Removing Criminal Conviction Restrictions for Testers in FHIP- and FHAP-Funded Testing Programs, 74381-74386 [2023-23678]

Agencies

• DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Federal Register Volume 88, Number 209 (Tuesday, October 31, 2023)]
[Proposed Rules]
[Pages 74381-74386]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-23678]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Parts 115 and 125

[Docket No. FR-6355-P-01]
RIN 2529-AB07


Removing Criminal Conviction Restrictions for Testers in FHIP- 
and FHAP-Funded Testing Programs

AGENCY: Office of Fair Housing and Equal Opportunity, HUD.

ACTION: Proposed rule.

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SUMMARY: Through this proposed rule, the U.S. Department of Housing and 
Urban Development (HUD) seeks to eliminate the tester restrictions for 
Fair Housing Initiatives Program (FHIP) grantees and for Fair Housing 
Assistance Program (FHAP) agencies that forbid FHIP and FHAP recipients 
from using fair housing testers with prior felony convictions or 
convictions of crimes involving fraud or perjury. This proposed rule 
would make HUD's programs as inclusive as possible for people with 
criminal records, consistent with Secretary Marcia Fudge's April 12, 
2022 Memorandum, ``Eliminating Barriers That May Unnecessarily Prevent 
Individuals with Criminal Histories from Participating in HUD 
Program,'' and ensure that FHIP and FHAP funded entities are able to 
fully investigate criminal background screening policies that are 
potentially discriminatory under federal civil rights laws by using 
testers with actual criminal backgrounds.

DATES: Comment due date: January 2, 2024.

ADDRESSES: Interested persons are invited to submit comments regarding

[[Page 74382]]

this proposed rule. There are two methods for submitting public 
comments. All submissions must refer to the above docket number and 
title.
    1. 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.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
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 
www.regulations.gov website 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.
    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 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 advance 
appointment to review the public comments must be scheduled by calling 
the Regulations Division at 202-402-3055 (this is not a toll-free 
number). HUD welcomes and is prepared to receive calls from individuals 
who are deaf or hard of hearing, as well as individuals with speech or 
communication disabilities. To learn more about how to make an 
accessible telephone call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs. Copies of all comments 
submitted are available for inspection and downloading at 
www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Demetria McCain, Principal Deputy 
Assistant Secretary for Fair Housing and Equal Opportunity, Department 
of Housing and Urban Development, Office of Fair Housing and Equal 
Opportunity, 451 7th Street SW, Room 5250, Washington, DC 20410-8000, 
telephone number 202 402-7861 (this is not a toll-free number). HUD 
welcomes and is prepared to receive calls from individuals who are deaf 
or hard of hearing, as well as individuals with speech or communication 
disabilities. To learn more about how to make an accessible telephone 
call, please visit https://www.fcc.gov/consumers/guides/telecommunications-relay-service-trs.

SUPPLEMENTARY INFORMATION:

I. Background

    On April 12, 2022, Secretary Marcia Fudge directed HUD to ``review 
our programs and put forth changes that ensure that our funding 
recipients are as inclusive as possible of individuals with criminal 
histories.'' \1\ Two HUD programs, the Fair Housing Initiative Program 
(FHIP) and the Fair Housing Assistance Program (FHAP) fund local 
private and governmental agencies who further enforcement of the Fair 
Housing Act. Current regulations forbid these entities from using these 
program funds for fair housing testing that involves testers with prior 
felony convictions or convictions of crimes involving fraud or perjury. 
The applicable regulations containing these restrictions can be found 
at 24 CFR 125.107(a) (the FHIP regulation) and 24 CFR 115.311(b) (the 
FHAP regulation).
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    \1\ ``Eliminating Barriers That May Unnecessarily Prevent 
Individuals with Criminal Histories from Participating in HUD 
Programs'' available at https://www.hud.gov/sites/dfiles/Main/documents/Memo_on_Criminal_Records.pdf.
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A. Fair Housing Initiatives Program (FHIP)

    In 1987, Congress established the FHIP to strengthen the 
Department's enforcement of the Fair Housing Act and to further fair 
housing. This program funds, among other things, ``testing'' activities 
undertaken by fair housing organizations and other private non-profits 
designed to enhance enforcement of the Fair Housing Act.
    Testing refers to the use of an individual or individuals 
(``testers'') who, without a bona fide intent to rent or purchase a 
house, apartment, or other dwelling, pose as prospective renters or 
purchasers for the purpose of gathering information that may indicate 
whether a housing provider is complying with fair housing laws.

