disability, familial status, or national 
origin.
    Once the complainant or plaintiff has made its prima facie case, 
the burden of proof shifts to the respondent or defendant to prove that 
the challenged practice has a necessary and manifest relationship to 
one or more of the housing provider's legitimate, nondiscriminatory 
interests.
    If the respondent or defendant satisfies its burden, the 
complainant or plaintiff may still establish liability by demonstrating 
that these legitimate, nondiscriminatory interests could be served by a 
policy or decision that produces a less discriminatory effect.

B. Examples of Housing Practices With Discriminatory Effects

    Violations of various provisions of the Act may be established by 
proof of discriminatory effects. For example, under 42 U.S.C. 
subsections 3604(a) and 3604(f)(1), discriminatory effects claims may 
be brought under the Act's provisions that make it unlawful to 
``otherwise make unavailable or deny [ ] a dwelling'' because of a 
protected characteristic. Discriminatory effects claims may be brought 
pursuant to subsections 3604(b) and 3604(f)(2) of the Act prohibiting 
discrimination ``in the terms, conditions, or privileges of sale or 
rental of a dwelling, or in the provision of services or facilities in 
connection therewith, because of'' a protected characteristic. For 
residential real estate-related transactions, discriminatory effects 
claims may be brought under section 3605, which bars ``discrimination 
against any person in making available such a transaction, or in the 
terms or conditions of such a transaction, because of'' a protected 
characteristic. Discriminatory effects claims may also be brought under 
section 3606, prohibiting discrimination in the provision of brokerage 
services.
    HUD's existing Fair Housing Act regulations provide examples of 
housing practices that may violate the Act, based on an intent theory, 
an effects theory, or both. The proposed rule adds examples of 
discriminatory housing practices that may violate the new subsection G 
because they have a discriminatory effect. The cases cited in Section 
II.A.2 of this preamble identify housing practices found by courts to 
create discriminatory effects that violate or may violate the Act. 
These cases are provided as examples only and should not be viewed as 
the only ways to establish a violation of the Act based on a 
discriminatory effects theory.

III. Solicitation of Comments

    The Department welcomes comments on the standards proposed in this 
rule, including whether a burden-shifting approach should be used to 
determine when a housing practice with a discriminatory effect violates 
the Fair Housing Act and, where proof is required of the existence or 
nonexistence of a less discriminatory alternative to the challenged 
practice, which party should bear that burden. These comments will help 
the Department in its effort to craft final regulations that best serve 
the broad, remedial goals of the Fair Housing Act.

[[Page 70926]]

IV. Findings and Certifications

Executive Order 12866, Regulatory Planning and Review

    The Office of Management and Budget (OMB) reviewed this proposed 
rule under Executive Order 12866 (entitled ``Regulatory Planning and 
Review''). The proposed rule has been determined to be a ``significant 
regulatory action,'' as defined in section 3(f) of the Order, but not 
economically significant under section 3(f)(1) of the Order. The docket 
file is available for public inspection in the Regulations Division, 
Office of General Counsel, Department of Housing and Urban Development, 
451 7th Street SW., Room 10276, Washington, DC 20410-0500. Due to 
security measures at the HUD Headquarters building, please schedule an 
appointment to review the docket file by calling the Regulations 
Division at (202) 402-3055 (this is not a toll-free number). 
Individuals with speech or hearing impairments may access this number 
via TTY by calling the Federal Relay Service at (800) 877-8339.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.) 
generally requires an agency to conduct a regulatory flexibility 
analysis of any rule subject to notice and comment rulemaking 
requirements, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
This rule proposes to establish uniform standards for determining when 
a housing practice with a discriminatory effect violates the Fair 
Housing Act.
    Discriminatory effects liability is consistent with the position of 
other Executive Branch agencies and has been applied by every Federal 
court of appeals to have reached the question. Given the variation in 
how the courts have applied that standard, HUD's objective in this 
proposed rule is to achieve consistency and uniformity in this area, 
and therefore reduce burden for all who may be involved in a challenged 
practice. Accordingly, the undersigned certifies that the proposed rule 
will not have a significant economic impact on a substantial number of 
small entities.

Environmental Impact

    This proposed rule sets forth nondiscrimination standards. 
Accordingly, under 24 CFR 50.19(c)(3), this rule is categorically 
excluded from environmental review under the National Environmental 
Policy Act of 1969 (42 U.S.C. 4321).

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either: (i) Imposes substantial direct compliance costs on state and 
local governments and is not required by statute, or (ii) preempts 
state law, unless the agency meets the consultation and funding 
requirements of section 6 of the Executive Order. This proposed rule 
would not have federalism implications and would not impose substantial 
direct compliance costs on state and local governments or preempt state 
law within the meaning of the Executive Order.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1531-1538) (UMRA) establishes requirements for Federal agencies to 
assess the effects of their regulatory actions on state, local, and 
tribal governments, and on the private sector. This proposed rule would 
not impose any Federal mandates on any state, local, or tribal 
governments, or on the private sector, within the meaning of the UMRA.

