[Federal Register Volume 84, Number 160 (Monday, August 19, 2019)]
[Proposed Rules]
[Pages 42854-42863]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17542]
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
24 CFR Part 100
[Docket No. FR-6111-P-02]
RIN 2529-AA98
HUD's Implementation of the Fair Housing Act's Disparate Impact
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. HUD has long interpreted the Act to create liability
for practices with an unjustified discriminatory effect, even if those
practices were not motivated by discriminatory intent. This rule
proposes to amend HUD's interpretation of the Fair Housing Act's
disparate impact standard to better reflect the Supreme Court's 2015
ruling in Texas Department of Housing and Community Affairs v.
Inclusive Communities Project, Inc., and to provide clarification
regarding the application of the standard to State laws governing the
business of insurance. This rule follows a June 20, 2018, advance
notice of proposed rulemaking, in which HUD solicited comments on the
disparate impact standard set forth in HUD's 2013 final rule, including
the disparate impact rule's burden-shifting approach, definitions, and
causation standard, and whether it required amendment to align with the
decision of the Supreme Court in Inclusive Communities Project, Inc.
DATES: Comment Due Date: October 18, 2019.
ADDRESSES: Interested persons are invited to submit comments to the
Office of the General Counsel, Rules Docket Clerk, Department of
Housing and Urban Development, 451 7th Street SW, Room 10276,
Washington, DC 20410-0001. Communications should refer to the above
docket number and title and should contain the information specified in
the ``Request for Comments'' section. There are two methods for
submitting public comments.
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. Due to security measures at all Federal
agencies, however, submission of comments by mail often results in
delayed delivery. To ensure timely receipt of comments, HUD recommends
that comments submitted by mail be submitted at least two weeks in
advance of the public comment deadline.
2. 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 comments
immediately available to the public. Comments submitted electronically
through the https://www.regulations.gov/ website can be viewed by other
commenters and interested members of the public. Commenters should
follow 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 document.
No Facsimile Comments. Facsimile (fax) comments are not acceptable.
Public Inspection of Comments. All 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 202-708-3055 (this is not a toll-free
number). Copies of all comments submitted are available for inspection
and downloading at https://www.regulations.gov/.
FOR FURTHER INFORMATION CONTACT: David H. Enzel, Deputy Assistant
Secretary for Enforcement Programs, Office of Fair Housing and Equal
Opportunity, Department of Housing and Urban Development, 451 7th
Street SW, Room 5204, Washington, DC 20410, telephone number 202-402-
5557 (this is not a toll-free number). Individuals with hearing or
speech impediments may access this number via TTY by calling the
Federal Relay during working hours at 800-877-8339 (this is a toll-free
number).
[[Page 42855]]
SUPPLEMENTARY INFORMATION:
I. Background
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\ Congress gave the authority and responsibility for
administering the Fair Housing Act and the power to make rules to carry
out the Act to HUD.\2\ While the Supreme Court has held that the
language of the Fair Housing Act prohibiting discrimination in housing
is ``broad and inclusive,'' \3\ it has also cautioned that the language
should not be construed to force defendants to ``resort to the use of
racial quotas'' \4\ or require courts to ``second-guess'' reasonable
choices.\5\ HUD has implemented prohibitions on discriminatory conduct
under the Fair Housing Act at 24 CFR part 100, most recently to include
the disparate impact standard in 2013. However, as the Supreme Court
cautioned, there must be adequate safeguards around application of
disparate impact analysis to avoid setting ``our Nation back in its
quest to reduce the salience of race in our social and economic
system.'' \6\
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\1\ This preamble uses the term ``disability'' to refer to what
the Act and its implementing regulations term a ``handicap.''
\2\ See 42 U.S.C. 3608(a) and 42 U.S.C. 3614a.
\3\ Trafficante v. Metro. Life Ins. Co., 409 U.S. 205, 209
(1972); City of Edmonds v. Oxford House, Inc., 514 U.S. 725, 731
(1995).
\4\ Texas Department of Housing and Community Affairs v.
Inclusive Communities Project, Inc., 135 S. Ct. 2507, 2512 (2015).
\5\ Id. at 2512 (``Here, the underlying dispute involves a novel
theory of liability that may, on remand, be seen simply as an
attempt to second-guess which of two reasonable approaches a housing
authority should follow in allocating tax credits for low-income
housing.'').
\6\ Id. at 2524.
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On February 15, 2013, pursuant to its authority to administer the
Fair Housing Act, HUD published a final rule, entitled ``Implementation
of the Fair Housing Act's Discriminatory Effects Standard'' \7\ (final
disparate impact rule). The final disparate impact rule codified HUD's
interpretation that the Fair Housing Act creates liability for
practices with an unjustified discriminatory effect and responded to
public comments on the proposed rule.\8\ Relying in part on case law
under the Fair Housing Act and title VII of the Civil Rights Act of
1964 (prohibiting employment discrimination) and HUD's longstanding
view that discriminatory effects liability is available under the Fair
Housing Act, HUD's final disparate impact rule established a burden-
shifting framework for analyzing claims of disparate impact under the
Fair Housing Act.\9\ Specifically, the final rule provides that
liability may be established under the Fair Housing Act when a
challenged practice actually or predictably results in a disparate
impact on a protected class of persons, even if the practice was not
motivated by a discriminatory intent. The rule states that a practice
that has a discriminatory effect may still be lawful if supported by a
legally sufficient justification. Such a justification exists under the
rule where the challenged practice is necessary to achieve one or more
substantial, legitimate, nondiscriminatory interests of the respondent
or defendant and those interests could not be served by another
practice that has a less discriminatory effect. The rule also requires
that the legally sufficient justification be supported by evidence and
may not be hypothetical or speculative.
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\7\ 78 FR 11460.
\8\ See 24 CFR 100.5(b), 100.70(d)(5), 100.120(b), 100.130(b),
and 100.500.
\9\ See 24 CFR 100.500(c).
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An unjustified discriminatory effect is established according to
the following burdens of proof: (1) The charging party or the plaintiff
has the burden of proving that a challenged practice caused, or
predictably will cause, a discriminatory effect; (2) the respondent or
defendant then has the burden of proving that the challenged practice
is necessary to achieve one or more substantial, legitimate,
nondiscriminatory interests of the respondent or defendant; and (3) if
the respondent or defendant satisfies the burden of proof, the charging
party or plaintiff may still prevail upon proving that the substantial,
legitimate, nondiscriminatory interests supporting the challenged
practice could be served by another practice that has a less
discriminatory effect. Lastly, the rule provides that a demonstration
that a practice is supported by a legally sufficient justification may
not be used as a defense against a claim of intentional discrimination.