B. History of the FHIP and its Testing Guidelines

    Section 561 of the Housing and Community Development Act of 1987 
(Section 561) established the FHIP as a temporary program, and 
specifically required HUD to ``establish guidelines for testing 
activities funded under the private enforcement initiative of the fair 
housing initiatives program.'' Section 561 noted the purpose of the 
guidelines was ``to ensure that investigations in support of fair 
housing enforcement efforts [. . .] shall develop credible and 
objective evidence of discriminatory housing practices.'' In the FHIP's 
first iteration, the enabling law imposed a sunset on the 
``demonstration period'' for September 30, 1989.\2\
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    \2\ Section 561(e).
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    In 1988, HUD proposed regulations for the demonstration period 
that, among many other requirements, forbid testers under the FHIP from 
having ``prior felony convictions or convictions of crimes involving 
fraud or perjury.'' This restriction followed a proposed requirement 
for a ``formal recruitment process designed to obtain a pool of 
credible and objective persons to serve as testers.'' \3\
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    \3\ 53 FR 25581 (July 7, 1988).
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    The Department's FHIP regulations for the demonstration period were 
finalized in 1989 at 24 CFR part 125, and contained a section titled 
``Guidelines for private enforcement testing'' (previously codified at 
Sec.  125.405). The Guidelines contained numerous prescriptive 
requirements about how eligible testing was to be designed and 
conducted (e.g., allowing testing only in response to a ``bona fide 
allegation''), including the requirement for a ``formal recruitment 
process designed to obtain a pool of credible and objective persons to 
serve as testers,'' followed by a restriction on testers having felony 
convictions or convictions of crimes involving fraud or perjury.\4\ The 
1989 final rule for the demonstration period describes comments both in 
support and in opposition of the proposed guidelines. None of the 
comments pertained specifically to the conviction restrictions for 
testers. Accordingly, HUD did not discuss that particular portion of 
the guidelines in the final rule.
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    \4\ 54 FR 6492, 6501 (Feb. 10, 1989).
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    Section 953 of the Cranston-Gonzalez National Affordable Housing 
Act (November 28, 1990) extended the FHIP sunset to September 30, 1992. 
Then in 1992, Congress made the FHIP program permanent through the 
Housing and Community Development Act of 1992 that codified the FHIP 
provisions in the Fair Housing Act at 42 U.S.C. 3616a.\5\
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    \5\ Public Law 102-550, October 28, 1992, 106 Stat. 3672.

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[[Page 74383]]

    The guidelines section at 24 CFR 125.405 that had been established 
in 1989 changed significantly when regulations for the permanent 
program were issued in 1995, but the tester conviction restriction 
remained.\6\ As explained in the 1994 proposed rule, ``the passage of 
section 905 establishes FHIP as a permanent program, and with the 
expiration of the demonstration period, the requirement for testing 
guidelines is removed. The revised Sec.  125.405 [retitled ``Testers''] 
proposed here would remove the testing guidelines, but would still 
require that testers must not have prior felony convictions or 
convictions of crimes involving fraud or perjury, and that they receive 
training or be experienced in testing procedures and techniques.'' \7\
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    \6\ 60 FR 58452, 58453 (Nov. 27, 1995).
    \7\ 59 FR 44596-01 (Aug. 29, 1994) (``The Department considered 
two factors to be significant and determinative in the decision to 
eliminate testing guidelines from the regulation. First, in the 
original authorizing statute for FHIP, Congress specifically limited 
the requirement for testing guidelines to the demonstration period; 
and second, Congress did not include this requirement in its 
permanent authorization of FHIP by section 905.'')
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    HUD did not provide an explanation for why it chose to retain the 
tester restriction in the 1994 final rule. Like with the 1989 final 
rule, HUD received comments in support of and in opposition to removing 
most of the testing guidelines, but none of the comments discussed the 
tester conviction portion that remained. The operative section was 
moved to 24 CFR 125.07--Testers: \8\ ``The following requirements apply 
to testing activities funded under the FHIP: a) Testers must not have 
prior felony convictions or convictions of crimes involving fraud or 
perjury.'' This language has not changed since 1995.
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    \8\ In addition to the conviction restrictions, 24 CFR 125.107 
also imposes these requirements on testers: (b) Testers must receive 
training or be experienced in testing procedures and techniques, and 
(c) Testers and the organizations conducting tests, and the 
employees and agents of these organizations may not: (1) Have an 
economic interest in the outcome of the test, without prejudice to 
the right of any person or entity to recover damages for any 
cognizable injury; (2) Be a relative of any party in a case; (3) 
Have had any employment or other affiliation, within one year, with 
the person or organization to be tested; or (4) Be a licensed 
competitor of the person or organization to be tested in the 
listing, rental, sale, or financing of real estate.
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C. The Fair Housing Assistance Program (FHAP)

