Implementation of the Fair Housing Act's Discriminatory Effects Standard
Federal Register, Volume 76 Issue 221 (Wednesday, November 16, 2011)
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
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
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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.
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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.
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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:
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Background
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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
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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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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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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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This Proposed Rule
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Subpart G--Discriminatory Effect
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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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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
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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.
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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 (``under 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).
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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.
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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.
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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.
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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
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The authority for 24 CFR part 100 continues to read as follows:
Authority: 42 U.S.C. 3535(d), 3600-3620.
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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.
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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.
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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.
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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.
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(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 Trasvintildea,
Assistant Secretary for Fair Housing and Equal Opportunity.
FR Doc. 2011-29515 Filed 11-15-11; 8:45 am
BILLING CODE 4210-67-P
