[Federal Register Volume 86, Number 120 (Friday, June 25, 2021)]
[Proposed Rules]
[Pages 33590-33597]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13240]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

24 CFR Part 100

[Docket No. FR-6251-P-01]
RIN 2529-AB02


Reinstatement of HUD'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: In 2020, HUD published a rule titled ``HUD's Implementation of 
the Fair Housing Act's Disparate Impact Standard'' (``2020 Rule''). 
Prior to the effective date of the 2020 rule, the U.S. District Court 
for the District of Massachusetts issued a preliminary injunction in 
Massachusetts Fair Housing Center v. HUD, staying HUD's implementation 
and enforcement of the rule. Consequently, the 2020 Rule never took 
effect. After reconsidering the 2020 Rule, HUD is proposing to recodify 
its previously promulgated rule titled, ``Implementation of the Fair 
Housing Act's Discriminatory Effects Standard'' (``2013 Rule''), which, 
as of the date of publication of this Proposed Rule, remains in effect 
due to the preliminary injunction. HUD believes the 2013 Rule better 
states Fair Housing Act jurisprudence and is more consistent with the 
Fair Housing Act's remedial purposes.

DATES: Comment due date: August 24, 2021.

ADDRESSES: Interested persons are invited to submit written comments 
regarding this rule to the Regulations Division, Office of General 
Counsel, Department of Housing and Urban Development, 451 7th Street 
SW, Room 10276, Washington, DC 20410. All communications should refer 
to the above docket number and title. There are two methods for 
submitting public comments.
    1. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
www.regulations.gov. HUD strongly encourages commenters to submit 
comments electronically. Electronic submission of comments allows the 
commenter maximum time to prepare and submit a comment, ensures timely 
receipt by HUD, and enables HUD to make them immediately available to 
the public. Comments submitted electronically through the 
www.regulations.gov website can be viewed by other commenters and 
interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.
    2. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street SW, Room 10276, 
Washington, DC 20410-0500.
    Note: To receive consideration as public comments, comments must be 
submitted through one of the two methods specified above. Again, all 
submissions must refer to the docket number and title of the rule.
    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an appointment to review the public comments must be 
scheduled in advance by calling the Regulations Division at 202-708-
3055 (this is not a toll-free number). Individuals with speech or 
hearing impairments may access this number via TTY by calling the 
Federal Relay Service at 800-877-8339. Copies of all comments submitted 
are available for inspection and downloading at www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Kathleen M. Pennington, Acting 
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, email <a href="/cdn-cgi/l/email-protection#e3abb6a7a78a90938291829786aa8e93828097d1d3d1d2a38b9687cd848c95"><span class="__cf_email__" data-cfemail="d199849595b8a2a1b0a3b0a5b498bca1b0b2a5e3e1e3e091b9a4b5ffb6bea7">[email protected]</span></a> or 
telephone number 202-402-3330 (this is not a toll-free number). Persons 
with hearing and speech impairments may contact this phone number via 
TTY by calling the Federal Relay Service at 800-877-8399 (this is a 
toll-free number).

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 because of race, color, religion, sex, disability, familial 
status, or national origin.\1\ Through the Fair

[[Page 33591]]