    While the FHIP funds private non-profits to assist in enforcement 
of the Fair Housing Act and substantially equivalent local laws, the 
FHAP funds State and local governmental agencies to do the same. 
Section 817 of the Fair Housing Act, 42 U.S.C. 3616, provides that the 
Secretary may reimburse State and local fair housing enforcement 
agencies that assist the Secretary in enforcing the Act. HUD has 
implemented section 817 at subpart C of 24 CFR part 115, which sets 
forth the requirements for participation in the FHAP. Under the FHAP, a 
State or local agency is certified for participation if the Department 
determines that the agency adequately enforces a law or laws that 
provide rights, procedures, remedies, and judicial review provisions 
that are substantially equivalent to the federal Fair Housing Act.\9\
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    \9\ See 42 U.S.C. 3610(f); 24 CFR part 115.
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D. History of the FHAP and its Testing Guidelines

    In 1980, the Carter administration asked Congress to authorize 
funding for HUD to assist State and local agencies in enforcing fair 
housing laws, citing limitations that localities had in processing fair 
housing complaints. This request was approved by Congress in Public Law 
96-103 (FY1980 Appropriations Act for HUD), which marked the 
establishment of the FHAP.\10\ That same year, HUD issued an interim 
final rule that established ``the eligibility criteria for participants 
in the Fair Housing Assistance Program (FHAP) and the minimum standards 
which specific project proposals must meet.'' \11\ HUD issued 
subsequent rules for the FHAP in 1982, 1988, and 1989. None of these 
initial rules addressed fair housing testing in any way.\12\ The 
interim and final rules in 1996 mention testing only to note that any 
ordinances that include ``anti-testing provisions'' would prevent a 
jurisdiction from achieving substantially equivalent status.\13\ In 
2005, HUD first addressed the criminal backgrounds of FHAP testers in 
FHAP regulations.
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    \10\ See The Fair Housing Act: HUD Oversight, Programs, and 
Activities, Congressional Research Service R44557 (April 7, 2021) 
(citing U.S. Department of Housing and Urban Development, FY1980 
Budget Justifications, p. Q-2 and Pub. L. 96-103) available at 
sgp.fas.org/crs/misc/R44557.pdf.
    \11\ 45 FR 31880 (May 14, 1980).
    \12\ Id.; 47 FR 8991 (March 3, 1982); 53 FR 34668 (Sept. 7, 
1988); 54 FR 20094 (May 9, 1989).
    \13\ 61 FR 7674 (Feb. 28, 1996); 61 FR 41282 (Aug. 7, 1996).
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    The proposed rule in 2005 and final rule in 2007 created a new 
definition of testing \14\ and included a new section on testing, which 
read in part: ``The following requirements apply to testing activities 
funded under the FHAP: [. . .] Testers must not have prior felony 
convictions or convictions of any crimes involving fraud or perjury.'' 
\15\ There was no commentary about this restriction from the public or 
HUD in these rules.
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    \14\ ``Testing refers to the use of an individual or individuals 
(``testers'') who, without a bona fide intent to rent or purchase a 
house, apartment, or other dwelling, pose as prospective renters or 
purchasers for the purpose of gathering information that may 
indicate whether a housing provider is complying with fair housing 
laws.'' 70 FR 28748 (May 18, 2005); 72 FR 19070 (Apr. 16, 2007); 
currently codified at 24 CFR 115.100(c).
    \15\ 70 FR 28748 (May 18, 2005); 72 FR 19070 (Apr. 16, 2007); 
currently codified at 24 CFR 115.311(b). Unlike the FHIP criminal 
conviction restriction, the FHAP restriction was not proceeded by 
any reference to credibility.
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E. Basis for Tester Restrictions