In 2016, HUD published a Federal Register document supplementing
HUD's previous response to insurance industry comments HUD provided in
its final disparate impact rule.\10\ The comments HUD received were on
its 2011 Fair Housing Act's discriminatory effects standard proposed
rule. After reconsideration of the insurance industry comments, in
accordance with the court's decision in Property Casualty Insurers
Association of America (PCIAA) v. Donovan,\11\ HUD explained that the
agency ``continues to believe that case-by-case adjudication is
preferable to creating the requested exemptions or safe harbors for
insurance practices.'' HUD noted in support of its case-by-case
adjudication preference that, given the diversity of State laws and
potential discriminatory effect claims, ``it is practically impossible
for HUD to define the scope of insurance practices covered by an
exemption or safe harbor with enough precision to avoid case-by-case
disputes over its application.'' \12\ This proposed rule uses the term
``Disparate Impact Rule'' to refer collectively to the final disparate
impact rule and 2016 supplement.
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\10\ See ``Application of the Fair Housing Act's Discriminatory
Effects Standard to Insurance,'' 81 FR 69012 (Oct. 5, 2016); 81 FR
69013.
\11\ 66 F. Supp. 3d 1018 (N.D. Ill. 2014).
\12\ See ``Application of the Fair Housing Act's Discriminatory
Effects Standard to Insurance,'' 81 FR 69012 (Oct. 5, 2016) for
HUD's additional justification.
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In 2015, in Texas Department of Housing and Community Affairs v.
Inclusive Communities Project, Inc.,\13\ (Inclusive Communities), the
Supreme Court held that disparate impact claims are cognizable under
the Fair Housing Act. The Court's opinion referenced HUD's Disparate
Impact Rule,\14\ but the Court did not rely on it for its holding.
Rather, the Court undertook its own analysis of the Fair Housing Act
and discussed the standards for, and constitutional questions and
necessary limitations regarding, disparate impact claims.\15\
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\13\ 135 S. Ct. 2507 (2015).
\14\ See 135 S. Ct. at 2514-2515, 2522.
\15\ See Id. at 2519-2524.
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In discussing disparate impact liability, the Court noted that
``disparate-impact liability must be limited so employers and other
regulated entities are able to make the practical business choices and
profit-related decisions that sustain a vibrant and dynamic free-
enterprise system.'' \16\
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\16\ Id.
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The Court placed special emphasis on the importance of the
plaintiff's prima facie burden, warning that, ``[w]ithout adequate
safeguards at the prima facie stage, disparate-impact liability might
cause race to be used and considered in a pervasive way and would
almost inexorably lead governmental or private entities to use
numerical quotas, and serious constitutional questions then could
arise.'' \17\ The Court held that, to allege a prima facie case, a
plaintiff must specify a policy (or policies) as the cause of the
disparity, to meet a ``robust causality'' requirement that ``protects
defendants from being held liable for
[[Page 42856]]
racial disparities they did not create.'' \18\ A one-time decision may
not be a policy at all, and multiple factors leading to a decision may
make it difficult to establish causation.\19\
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\17\ Id. at 2523 (internal quotations removed).
\18\ Id. at 2523.
\19\ Id.
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The Court also prohibited disparate impact suits that would
displace ``valid governmental and private priorities[.]'' \20\ ``Courts
should avoid interpreting disparate-impact liability to be so expansive
as to inject racial considerations into every housing decision'' \21\
or ``to second-guess'' between ``two reasonable approaches[.]'' \22\
If, for instance, a private developer is prevented from investing in
housing for low-income individuals, or a government is prevented from
ensuring compliance with health and safety codes, the purpose of the
Fair Housing Act would be undermined.\23\ The policy identified,
therefore, must be an ``artificial, arbitrary, and unnecessary
barrier'' to fair housing.\24\
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\20\ Id. at 2524.
\21\ Id.
\22\ Id. at 2512 (``Here, the underlying dispute involves a
novel theory of liability that may, on remand, be seen simply as an
attempt to second-guess which of two reasonable approaches a housing
authority should follow in allocating tax credits for low-income
housing.'').
\23\ Id.
\24\ Id. at 2522, 2524 (internal quotation marks and citation
omitted) Id. at 2522 (quoting Griggs v. Duke Power Co., 401 U.S.
424, 431, 91 S. Ct. 849 (1971)). Id. at 2522. Id. at 2522.
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Finally, the Court urged courts to ensure that their remedial
orders ``concentrate on the elimination of the offending practice'' and
``eliminate racial disparities through race-neutral means.'' \25\
``Remedial orders that impose racial targets or quotas might raise more
difficult constitutional questions.'' \26\
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\25\ Id. at 2525.
\26\ Id.
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Following the Inclusive Communities decision, on May 15, 2017, HUD
published a Federal Register notice pursuant to Executive Orders 13771,
``Reducing Regulation and Controlling Regulatory Costs,'' and 13777,
``Enforcing the Regulatory Reform Agenda,'' inviting public comments to
assist HUD in identifying existing regulations that may be outdated,
ineffective, or excessively burdensome.\27\ In response, HUD received
numerous comments concerning the Disparate Impact Rule and Inclusive
Communities. Some commenters wrote that the case supported HUD's rule
as currently drafted while others felt HUD should revisit its rule
considering the analysis provided in the case. Commenters in support of
the rule noted that the Inclusive Communities case supported HUD's
position that disparate impact claims are cognizable under the Fair
Housing Act and that it did not require changes to HUD's framework,
which standardized the ``burden-shifting'' approach used by HUD and 11
U.S. Courts of Appeals. Some commenters specifically thought the
burden-shifting framework, the causality requirement, and the less
discriminatory alternative step should be amended to better align with
the case law. Some commenters also felt that HUD should revisit the
application of disparate impact to the insurance industries.
Additionally, in October 2017, the Secretary of the Treasury issued a
report in response to Executive Order 13772, ``Core Principles for
Regulating the United States Finance System,'' issued on February 3,
2017.\28\ The Treasury report identified Federal regulations, among
other items, that promote or inhibit the U.S. financial system. The
report explicitly recommended that HUD reconsider applications of the
Disparate Impact Rule, especially in the context of the insurance
industry.\29\
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\27\ 82 FR 22344.
\28\ See U.S. Department of the Treasury Report: ``A Financial
System That Creates Economic Opportunities, Asset Management and
Insurance (Oct. 26, 2017), available at: https://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-That-Creates-Economic-Opportunities-Asset_Management-Insurance.pdf.