List of Subjects in 24 CFR Part 100

    Civil rights, Fair housing, Individuals with disabilities, 
Mortgages, Reporting and recordkeeping requirements.

    For the reasons discussed in the preamble, HUD proposes to amend 24 
CFR part 100 as follows:

PART 100--DISCRIMINATORY CONDUCT UNDER THE FAIR HOUSING ACT

    1. The authority for 24 CFR part 100 continues to read as follows:

    Authority:  42 U.S.C. 3535(d), 3600-3620.

    2. In Sec.  100.65, a new paragraph (b)(6) is added to as follows:


Sec.  100.65  Discrimination in terms, conditions and privileges and in 
services and facilities.

* * * * *
    (b) * * *
    (6) Providing different, limited, or no governmental services such 
as water, sewer, or garbage collection in a manner that has a disparate 
impact or has the effect of creating, perpetuating, or increasing 
segregated housing patterns on the basis of race, color, religion, sex, 
handicap, familial status, or national origin.
    3. In Sec.  100.70, add a new paragraph (d)(5) to read as follows:


Sec.  100.70  Other prohibited conduct.

* * * * *
    (d) * * *
    (5) Implementing land-use rules, policies, or procedures that 
restrict or deny housing opportunities in a manner that has a disparate 
impact or has the effect of creating, perpetuating, or increasing 
segregated housing patterns on the basis of race, color, religion, sex, 
handicap, familial status, or national origin.
    4. In Sec.  100.120, amend paragraph (b) to read as follows:


Sec.  100.120  Discrimination in the making of loans and in the 
provision of other financial assistance.

* * * * *
    (b) Prohibited practices under this section include, but are not 
limited to:
    (1) Failing or refusing to provide to any person, in connection 
with a residential real estate-related transaction, information 
regarding the availability of loans or other financial assistance, 
application requirements, procedures, or standards for the review and 
approval of loans or financial assistance, or providing information 
which is inaccurate or different from that provided others, because of 
race, color, religion, sex, handicap, familial status, or national 
origin.
    (2) Providing loans or other financial assistance in a manner that 
results in disparities in their cost, rate of denial, or terms or 
conditions, or that has the effect of denying or discouraging their 
receipt on the basis of race, color, religion, sex, handicap, familial 
status, or national origin.
    5. In part 100, add a subpart G as follows:

Subpart G--Discriminatory Effect


Sec.  100.500  Discriminatory Effect Prohibited

    Liability may be established under this subpart based on a housing 
practice's discriminatory effect, as defined in Sec.  100.500(a), even 
if the housing practice is not motivated by a prohibited intent. The 
housing practice may still be lawful if supported by a legally 
sufficient justification, as defined in Sec.  100.500(b). The burdens 
of proof for establishing a violation under this subpart are set forth 
in Sec.  100.500(c).
    (a) Discriminatory effect defined. A housing practice has a 
discriminatory effect where it actually or predictably:
    (1) Results in a disparate impact on a group of persons on the 
basis of race, color, religion, sex, handicap, familial status, or 
national origin; or
    (2) Has the effect of creating, perpetuating, or increasing 
segregated housing patterns on the basis of race, color, religion, sex, 
handicap, familial status, or national origin.

[[Page 70927]]

    (b) Legally sufficient justification. A legally sufficient 
justification exists where the challenged housing practice: (1) Has a 
necessary and manifest relationship to one or more legitimate, 
nondiscriminatory interests of the respondent, with respect to claims 
brought under 42 U.S.C. 3610, or defendant, with respect to claims 
brought under 42 U.S.C. 3613 or 3614; and (2) those interests cannot be 
served by another practice that has a less discriminatory effect. The 
burdens of proof for establishing each of the two elements of a legally 
sufficient justification are set forth in Sec.  100.500(c)(2)-(c)(3).
    (c) Burdens of proof in discriminatory effects cases.
    (1) A complainant, with respect to claims brought under 42 U.S.C. 
3610, or a plaintiff, with respect to claims brought under 42 U.S.C. 
3613 or 3614, has the burden of proving that a challenged practice 
causes a discriminatory effect.
    (2) Once a complainant or plaintiff satisfies the burden of proof 
set forth in paragraph (c)(1) of this section, the respondent or 
defendant has the burden of proving that the challenged practice has a 
necessary and manifest relationship to one or more legitimate, 
nondiscriminatory interests of the respondent or defendant.
    (3) If the respondent or defendant satisfies the burden of proof 
set forth in paragraph (c)(2) of this section, the complainant or 
plaintiff may still prevail upon demonstrating that the legitimate, 
nondiscriminatory interests supporting the challenged practice can be 
served by another practice that has a less discriminatory effect.
    (d) Relationship to discriminatory intent. A demonstration that a 
housing practice is supported by a legally sufficient justification, as 
defined in Sec.  100.500(b), may not be used as a defense against a 
claim of intentional discrimination.

    Dated: October 4, 2011.
John Trasvi[ntilde]a,
Assistant Secretary for Fair Housing and Equal Opportunity.
[FR Doc. 2011-29515 Filed 11-15-11; 8:45 am]
BILLING CODE 4210-67-P