    As is explained above, in 1987, Congress required HUD to establish 
guidelines for the FHIP demonstration period that would help ensure 
that FHIP grantees' investigations developed ``credible evidence'' of 
discriminatory housing practices. While HUD has never been explicit, it 
presumably first enacted the restrictions on testers' criminal 
histories and then continued them in subsequent rulemakings because of 
the idea that certain criminal convictions would undermine a tester's 
credibility in testifying in court to what the tester witnessed under 
Rule 609 of the Federal Rules of Evidence (FRE) 609, which provides 
that certain criminal convictions may be admitted to attack witness's 
``character for truthfulness.'' \16\
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    \16\ FRE 609(a). Also, twenty-four states have local rules of 
evidence with substantially similar provisions to FRE 609. 6 
Weinstein's Federal Evidence Article VI (2021).
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    Specifically, in civil cases where the witness is not the 
defendant, FRE 609 requires the admission of evidence of two categories 
of criminal convictions: (1) a crime punishable by death or 
imprisonment for more than one year, and (2) any conviction of a crime 
involving dishonesty or false statement. However, both categories are 
subject to a number of exceptions that limit admissibility.\17\
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    \17\ Specifically, although FRE 609(a)(1)(A) requires the 
admission of a crime that was punishable by death or by imprisonment 
for more than one year (what is often categorized as a felony), this 
requirement is explicitly subject to Rule 403. Rule 403 says that a 
court may exclude relevant evidence if its probative value is 
substantially outweighed by a danger of one or more of the 
following: unfair prejudice, confusing the issues, misleading the 
jury, undue delay, wasting time, or needlessly presenting cumulative 
evidence. Although FRE 609(a)(2) requires admission of any crime if 
the elements of the crime required proving--or the witness's 
admitting--a dishonest act or false statement (i.e., crimes of 
dishonesty), evidence of the conviction is admissible only if its 
probative value, supported by specific facts and circumstances, 
substantially outweighs its prejudicial effect, if the conviction is 
older than 10 years. See FRE 609(b). Also under both categories, 
juvenile convictions are explicitly not admissible. 609(d). Nor are 
convictions that have been the subject of a pardon, annulment, 
certificate of rehabilitation, or other equivalent procedure based 
on a finding of innocence. 609(b).

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[[Page 74384]]