\29\ See U.S. Department of the Treasury Report: ``A Financial
System That Creates Economic Opportunities, Asset Management and
Insurance'' (Oct. 26, 2017), available at: https://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-That-Creates-Economic-Opportunities-Asset_Management-Insurance.pdf.
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In light of Inclusive Communities, public comments submitted in
response to HUD's May 15, 2017, Federal Register notice, and the
recommendation from the Secretary of the Treasury, on June 20, 2018,
HUD published in the Federal Register an advance notice of proposed
rulemaking (ANPR) inviting comments on possible amendments to HUD's
Disparate Impact Rule. HUD received 1,923 comments on the ANPR, and the
comments have been considered during the drafting of this new rule.
Some commenters wrote in support of disparate impact liability more
broadly, citing the important part it has played in monitoring
exclusionary housing practices for at least 30 years, while others
described the disparate impact standard as inconsistent with the
constitutional presumption against race-based decision-making.
Similarly, some comments supported HUD's disparate impact rule and
others opposed the rule and felt that HUD's rule undermined the Fair
Housing Act. Other commenters felt that the rule was plainly redundant
or unnecessary given existing case law.
Commenters that supported HUD's current rule approved of HUD's
burden-shifting framework requiring the defendant to prove that the
practice is necessary. In addition, those commenters generally
supported the rule's language that provided that a plaintiff could
prevail by proving that an alternative practice could be used that has
a less discriminatory effect. Commenters also referenced the importance
of the HUD rule when it comes to the use of eminent domain and
redevelopment.\30\ Some commenters stated that Inclusive Communities
was consistent with HUD's rule and that the Supreme Court did not state
that any changes to the HUD rule were necessary or that HUD's rule
created new obligations. Additionally, some comments noted that post-
Inclusive Communities courts simultaneously have relied upon both the
rule and Inclusive Communities as authorities for analyzing disparate
impact claims, demonstrating there is no fundamental conflict between
the two. Commenters that opposed HUD's current disparate impact rule
requested that HUD revise the rule to be more consistent with Inclusive
Communities. Many of those commenters specifically cited to the
inconsistent effects of HUD's standards, the low level of proof and
production, the limited causality requirement, the impact on the use of
statistical disparities, and the consequences of allowing plaintiffs to
show any alternative practice.
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\30\ Citing Mount Holly Gardens Citizens in Action v. Twp. of
Mount Holly, 658 F.3d 375 (3d Cir. 2011).
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Commenters also provided feedback on the use of disparate impact
for enforcement and the economic burden of the standard. Commenters
wrote that providers should not be liable for disparities they did not
create or intend. There were requests from the real estate, credit,
property casualty insurer, and other industries for exemptions from the
rule for insurance, risk-based pricing, and underwriting. The
commenters cited concern with the rule's impact on costs and shifts of
burden onto renters and insurance consumers. The commenters also noted
increased litigation risks for providers and the possibility that the
availability of insurance products and credit could be reduced. The
commenters supported their position by pointing to the fact that
underwriting is unrelated to protected characteristics and that
compliance with
[[Page 42857]]
the rule distorts market/risk-based pricing.
Lastly, some commenters stated that the States are better equipped
to regulate certain industries and that the existing rule conflicts
with State laws and violates the McCarran-Ferguson Act.\31\ In
contrast, other commenters stated that other Federal statutes should be
read to be consistent with Federal civil rights laws and that Congress
has the power to make exceptions and create ``safe harbors'' to the
Fair Housing Act (as it did previously by excepting certain specific
tenant selection practices from disparate impact liability) but Federal
administrative agencies cannot. Those commenters generally noted no
safe harbor should be provided and that HUD's case-by-case analysis
should be retained to ensure consistency with HUD's statutory
responsibility to enforce the Fair Housing Act.
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\31\ 15 U.S.C. 1011-1015.
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All public comments can be viewed at the www.regulations.gov
website, under docket number HUD-2018-0047. (See https://www.regulations.gov/docket?D=HUD-2018-0047).
II. This Proposed Rule
In response to comments received on HUD's May 15, 2017, notice and
June 20, 2018, ANPR, this rule proposes to replace HUD's current
discriminatory effects standard at Sec. 100.500 with a new standard
and incorporate minor amendments to Sec. Sec. 100.5, 100.7, 100.70,
and 100.120. These amendments are intended to bring HUD's disparate
impact rule into closer alignment with the analysis and guidance
provided in Inclusive Communities as understood by HUD and to codify
HUD's position that its rule is not intended to infringe upon any State
law for the purpose of regulating the business of insurance. HUD
intends these regulations as an update to HUD's existing framework for
evaluating administrative actions alleging a claim of disparate impact
and to provide guidance to members of the public seeking to comply with
the Fair Housing Act or in bringing a claim for disparate impact that
meets the prima facie requirements outlined in Inclusive Communities.
Sec. 100.5 Scope
This rule proposes to amend Sec. 100.5 to clarify that the new
Sec. 100.500 includes available defenses and rebuttals to allegations
of discriminatory effect. The proposed rule would also clarify, in
accordance with the language in Inclusive Communities warning against
the use of racial quotas,\32\ that neither the discriminatory effect
standard, nor any other item in HUD's part 100 regulations, requires or
encourages the collection of data with respect to protected classes and
that the absence of such collection will not result in any adverse
inference against a party.
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\32\ 135 S. Ct. at 2512.
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Sec. 100.7 Liability for Discriminatory Housing Practices
The proposed amendment to Sec. 100.7 clarifies, consistent with
the Supreme Court's decision in Meyer v. Holley, 537 U.S. 280 (2003),
that there must be a principal-agent relationship under common law for
there to be vicarious liability on the part of a person for a
discriminatory housing policy or practice by that person's agent or
employee. In addition, the proposed rule would add a new paragraph (c)
to provide the scope of remedies available in administrative
proceedings for discriminatory effect cases. New paragraph (c) states,
to conform with the language of Inclusive Communities,\33\ that the
remedy should concentrate on eliminating or reforming the
discriminatory practice and that, therefore, a remedy in administrative
proceedings may include equitable remedies and, when proved, pecuniary
damage, but clarifies, consistent with the Fair Housing Act, that
punitive and exemplary damages are unavailable in administrative
proceedings.\34\
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\33\ Id. at 2524.
\34\ 42 U.S.C. 3612(g)(3).
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HUD is specifically seeking feedback on the question of whether,
and under what circumstances, punitive or exemplary damages may be
appropriate in disparate impact litigation in Federal court.
