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

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

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

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

    \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