F. How HUD's Conviction Restrictions Are Overbroad, Outdated, and 
Unnecessary

    Notably, the disqualifying convictions covered by HUD's regulations 
are much broader than those in FRE-609. For example, unlike 609, HUD's 
current regulations always disqualify testers for prior convictions, 
even those that are over 10 years old and have little or no probative 
value. In addition, HUD's current regulations do not have explicit 
carve outs for testers whose convictions have been the subject of a 
pardon, annulment, certificate of rehabilitation or similar findings of 
innocence. Moreover, HUD's current regulations may disqualify testers 
with certain juvenile convictions.
    More broadly, even with respect to convictions that could be 
admissible under FRE 609, HUD now sees no reason to categorically bar 
those who conduct testing using FHIP or FHAP funds from employing 
testers with such convictions. Those entities may reasonably conclude 
that the prospect of admissibility under FRE 609 in litigation is of 
little consequence.\18\
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    \18\ Several fair housing organizations from across the country 
recently wrote HUD noting that ``[p]eople with conviction histories 
commonly testify credibly in civil matters, and organizations can 
make individual determinations, consistent with HUD and EEOC 
guidance, as to the facts or circumstances surrounding the proposed 
tester's criminal conduct and whether these facts would be likely to 
present barriers to credibility. . . Critically, the vast majority 
of fair housing testers never testify at trial at all, nor is 
eliciting trial testimony a primary purpose of testing. Instead, 
test results often serve as the basis to start a broader 
investigation and enforcement strategy and provide helpful data to 
guide education efforts. Even when cases do go to litigation, only a 
very small percentage go to trial and a smaller percentage still 
involve the testimony of a tester.''
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    Based on HUD's experience investigating fair housing complaints, 
testers today generally audio and/or video record their testing 
experiences, meaning that the recordings--not the testers' testimony--
are of utmost importance in most fact-finding hearings.\19\ Recording 
fair housing tests has become ubiquitous as cost of devices and 
technology has gone down and the utility of such recordings has become 
evident. Such recording is not only relatively inexpensive, it is also 
explicitly legal: Federal law and state law in many states allow a 
party to a communication like a telephone call to record without the 
knowledge or consent of other parties.\20\ In many cases, sharing 
recorded evidence of fair housing testing facilitates early resolution 
and settlement, negating the need to interrogate tester credibility. 
And in housing discrimination cases that go to trial, the main role of 
testers as witnesses is to introduce the recorded evidence of the 
interaction, not to recount their experience in detail. In short, 
testing evidence often speaks for itself and a tester merely needs to 
be credible enough for the judge or jury to believe their testimony 
that the recording being presented is an authentic recording of the 
events at issue in the case.
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    \19\ See also, id., noting that ``39 of the 50 states allow for 
single party consent to record, which means that tests are audio 
recorded in most states, removing any doubt about the veracity of 
accounts.''
    \20\ See, e.g., Recording Phone Calls and Conversations: 50-
State Survey, available at https://www.justia.com/50-state-surveys/recording-phone-calls-and-conversations/.
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    In addition, other requirements in these regulations that will 
continue to apply to testers help ensure that testers are objective, 
credible, and well qualified, regardless of their criminal backgrounds. 
For example, testers still must be trained in testing procedures and 
techniques.\21\ Testers cannot have an economic interest in the outcome 
of the test; \22\ be a relative or acquaintance of any party in the 
case; \23\ have had a recent employment history or other affiliation 
with the person or organization to be tested; \24\ or be a competitor 
(or licensed competitor) of the person or organization to be 
tested.\25\
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    \21\ 24 CFR 115.311(c); 24 CFR 125.107(b).