Sec. 100.70 Other Prohibited Sale And Rental Conduct
Section 100.70 provides that it is unlawful, because of race,
color, religion, sex, handicap, familial status, or national origin, to
restrict or attempt to restrict the choices of a person by word or
conduct in connection with seeking, negotiating for, buying, or renting
a dwelling so as to perpetuate, or tend to perpetuate, segregated
housing patterns, or to discourage or obstruct choices in a community,
neighborhood, or development. The section provides examples of such
practices in paragraph (c). This rule proposes to amend the final
example of a violation of the Fair Housing Act in paragraph (c)(5) to
add that enactment or implementation of building codes, permitting
rules, and requirements should also be considered as other prohibited
sale and rental conduct that could be considered as restricting or
denying housing opportunities or otherwise making unavailable or
denying dwellings to persons because of race, color, religion, sex,
handicap, familial status, or national origin. HUD is adding these
additional types of examples for clarity in connection with the changes
HUD is making in Sec. 100.500.
Sec. 100.120 Discrimination in the Making of Loans and in the
Provision of Other Financial Assistance
Section 100.120 provides that it shall be unlawful for any person
or entity whose business includes engaging in residential real estate-
related transactions to discriminate against any person in making
available loans or other financial assistance for a dwelling, or which
is or is to be secured by a dwelling, because of race, color, religion,
sex, handicap, familial status, or national origin. The section
provides examples of such practices in paragraph (b). This rule
proposes to amend the first example in paragraph (b)(1), which provides
that providing information which is inaccurate or different from that
provided others, because of race, color, religion, sex, handicap,
familial status, or national origin violates the Fair Housing Act, by
amending ``inaccurate or different from that provided others'' to
requiring the information be ``materially inaccurate or materially
different from that provided others'' to clarify, in accordance with
the guidance in Inclusive Communities,\35\ that informational
disparities that are inconsequential do not violate the Fair Housing
Act. The proposed change would also add a clause to paragraph (b)(1)
clarifying that the Fair Housing Act is not violated when a person or
entity provides accurate responses to requests for information related
to an individual's particular circumstances.
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\35\ 135 S. Ct. at 2524.
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Sec. 100.500 Discriminatory Effect Prohibited
Section 100.500 continues to provide that liability under the Fair
Housing Act may be established based on a specific practice's
discriminatory effect on members of a protected class, even if the
specific practice was not motivated by a discriminatory intent. HUD
seeks to amend this regulation to provide additional guidance in light
of Inclusive Communities; this proposed revision represents HUD's
interpretation of
[[Page 42858]]
disparate impact law under the Fair Housing Act. Paragraph (a) would be
slightly amended to reflect the removal of a definition for
discriminatory effect and the changes to the burden-shifting framework.
The previous definition simply reiterated the elements of a disparate
impact claim, which HUD believes is now adequately defined in more
detail in the later sections, thus, making the definition unnecessary.
New paragraphs (b) through (d) would provide a new burden-shifting
framework and new paragraph (e) would address the application of the
section to the business of insurance.
New Burden-Shifting Framework
The proposed new burden-shifting framework provides, in paragraph
(b), that a plaintiff's allegations that a specific, identifiable,
policy or practice has a discriminatory effect must plead facts
supporting five elements. HUD notes that since Inclusive Communities
many parties have failed to identify a ``specific, identifiable
practice.'' \36\ It is insufficient to identify a program as a whole
without explaining how the program itself causes the disparate impact
as opposed to a particular element of the program. Plaintiffs must
identify the particular policy or practice that causes the disparate
impact. Plaintiffs will likely not meet the standard, and HUD will not
bring a disparate impact claim, alleging that a single event--such as a
local government's zoning decision or a developer's decision to
construct a new building in one location instead of another--is the
cause of a disparate impact, unless the plaintiff can show that the
single decision is the equivalent of a policy or practice.\37\ In
unusual cases, a plaintiff may still be able to succeed at identifying
a one-time decision, if the plaintiff can establish that the one-time
decision is in fact a policy or practice.\38\
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\36\ See, e.g., Frederick v. Wells Fargo Home Mortg., 649 F.
App'x 29, 30 (2d Cir. 2016) (Plaintiff challenging lender's denial
of a mortgage application failed to identify the specific policy or
practice that caused the disparate impact).
\37\ See, e.g., Barrow v. Barrow, Civil Action No. 16-11493-FDS,
2017 U.S. Dist. LEXIS 103495, at *8 (D. Mass. July 5, 2017) (citing
Inclusive Communities, 135 S. Ct. at 2523) (``[A] plaintiff
challenging the decision of a private developer to construct a new
building in one location rather than another will not easily be able
to show this is a policy causing a disparate impact because such a
one-time decision may not be a policy at all.'').
\38\ See 135 S. Ct. at 2523-24 (``For instance, a plaintiff
challenging the decision of a private developer to construct a new
building in one location rather than another will not easily be able
to show this is a policy causing a disparate impact because such a
one-time decision may not be a policy at all. It may also be
difficult to establish causation because of the multiple factors
that go into investment decisions about where to construct or
renovate housing units.'').
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The first proposed element would require a plaintiff to plead that
the challenged policy or practice is arbitrary, artificial, and
unnecessary to achieve a valid interest or legitimate objective.
Inclusive Communities requires plaintiffs to allege facts at the
pleading stage supporting a prima facie claim of disparate impact and
requires courts to analyze these claims ``with care'' to ensure that
``the specter of disparate-impact litigation'' does not prevent parties
``from achieving legitimate objectives.'' \39\ In accordance with this
standard, this proposed rule would require plaintiffs to allege facts
plausibly showing that the challenged practice is arbitrary,
artificial, and unnecessary. This requirement is supported by Ellis v.
City of Minneapolis, which dismissed the plaintiffs' disparate impact
claim against the city's housing code for failure to plead facts
showing how the housing code was arbitrary, artificial, and
unnecessary.\40\ In Ellis, the challenged housing code was, on its
face, intended to require sanitary housing, and the plaintiffs made no
attempt to explain how the housing code was arbitrary, artificial, and
unnecessary to advance this goal.\41\ HUD recognizes that plaintiffs
will not always know what legitimate objective the defendant will
assert in response to the plaintiff's claim or how the policy advances
that interest, and, in such cases, will not be able to plead specific
facts showing why the policy or practice is arbitrary, artificial, and
unnecessary. In such cases, a pleading plausibly alleging that a policy
or practice advances no obvious legitimate objective would be
sufficient to meet this pleading requirement. However, in cases where a
policy or practice has a facially legitimate objective, the plaintiff
must allege facts at the pleading stage sufficient to support a
plausible allegation that the policy is arbitrary, artificial, and
unnecessary.\42\
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\39\ 135 S. Ct. at 2523-24.
\40\ See Ellis v. City of Minneapolis, 860 F.3d 1106, 1112-14
(8th Cir. 2017) (citing Inclusive Communities, 135 S. Ct. at 2524).
\41\ Id.
\42\ See id. at 1114 (``a plaintiff must, at the very least,
point to an `artificial, arbitrary, and unnecessary'' policy causing
the problematic disparity.).
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If a plaintiff adequately alleges facts to support the assertion
that the practice or policy is arbitrary, artificial, and unnecessary,
only then does the defendant have the burden to identify a valid
interest or interests that the challenged policy or practice serves,
which may then be rebutted by the plaintiff, as described below.\43\
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\43\ See Wards Cove Packing Co. v. Atonio, 490 U.S. 642 (1989)
(holding that the defendant has the burden of producing evidence of
the justification for the alleged policy or practice but making
clear that the burden of persuasion to prove their case ultimately
remains with the plaintiff).
---------------------------------------------------------------------------
The second proposed element would require a plaintiff to allege a
robust causal link between the challenged policy or practice and a
disparate impact on members of a protected class. Claims relying on
statistical disparities must articulate how the statistical analysis
used supports a claim of disparate impact by providing an appropriate
comparison that shows that the policy is the actual cause of the
disparity.\44\
---------------------------------------------------------------------------
\44\ See id. (holding that a disparate impact claim is not
adequately pled where the alleged disparity is the result of factors
outside the defendant's control and does not support the assertion
that the defendant's policy itself is the cause of the disparity).
---------------------------------------------------------------------------
The third proposed element would require a plaintiff to allege that
the challenged policy or practice has an adverse effect on members of a
protected class. This element would require a plaintiff to explain how
the policy or practice identified has a harmful impact on members of a
particular ``race, color, religion, sex, familial status, or national
origin.'' \45\ Consistent with Inclusive Communities, it would be
insufficient to allege only that the plaintiff is a member of a
protected class and would be adversely affected or that members of a
protected class are impacted as are all individuals. This element would
require the plaintiff to show that the policy or practice has the
``effect of discriminating against a protected class'' as a group.\46\
---------------------------------------------------------------------------
\45\ 42 U.S.C. 3604(a).
\46\ Anderson v. City of Blue Ash, 798 F.3d 338, 364 (6th Cir.
2015).
---------------------------------------------------------------------------
The fourth proposed element would require a plaintiff to allege
that the disparity caused by the policy or practice is significant.
Where a disparity exists but is not material, a plaintiff will not have
stated a plausible disparate impact claim. If a defendant were subject
to liability for policies that have a negligible disparity, the
defendant could be forced to ``resort to the use of racial quotas''
\47\ to ensure that no subset of its data appears to present a
disparate impact. Inclusive Communities specifically noted that courts
must ``examine with care whether a plaintiff has made out a prima facie
showing of disparate impact, and prompt resolution is important . . .''
to avoid injecting ``racial considerations into every housing
decision.'' \48\ Therefore, a
[[Page 42859]]
plaintiff would be required to show that the statistical disparity
identified is material and caused by the challenged policy or practice,
rather than attributable to chance.
---------------------------------------------------------------------------
\47\ 135 S. Ct. at 2512.
\48\ Id.
---------------------------------------------------------------------------
The fifth proposed element would require a plaintiff to allege that
the complaining party's alleged injury is directly caused by the
challenge policy or practice. This element seeks to codify the
proximate cause requirement under the Fair Housing Act that there be
``some direct relation between the injury asserted and the injurious
conduct alleged.'' \49\
---------------------------------------------------------------------------
\49\ Bank of Am. Corp. v. City of Miami, 137 S. Ct. 1296, 1306
(2017).
---------------------------------------------------------------------------
If a party brings a claim under paragraph (b), HUD proposes that
the defending party may rebut a claim at the pleading stage by
asserting that a plaintiff has not alleged facts to support their prima
facie claim as explained in paragraph (c).\50\ Paragraph (c) also
provides defendants with three methods through which to establish that
plaintiffs have not alleged a disparate impact claim. HUD proposes to
provide that the defendants may raise any of these defenses in
paragraph (c) through a variety of procedural motions. For example, in
a rule 12(b)(6) motion to dismiss, the defendant can make an argument
under the paragraph (c) defense that the facts alleged in the complaint
fail to allege sufficient facts to support a claim under paragraph (b).
Another example is a rule 56 motion for summary judgment where the
defendant could assert facts outside of the complaint to substantiate a
defense under paragraph (c). For instance, on a rule 56 motion for
summary judgment, the defendant may succeed where the defendant ``shows
that there is no genuine dispute as to any material fact and . . . is
entitled to judgment as a matter of law.''
---------------------------------------------------------------------------
\50\ For example, the Supreme Court in Wards Cove Packing Co.
dismissed a disparate impact claim against a firm that denied job
applicants from a protected class at a higher rate than non-
protected class members. Despite the statistical disparity, the
plaintiffs had not identified an injury because a disproportionate
number of qualified minorities were not denied employment. 490 U.S.
at 650, 653.
---------------------------------------------------------------------------
Paragraph (c)(1) provides that the defendant may show its
discretion is materially limited by a third party--such as through a
Federal law or a State or local law--or a binding or controlling court,
arbitral, regulatory, administrative order, or administrative
requirement. In cases where a State actor or municipality is the
defendant, a State or local law, respectively, may not be considered
materially limiting for purposes of this defense.\51\ This defense
would allow a defendant to show that the complaining party has not
shown a robust causality as required in Inclusive Communities and
codified in paragraph (b)(2), by failing to show that the defendant's
policy is the actual cause of the alleged disparate impact.\52\ This
defense partially overlaps with proposed paragraph (e) of this section,
which clarifies that nothing in Sec. 100.500 is intended to conflict
with State insurance law. This defense applies to any Federal, State,
or local law that limits the defendant's discretion. As discussed
further in the Business of Insurance section below, Sec. 100.500(e)
applies only to State insurance law.
---------------------------------------------------------------------------
\51\ See Mount Holly, 658 F.3d 375 (3d Cir. 2011).
\52\ 135 S. Ct. at 2524 (``[I]f [the plaintiff] cannot show a
causal connection between the Department's policy and a disparate
impact--for instance, because Federal law substantially limits the
Department's discretion--that should result in dismissal of this
case.'').
---------------------------------------------------------------------------
Paragraph (c)(2) provides that, where a plaintiff identifies an
offending policy or practice that relies on an algorithmic model, a
defending party may defeat the claim by: (i) Identifying the inputs
used in the model and showing that these inputs are not substitutes for
a protected characteristic and that the model is predictive of risk or
other valid objective; (ii) showing that a recognized third party, not
the defendant, is responsible for creating or maintaining the model; or
(iii) showing that a neutral third party has analyzed the model in
question and determined it was empirically derived, its inputs are not
substitutes for a protected characteristic, the model is predictive of
risk or other valid objective, and is a demonstrably and statistically
sound algorithm.