    \22\ 24 CFR 115.311(d)(1); 24 CFR 125.107(c)(1).
    \23\ 24 CFR 115.311(d)(2); 24 CFR 125.107(c)(2).
    \24\ 24 CFR 115.311(d)(3) (prohibiting any such affiliation 
within five years of the testing); 24 CFR 125.107(c)(3) (prohibiting 
any such affiliation within one year of the testing).
    \25\ 24 CFR 115.311(d)(4); 24 CFR 125.107(c)(4)(specifying such 
``licensed'' competitors are barred from conducting testing).
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    HUD also observes that FRE 609 itself is not always applied even 
where a crime of conviction comes under its potential application. 
First, fair housing cases using testers are not only heard in federal 
courts; they are also heard in state courts, which sometimes have 
different rules of evidence. At least one state (Montana) has chosen to 
adopt a Rule 609 variation that prohibits admission of evidence that a 
witness has been convicted of a crime for the purpose of attacking the 
credibility of a witness, explaining that ``[t]he Commission does not 
accept as valid the theory that a person's willingness to break the law 
can automatically be translated into willingness to give false 
testimony'' and that conviction evidence has ``low probative value in 
relation to credibility.'' \26\ And even in Federal courts, while no 
survey appears to have been conducted to see the frequency with which 
judges admit prior convictions to impeach witnesses in civil matters, 
one survey done in the criminal context has shown that ``federal judges 
do not routinely admit prior convictions to impeach criminal 
defendants.'' \27\ Judges sometimes exclude or find unpersuasive prior 
criminal convictions of witnesses in civil matters, preferring to focus 
on more reliable indicators of credibility tied to the facts of the 
case at hand.\28\ Ultimately, HUD believes it is better left to FHIP 
and FHAP funded entities to decide whether to hire a tester with 
criminal convictions, as they are in the best position to know and be 
able to weigh the risk that a testers' former criminal convictions will 
be admitted--and matter--in their local courts, and based on the kind 
of testing that will be done.
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    \26\ Mont. Code Ann. Rule 26-10-609.
    \27\ Ric Simmons, An Empirical Study of Rule 609 and Suggestions 
for Practical Reform, 59 B.C. L. Rev. 993 (2018).
    \28\ See, e.g., Sanchez v. Jiles, No. CV 10-09384 MMM (OPx) 
``Final Order on Motions In Limine'' 2012 U.S. Dist. LEXIS 200372 
(C.D. Cal. June 14, 2012) (finding felony convictions involving 
fraud and forgery to not highly relevant to the plaintiff's 
witness's credibility and ordering that defendants not introduce it 
into evidence); 3 Federal Rules of Evidence Manual Sec.  609.03 
(2022).
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    Indeed, HUD recognizes that many FHIP and FHAP funded entities now 
have an affirmative need to hire testers with criminal histories, who 
in cases that are of great priority to HUD may actually be better 
positioned to help those entities uncover discrimination.\29\ When the 
restrictions on testers' criminal histories were first promulgated as a 
demonstration regulation in 1989, housing providers were unlikely to 
conduct criminal background checks on prospective applicants.\30\ Since 
then, landlords have increasingly implemented policies and practices to 
screen applicants based on their criminal backgrounds--including those 
with felony convictions and convictions involving fraud or perjury.\31\
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    \29\ HUD has been contacted by fair housing organizations urging 
reform of the 24 CFR 105.107 because its restrictions prevent fair 
housing centers from testing for certain types of criminal 
background discrimination by preventing them from employing testers 
with felonies to test the entire application process.
    \30\ See David Thatcher, Law & Social Inquiry Volume 33, Issue 
1, 12, Winter 2008 (explaining the upward trend since the 1990s in 
criminal background checks, including that no ``how to'' landlord 
books reviewed in a literature review prior to 1990 suggested 
conducting criminal background checks on tenants whereas all ``how 
to'' books suggested such checks as of the article's publication in 
2008).
    \31\ See, e.g., id. at 12 (describing a 2005 survey of large 
landlords which revealed that 80 percent screened prospective 
tenants for criminal histories).