HUD received comments expressing concern that complicated, yet
increasingly commonly used, algorithmic models to assess factors such
as risk or creditworthiness, should be provided a safe harbor. While
disparate impact provides an important tool to root out factors that
may cause these models to produce discriminatory outputs, these models
can also be an invaluable tool in extending access to credit and other
services to otherwise underserved communities. Therefore, HUD proposes
these defenses to provide parties with three methods of defending their
models where they can show their models achieve ``legitimate
objectives[.]'' \53\ They are intended to ensure that disparate impact
liability is ``limited so employers and other regulated entities are
able to make the practical business choices and profit-related
decisions that sustain a vibrant and dynamic free-enterprise system.''
\54\ This section is not intended to provide a special exemption for
parties who use algorithmic models, but merely to recognize that
additional guidance is necessary in response to the complexity of
disparate impact cases challenging these models. HUD proposes that a
successful defense under this section would demonstrate the lack of a
robust causal link between the defendant's use of the model and the
alleged disparate impact, as described below.
---------------------------------------------------------------------------
\53\ Id. at 2524.
\54\ Id. at 2518.
---------------------------------------------------------------------------
The first defense allows a defendant to provide analysis showing
that the model is not the actual cause of the disparate impact alleged
by the plaintiff. It allows the defendant to break down the model
piece-by-piece and demonstrate how each factor considered could not be
the cause of the disparate impact and to show how each factor advances
a valid objective. This defense simply lays out the steps that a
defendant would take in defending its actions. A defendant will succeed
under this defense where the plaintiff is unable to then show that the
defendant's analysis is somehow flawed, such as by showing that a
factor used in the model is correlated with a protected class despite
the defendant's assertion.
The second defense provides that a defendant can show that use of
the model is standard in the industry, it is being used for the
intended purpose of the third party, and that the model is the
responsibility of a third party. It is similar to the defense that the
defendant's actions are materially limited by law, as discussed above,
in that it recognizes that there are situations in which standard
practice is so clearly established that the proper party responsible
for the challenged conduct is not the defendant, but the party who
establishes the industry standard. In these situations, the defendant
may not have access to the reasons these factors are used or may not
even have access to the factors themselves, and, therefore, may not be
able to defend the model itself, even where a perfectly rational reason
exists for its use. Further, if the plaintiff prevails, the plaintiff
would only remove the model from use by one party, whereas suing the
party that is actually responsible for the creation and design of the
model would remove the disparate impact from the industry as a whole. A
plaintiff may rebut this allegation by showing that the plaintiff is
not challenging the standard model alone, but the defendant's unique
use or misuse of the model, as the cause of the disparate impact.
The third defense is similar to the first and provides defendants
with another method of showing that the model is not
[[Page 42860]]
the actual cause of the disparate impact. This defense allows
defendants to prove through the use of a qualified expert that the
model is not the cause of a disparate impact. A plaintiff may rebut
this defense by showing that the third party is not neutral, that the
analysis is incomplete, or that there is some other reason why the
third party's analysis is insufficient evidence that the defendant's
use of the model is justified.
Given the complicated nature of this issue, HUD is specifically
soliciting comments on the nature, propriety, and use of algorithmic
models as related to the defenses in (c)(2).
Paragraph (c)(3) provides that a defendant may make any additional
claims that the plaintiff has failed to allege sufficient facts to
support a prima facie case under paragraph (b).
If a party alleges facts sufficient to show a prima facie case
under paragraph (b), a case proceeds beyond the pleading stage. Under
paragraph (d)(1), HUD's proposed rule provides that the plaintiff has
the burden of proving by a preponderance of the evidence each of the
elements of the prima facie case, established not by statistical
imbalances or disparities alone, but through evidence that is not
remote or speculative. A plaintiff may now have access to discovery to
establish facts supporting each allegation, including the allegation
that the identified policy or practice is ``arbitrary, artificial, and
unnecessary.'' In addition, a defendant may show that the policy or
procedure advances a valid interest. The plaintiff must counter this by
proving by a preponderance of the evidence that a less discriminatory
policy or practice would serve the interest in an equally effective
manner without imposing materially greater costs on, or creating other
material burdens for, the defendant, consistent with existing disparate
impact case law.\55\
---------------------------------------------------------------------------
\55\ Wards Cove, 490 U.S. at 661.
---------------------------------------------------------------------------
Under paragraph (d)(2), the proposed rule provides that the
defendant may rebut a plaintiff's case by proving any element
identified under paragraph (c)(1) or (2). The defendant may also rebut
a plaintiff's case by demonstrating that the plaintiff has not met the
burden of proof laid out in paragraph (d)(1), either by failing to
prove the elements of a prima facie case or by failing to identify an
alternative practice that advances the valid interest identified by the
defendant without creating materially greater costs or other material
burdens for the defendant, and, therefore, has not in fact ``made out a
prima facie case of disparate impact.'' \56\ HUD is also particularly
seeking input on whether it would be consistent with Inclusive
Communities to provide a defense for housing authorities who can show
that the policy being challenged is a reasonable approach and in the
housing authority's sound discretion.
---------------------------------------------------------------------------
\56\ 135 S. Ct. at 2523.
---------------------------------------------------------------------------
HUD specifically seeks comments on the terms used in this section
of the rule and whether HUD should define those terms. Examples of
terms that HUD would consider providing definitions to are ``robust
causal link,'' ``evidence that is not remote or speculative,''
``algorithmic model,'' and ``material part.''
Business of Insurance
In response to comments requesting HUD consider its position on the
application of disparate impact to insurance, HUD proposes adding new
paragraph (e), which would provide that nothing in Sec. 100.500 is
intended to invalidate, impair, or supersede any law enacted by any
State for the purpose of regulating the business of insurance. This
codifies the general applicability of the ``reverse preemption''
provisions of the McCarran-Ferguson Act as it applies to the Fair
Housing Act.\57\ The McCarran-Ferguson Act provides that provisions of
Federal law in conflict with state insurance laws are preempted by
state laws ``unless such Act specifically relates to the business of
insurance[.]'' \58\ This proposed language clarifies that the Fair
Housing Act does not ``specifically relate to the business of
insurance'' and affirms in regulation HUD's past position, as stated
above, that case-by-case adjudication is the proper way to resolve
cases to determine whether the Fair Housing Act conflicts with the
State insurance law at issue in each case. The Fair Housing Act, and,
therefore, this regulation, will only be preempted where application of
the Fair Housing Act would invalidate, impair, or supersede the State
insurance law. Under these circumstances, the State insurance law
governs.\59\
---------------------------------------------------------------------------
\57\ 15 U.S.C. 1012(b).