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[[Page 74385]]

    In 2016, HUD issued a memo explaining how these kinds of admissions 
policies and practices may be discriminatory under the Fair Housing 
Act.\32\ One way landlords may discriminate is by using a criminal 
records policy as a cover (or pretext) for intentional discrimination 
because of a protected class. For example, a landlord may tell Black 
applicants that they are being rejected because of their criminal 
record but accept white applicants with the same or similar record. The 
real reason for the rejection is the person's race, even though the 
landlord is saying the reason is the person's criminal record.\33\ 
Another example of how a landlord may violate the Fair Housing Act is 
if a landlord has a criminal records policy that disproportionately 
excludes people of a certain protected class, and that policy is not 
necessary to achieve a substantial, legitimate, nondiscriminatory 
interest, or if there is a less discriminatory policy that can achieve 
that interest.\34\
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    \32\ See Office of General Counsel Guidance on Application of 
Fair Housing Act Standards to the Use of Criminal Records by 
Providers of Housing and Real Estate-Related Transactions (April 4, 
2016) (``While having a criminal record is not a protected 
characteristic under the Fair Housing Act, criminal history-based 
restrictions on housing opportunities violate the Act if, without 
justification, their burden falls more often on renters or other 
housing market participants of one race or national origin over 
another (i.e., discriminatory effects liability). Additionally, 
intentional discrimination in violation of the Act occurs if a 
housing provider treats individuals with comparable criminal history 
differently because of their race, national origin or other 
protected characteristic (i.e., disparate treatment liability).'')
    \33\ The Fair Housing 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. 42 U.S.C. 3601 et seq.
    \34\ See id. (explaining that achieving resident safety and/or 
protecting property may be substantial and legitimate interests, 
assuming they are the actual reasons for the policy, but that a 
housing provider must be able to prove through reliable evidence 
that its policy or practice of making housing decisions based on 
criminal history actually assists in protecting resident safety and/
or property).
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    Testers with actual criminal records ranging from misdemeanor to 
felony convictions are in certain circumstances the best suited to 
obtain evidence of what modern-day criminal record screening practices 
are and whether these policies are being applied in a discriminatory 
way because of a protected characteristic. For example, testers with no 
criminal histories cannot submit actual applications to test a criminal 
records screening policy where the landlord runs a typical computer-
based ``background check'' on its applicants; they are limited to 
investigating discrimination that occurs pre-application. Testers 
without criminal backgrounds can inquire about what a criminal records 
policy is at a property, reveal a fabricated history, and ask whether 
they would be accepted or rejected. However, only testers with real 
criminal records will be able to submit an application to obtain 
evidence of what the policy is in practice at the admission stage \35\ 
and whether the policy is being applied (after the application is 
submitted) in a discriminatory manner. Absent a change in regulation, 
FHIP and FHAP funded entities do not have the option of conducting 
testing using HUD funds that investigates modern criminal records 
policies through the application phase.\36\
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    \35\ See, e.g., June 10, 2022 Memorandum directed to FHIP and 
FHAP funded entities highlighting the different ways in which 
criminal records policies may violate the Act, and explaining that a 
housing provider may have a policy in writing that differs from a 
policy in practice, and that fully ``[i]dentif[ing] all policies, 
including written and unwritten policies or practices'' is an 
important first step in investigating the potential discriminatory 
effects of a policy. Without having testers that go through the 
entire application process, it is difficult to find out whether 
there is a difference between what a tester is told the policy is 
and what the policy is in practice.
    \36\ See, e.g., Locked Out: Criminal Background Checks as a Tool 
for Discrimination, available at https://lafairhousing.org/wp-content/uploads/2021/12/Criminal_Background_Audit_FINAL.pdf. This 
report demonstrates how a FHIP grantee was able to uncover evidence 
that criminal records policies were being used as pretext for 
intentional discrimination by showing that landlords used the 
criminal backgrounds of black testers to treat those testers less 
favorably at the pre-application stage compared to white testers, 
even though the black and white testers had similar (but made-up) 
criminal backgrounds. The investigation found that paired white 
testers were quoted more lenient criminal records policies than 
black testers, were encouraged to apply where black testers were 
discouraged, and were uniquely told that exceptions would be made to 
the landlord's criminal records policies. These investigations were 
not able to see if landlords were discriminating after applications 
were submitted, however, because the criminal histories of the 
testers were not real. If this FHIP grantee was able to use paired 
testers with actual similar criminal backgrounds, it would have the 
ability to investigate the discriminatory use of a criminal records 
policy beyond just the pre-application stage.
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    Finally, HUD's current regulation disproportionately excludes 
people of color from opportunities to work for FHIP- and FHAP-funded 
entities, even as it serves questionable value in ensuring credible 
evidence. These issues are particularly problematic in the context of a 
fair housing investigation, where sometimes people with criminal 
records are best able to investigate discriminatory activity, and where 
a factfinder is particularly unlikely to find a tester's criminal 
records to undermine their credibility (as in the common case where 
testing evidence is audio and/or video recorded and speaks for itself).

G. Removing the Tester Conviction Restrictions Is Legally Permissible

    Outside of the considerations discussed above, removing these 
restrictions is legally permissible. As HUD has previously noted, the 
original authorizing statute for the FHIP specifically limited the 
requirement for testing guidelines to the demonstration period. 
Congress did not include this requirement in its permanent 
authorization of the FHIP. HUD maintains the position that it took in 
1994 that HUD is not required by any statute to have regulations 
containing testing restrictions for the permanent FHIP.\37\ Nor are 
these restrictions statutorily required for the FHAP.
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    \37\ See footnote 7 (citing 59 FR 44596-01 (Aug. 29, 1994)). Of 
note, even if HUD had taken the position that 561(c)(2) of the 1987 
Act was still in effect, that section of the Act only required, 
generally, for HUD to ``establish guidelines for testing activities 
funded under the private enforcement initiative of the fair housing 
initiatives program . . . to ensure that investigations in support 
of fair housing enforcement efforts . . . develop credible and 
objective evidence of discriminatory housing practices.'' Sec.  
561(c)(2) of the Housing and Community Development Act of 1987. It 
did not require restricting testers based on their criminal history 
in order to ensure credible and objective evidence.
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II. This Proposed Rule

    This rule proposes to amend the regulations in 24 CFR part 115 and 
125 for the reasons discussed above.
    At 24 CFR 115.311, the proposed regulatory text would delete 
paragraph (b), which wholly contains the tester background restriction 
but no other content.
    At 24 CFR 125.107, the proposed regulatory text would delete 
paragraph (a) which wholly contains the tester background restriction 
but no other content.
    HUD seeks comments on these proposals.