\58\ Id.
\59\ For a discussion of this issue, see Ojo v. Farmers Grp.,
600 F.3d 1205 (9th Cir. 2010), in which the Appeals Court concluded
that the McCarran-Ferguson Act can reverse-preempt the Fair Housing
Act, and certified to the Texas Supreme Court the question of
whether the Fair Housing Act would conflict with Texas insurance
law.
---------------------------------------------------------------------------
Proposed paragraph (e) does not provide the safe harbor for
insurance, which some commenters requested. However, this proposed
section and the complete defense where a defendant's discretion is
materially limited by compliance with Federal, State, or local law,
would have a similar effect to a safe harbor, in appropriate
circumstances, by ensuring that parties are never placed in a ``double
bind of liability'' where they could be subject to suit under disparate
impact for actions required for good faith compliance with another
law.\60\ Both provisions are also consistent with Inclusive
Communities' robust causality requirement because, where the actual
cause of the disparate impact is another law and not the defendant's
own independent decisions, a plaintiff has not shown that the defendant
is the actual cause of the disparate impact.\61\
---------------------------------------------------------------------------
\60\ 135 S. Ct. at 2523.
\61\ Id. at 2524 (``[I]f the ICP cannot show a causal connection
between the Department's policy and a disparate impact--for
instance, because Federal law substantially limits the Department's
discretion--that should result in dismissal of this case.'').
---------------------------------------------------------------------------
This proposed paragraph applies where the defendant can show that
imposing disparate impact liability under the Fair Housing Act would
invalidate, impair, or supersede State insurance law. The ``materially
limited'' defense is not restricted to State insurance law, but
requires the defendant to show that the defendant's discretion is
limited to comply with Federal, State, or local law.
III. Additional Questions for Public Comment
In addition to the specific feedback sought elsewhere in the
preamble, HUD explicitly requests public comment on the following
questions in order to better inform HUD's regulatory impact analysis at
the final rule stage.
1. How well do HUD's proposed changes to its disparate impact
standard align with the decision and analysis in Inclusive Communities
with respect to the proposed prima facie burden, including:
i. Each of the five elements in the new burden-shifting framework
outlined in paragraph (b) of Sec. 100.500.
ii. The three methods described in paragraph (c) of Sec. 100.500
through which defendants may establish that plaintiffs have failed to
allege a prima facie case.
2. What impact, using specific court cases as reference, did
Inclusive Communities have on the number, type, and likelihood of
success of disparate impact claims brought since the 2015 decision? How
might this proposed rule further impact the number, type, and
likelihood of success of disparate impact claims brought in the future?
3. How, specifically, did Inclusive Communities, and the cases
brought since Inclusive Communities, expand upon, conflict, or align
with HUD's 2013
[[Page 42861]]
final disparate impact rule and with this proposed rule?
4. How might the proposed rule increase or decrease costs and
economic burden to relevant parties (e.g., litigants, including private
citizens, local governments, banks, lenders, insurance companies, or
others in the housing industry) relative to the 2013 final disparate
impact rule? How might the proposed rule increase or decrease costs and
economic burden to relevant parties relative to Inclusive Communities?
5. How might a decision not to amend HUD's 2013 final disparate
impact rule affect the status quo since Inclusive Communities?
6. What impact, if any, does the addition of paragraph (e) of Sec.
100.500 regarding the business of insurance have on the number and type
of disparate impact claims? What impact, if any, does the proposed
paragraph (e) have on costs (or savings) and economic burden of
disparate impact claims?
7. Is there any other data, information, or analysis the public can
provide to assist HUD in assessing the impact of the proposed
regulation relative to the 2013 disparate impact final rule and the
2015 Supreme Court decision in Inclusive Communities?
IV. Findings and Certifications
Regulatory Review--Executive Orders 12866 and 13563
Pursuant to 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 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 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.
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, toll-free, 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 updates HUD's uniform standards for determining when a
housing practice with a discriminatory effect violates the Fair Housing
Act. HUD's objective in this proposed rule is to ensure consistency and
uniformity, given the Supreme Court decision, and, thereby, provide
clarity for the public. HUD's 2013 regulation codified the then
prevailing case law for bringing a discriminatory effect claim and the
rule provided clarity to all parties involved in a case. Currently, the
courts and the public are forced to reconcile how to implement HUD's
regulations consistent with Inclusive Communities. This rule will
provide clarity, thus reducing burdens, for all parties by, consistent
with HUD's prior rule, codifying the current framework for bringing a
discriminatory effect claim consistent with new case law. Specifically,
plaintiffs will have a framework to use for ensuring complaints meet
all the requirements identified in Inclusive Communities for pleading a
claim of discriminatory effect, and defendants will be able to use this
framework to rebut such claims. Similarly, defendants will be more
proactive in ensuring that their policies and practices comply with the
defenses that are provided. It is HUD's intention that plaintiffs will
bring claims that are better supported and defendants will be able to
resolve unsupported claims of discriminatory effect more quickly;
therefore, leading to the ``prompt resolution'' of disparate impact for
all parties.\62\ HUD believes all parties, including small entities,
will benefit from the changes and clarifications in the rule by
reconciling HUD's existing regulatory framework for discriminatory
effect claims with Inclusive Communities and subsequent case law.
Similarly, all entities will especially benefit from this rule as it
will allow for a quicker, less costly method of understanding their
burden and responsibility under disparate impact law without the need
to research and compile case law since Inclusive Communities.
---------------------------------------------------------------------------
\62\ 135 S. Ct. at 2523.
---------------------------------------------------------------------------
Accordingly, the undersigned certifies that the proposed rule will
not have a significant economic impact on a substantial number of small
entities. Notwithstanding HUD's determination that this rule will not
have a significant effect on a substantial number of small entities,
HUD specifically invites comments regarding any less burdensome
alternatives to this rule that will meet HUD's objectives as described
in the preamble to this rule. HUD also requests comments on the
potential burden or benefit the proposed regulations may have on
potential claimants and the organizations that represent them, some of
which are small businesses.
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 rule does not
have federalism implications and does 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 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.
[[Page 42862]]
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
0
1. The authority for 24 CFR part 100 continues to read as follows:
Authority: 42 U.S.C. 3535(d), 3600-3620.
0
2. In Sec. 100.5, revise the last sentence in paragraph (b) and add
paragraph (d) to read as follows:
Sec. 100.5 Scope.
* * * * *
(b) * * * Allegations of unlawful housing discrimination under this
part may be established by a practice's discriminatory effect, even if
not motivated by discriminatory intent, and defenses and rebuttals to
such allegations may be made, consistent with the standards outlined in
Sec. 100.500.
* * * * *
(d) Nothing in this part requires or encourages the collection of
data with respect to race, color, religion, sex, handicap, familial
status, or national origin. The absence of any such collection efforts
shall not result in any adverse inference against a party.
0
3. In Sec. 100.7, revise paragraph (b) and add paragraph (c) to read
as follows:
Sec. 100.7 Liability for discriminatory housing practices.
* * * * *
(b) Vicarious liability. Where a principal-agent relationship
exists under common law, a person may be held vicariously liable for a
discriminatory housing policy or practice by the person's agent or
employee.
(c) Remedies in administrative proceedings. The remedy in an
administrative discriminatory effect case should concentrate on
eliminating or reforming the discriminatory practice so as to eliminate
disparities between persons in a particular protected class and other
persons through neutral means, and may include equitable remedies, and,
where pecuniary damage is proved, compensatory damages or restitution.
Punitive or exemplary damages shall not be available as a remedy.
0
4. In Sec. 100.70, revise paragraph (d)(5) to read as follows:
Sec. 100.70 Other prohibited sale and rental conduct.
* * * * *
(d) * * *
(5) Enacting or implementing land-use rules, ordinances,
procedures, building codes, permitting rules, policies, or requirements
that restrict or deny housing opportunities or otherwise make
unavailable or deny dwellings to persons because of race, color,
religion, sex, handicap, familial status, or national origin.
0
5. In Sec. 100.120, revise paragraph (b)(1) to read as follows:
Sec. 100.120 Discrimination in the making of loans and in the
provision of other financial assistance.
* * * * *
(b) * * *
(1) Failing or refusing to provide to any person 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
that is materially inaccurate or materially different from that
provided others, because of race, color, religion, sex, handicap,
familial status, or national origin; provided that nothing in this
paragraph (b)(1) restricts providing accurate responses to requests for
information related to an individual's particular circumstances.
* * * * *
0
6. Revise Sec. 100.500 to read as follows:
Sec. 100.500 Discriminatory effect prohibited.
(a) General. Liability may be established under the Fair Housing
Act based on a specific policy's or practice's discriminatory effect on
members of a protected class under the Fair Housing Act even if the
specific policy or practice was not motivated by a discriminatory
intent.
(b) Prima facie burden. To allege a prima facie case based on an
allegation that a specific, identifiable policy or practice has a
discriminatory effect, a plaintiff or the charging party (collectively,
``plaintiff'') must state facts plausibly alleging each of the
following elements:
(1) That the challenged policy or practice is arbitrary,
artificial, and unnecessary to achieve a valid interest or legitimate
objective such as a practical business, profit, policy consideration,
or requirement of law;
(2) That there is a robust causal link between the challenged
policy or practice and a disparate impact on members of a protected
class that shows the specific practice is the direct cause of the
discriminatory effect;
(3) That the alleged disparity caused by the policy or practice has
an adverse effect on members of a protected class;
(4) That the alleged disparity caused by the policy or practice is
significant; and
(5) That there is a direct link between the disparate impact and
the complaining party's alleged injury.
(c) Failure to allege a prima facie case. A defendant, or
responding party, may establish that a plaintiff's allegations do not
support a prima facie case of discriminatory effect under paragraph (b)
of this section, if:
(1) The defendant shows that its discretion is materially limited
by a third party such as through:
(i) A Federal, state, or local law; or
(ii) A binding or controlling court, arbitral, regulatory,
administrative order, or administrative requirement;
(2) Where a plaintiff alleges that the cause of a discriminatory
effect is a model used by the defendant, such as a risk assessment
algorithm, and the defendant:
(i) Provides the material factors that make up the inputs used in
the challenged model and shows that these factors do not rely in any
material part on factors that are substitutes or close proxies for
protected classes under the Fair Housing Act and that the model is
predictive of credit risk or other similar valid objective;
(ii) Shows that the challenged model is produced, maintained, or
distributed by a recognized third party that determines industry
standards, the inputs and methods within the model are not determined
by the defendant, and the defendant is using the model as intended by
the third party; or
(iii) Shows that the model has been subjected to critical review
and has been validated by an objective and unbiased neutral third party
that has analyzed the challenged model and found that the model was
empirically derived and is a demonstrably and statistically sound
algorithm that accurately predicts risk or other valid objectives, and
that none of the factors used in the algorithm rely in any material
part on factors that are substitutes or close proxies for protected
classes under the Fair Housing Act; or
(3) The defendant demonstrates that the plaintiff has failed to
allege sufficient facts under paragraph (b) of this section.
(d) Burdens of proof for discriminatory effect. If a case is not
resolved at the pleading stage, the burden of proof to establish that a
specific, identifiable policy or practice has a discriminatory effect,
are as follows:
[[Page 42863]]
(1) Plaintiff's burden. (i) A plaintiff must prove by the
preponderance of the evidence, through evidence that is not remote or
speculative, each of the elements in paragraphs (b)(2) through (5) of
this section; and
(ii) If the defendant rebuts a plaintiff's assertion that the
policy or practice is arbitrary, artificial, and unnecessary under
paragraph (b)(1) of this section by producing evidence showing that the
challenged policy or practice advances a valid interest (or interests),
the plaintiff must prove by the preponderance of the evidence that a
less discriminatory policy or practice exists that would serve the
defendant's identified interest in an equally effective manner without
imposing materially greater costs on, or creating other material
burdens for, the defendant.
(2) Defendant's burden. The defendant may, as a complete defense:
(i) Prove any element identified under paragraph (c)(1) or (2) of
this section;
(ii) Demonstrate that the plaintiff has not proven by the
preponderance of the evidence an element identified under paragraph
(d)(1)(i) of this section; or
(iii) Demonstrate that the alternative policy or practice
identified by the plaintiff under paragraph (d)(1)(ii) of this section
would not serve the valid interest identified by the defendant in an
equally effective manner without imposing materially greater costs on,
or creating other material burdens for, the defendant.
(e) Business of insurance laws. Nothing in this section is intended
to invalidate, impair, or supersede any law enacted by any state for
the purpose of regulating the business of insurance.
Dated: July 29, 2019.
Anna Maria Far[iacute]as,
Assistant Secretary for Fair Housing and Equal Opportunity.
[FR Doc. 2019-17542 Filed 8-16-19; 8:45 am]
BILLING CODE 4210-67-P