III. Findings and Certifications

Regulatory Review--Executive Orders 12866, 13563, and 14094

    Under Executive Order 12866 (Regulatory Planning and Review), a 
determination must be made whether a regulatory action is significant 
and, therefore, subject to review by the Office of Management and 
Budget (OMB) in accordance with the requirements of the order. 
Executive Order 13563 (Improving Regulations and Regulatory Review) 
directs executive agencies to analyze regulations that are ``outmoded, 
ineffective, insufficient, or excessively burdensome, and to modify, 
streamline, expand, or repeal them in accordance with what has been 
learned.'' Executive Order 13563 also directs that, where

[[Page 74386]]

relevant, feasible, and consistent with regulatory objectives, and to 
the extent permitted by law, agencies are to identify and consider 
regulatory approaches that reduce burdens and maintain flexibility and 
freedom of choice for the public. Executive Order 14094 entitled 
``Modernizing Regulatory Review'' (hereinafter referred to as the 
``Modernizing E.O.'') amends section 3(f) of Executive Order 12866 
(Regulatory Planning and Review), among other things.
    The proposed rule would revise 24 CFR parts 115 and 125 to remove 
fair housing tester restrictions. The revised regulations would allow 
FHIP and FHAP funded entities the ability to use HUD funds to 
compensate testers with felony convictions and convictions for crimes 
involving fraud or perjury. This rule was not subject to OMB review. 
This rule is not a ``significant regulatory action'' as defined in 
section 3(f) of Executive Order 12866 and is not an economically 
significant regulatory action.

Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4; approved March 22, 1995) (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 Government, or on the private sector, within the meaning of the 
UMRA.

Environmental Review

    This proposed rule is a policy document that sets out fair housing 
and nondiscrimination standards and provides for assistance in 
enforcing fair housing and nondiscrimination. 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).

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 would remove tester restrictions from the FHIP and FHAP 
regulations which prohibit fair housing testers with prior convictions 
of a felony, fraud, or perjury. This will not create an undue burden on 
small entities, instead it will allow FHIP and FHAP funded entities the 
ability to use testers with felony convictions and convictions for 
crimes involving fraud or perjury. Identifying potential discriminatory 
screening policies will positively impact small entities and assist 
with maintaining compliance with the Fair Housing Act. Accordingly, it 
is HUD's determination that this proposed rule will not have a 
significant economic impact on a substantial number of small entities.

Executive Order 13132, Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial direct compliance costs on state and local 
governments or is not required by statute, or the rule preempts state 
law, unless the agency meets the consultation and funding requirements 
of section 6 of the Executive order. This 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.

List of Subjects

24 CFR Part 115

    Administrative practice and procedure, Aged, Fair housing, Grant 
programs--housing and community development, Individuals with 
disabilities, Intergovernmental relations, Mortgages, Reporting and 
recordkeeping requirements.

 24 CFR Part 125

    Fair housing, Grant programs--housing and community development, 
Reporting and recordkeeping requirements.

    Accordingly, for the reasons described in the preamble, HUD 
proposes to amend 24 CFR 115 and 125 as follows:

PART 115--CERTIFICATION AND FUNDING OF STATE AND LOCAL FAIR HOUSING 
ENFORCEMENT AGENCIES

0
1. The authority citation for part 115 continues to read as follows:

    Authority:  42 U.S.C. 3601-19 and 42 U.S.C. 3535(d).


Sec.  115.311  [Amended]

0
2. In Sec.  115.311, remove paragraph (b), redesignate paragraph (c) as 
paragraph (b), and redesignate paragraphs (d) through (d)(4) as 
paragraphs (c) through (c)(4).

PART 125--FAIR HOUSING INITIATIVES PROGRAM

0
3. The authority citation for part 125 continues to read as follows:

    Authority: 42 U.S.C. 3535(d), 3616 note.


Sec.  125.107  [Amended]

0
4. In Sec.  125.107, remove paragraph (a), redesignate paragraph (b) as 
paragraph (a), and redesignate paragraphs (c) through (c)(4) as 
paragraphs (b) through (b)(4).

Demetria McCain,
Principal Deputy, Assistant Secretary for Fair Housing and Equal 
Opportunity.
[FR Doc. 2023-23678 Filed 10-30-23; 8:45 am]
BILLING CODE 4210-67-P