Housing Act, Congress codified its remedial purpose, providing that 
``[i]t is the policy of the United States to provide, within 
constitutional limitations, for fair housing throughout the United 
States.'' \2\ The Act's protections are meant to be ``broad and 
inclusive.'' \3\ Congress passed the Act in the wake of the 
assassination of Dr. Martin Luther King, Jr., recognizing that 
``residential segregation and unequal housing and economic conditions 
in the inner cities'' were ``significant, underlying causes of the 
social unrest'' \4\ and that both open and covert race discrimination 
were preventing integrated communities.\5\ As the Supreme Court 
reiterated more recently, the Act's expansive purpose is to ``eradicate 
discriminatory practices within a sector of the Nation's economy'' and 
to combat and prevent segregation and discrimination in housing.\6\ 
Congress considered the realization of this policy ``to be of the 
highest priority.'' \7\
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    \1\ 42 U.S.C. 3601-3619, 3631. This preamble uses the term 
``disability'' to refer to what the Act and its implementing 
regulations term a ``handicap'' because that is the preferred term. 
See, e.g., Hunt v. Aimco Props., L.P., 814 F.3d 1213, n.1 (11th Cir. 
2016) (noting the term disability is generally preferred over 
handicap).
    \2\ 42 U.S.C. 3601.
    \3\ Trafficante v. Metro. Life Ins. Co., 409 U.S. 205, 209 
(1972).
    \4\ Tex. Dep't of Hous. & Cmty. Affairs v. Inclusive Cmtys. 
Project, Inc., 576 U.S. 519, 529 (2015) (citing Report of the 
National Advisory Commission on Civil Disorders 91 (1968) (Kerner 
Commission Report).
    \5\ Id. at 529 (citing Kerner Commission Report).
    \6\ Id. at 539.
    \7\ Trafficante, 409 U.S. at 211 (1972).
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    The Act gives HUD the authority and responsibility for 
administering and enforcing the Act, including the authority to conduct 
formal adjudications of complaints and to promulgate rules to interpret 
and carry out the Act.\8\ Through that authority, HUD proposes this 
rulemaking.
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    \8\ See 42 U.S.C. 3608(a), 3612, 3614a.
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Discriminatory Effects Law Under the Fair Housing Act Prior to HUD's 
2013 Rule

    HUD's 2013 Rule broke no new ground, but instead largely codified 
longstanding judicial and agency consensus regarding discriminatory 
effects law. Courts had long found that discrimination under the Act 
may be established through evidence of discriminatory effects, i.e., 
facially neutral practices with an unjustified discriminatory effect. 
Indeed, all federal courts of appeals to have addressed the question 
had held that liability under the Act could be established by a showing 
that a neutral policy or practice either has a disparate impact on a 
protected group or creates, perpetuates, or increases segregation, even 
if such a policy or practice was not adopted for a discriminatory 
purpose.\9\ As the Sixth Circuit explained, the Act ``proscribes not 
only overt discrimination but also practices that are fair in form, but 
discriminatory in operation.'' \10\
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    \9\ See, e.g., Graoch Assocs. # 33, L.P. v. Louisville/Jefferson 
County Metro Human Relations Comm'n, 508 F.3d 366, 378 (6th Cir. 
2007) (citing Arthur v. City of Toledo, 782 F.2d 565, 575 (6th Cir. 
1986)); Hallmark Developers, Inc. v. Fulton County, Ga., 466 F.3d 
1276, 1286 (11th Cir. 2006) (citing Hous. Investors, Inc. v. City of 
Clanton, Ala., 68 F. Supp. 2d 1287, 1298 (M.D. Ala. 1999)); 
Huntington Branch, NAACP v. Town of Huntington, 844 F.2d 926, 937 
(2nd Cir. 1988) (citing Metro Hous. Dev. Corp. v. Vill. of Arlington 
Heights, 558 F.2d 1283, 1290 (7th Cir. 1977), aff'd, 488 U.S. 15 
(1988) (per curium); Betsey v. Turtle Creek Assocs., 736 F.2d 983, 
987 n.3 (4th Cir. 1984) (citing Metro Hous. Dev. Corp v. Vill. of 
Arlington Heights, 558 F.2d 1283, 1290 (7th Cir. 1977)); Metro. 
Housing Dev. Corp. v. Village of Arlington Heights, 558 F.2d 1283, 
1290 (7th Cir. 1977) (citing Trafficante v. Metropolitan Life Ins. 
Co., 409 U.S. 205, 209-10 (1972)); United States. v. City of Black 
Jack, Missouri, 508 F. 2d 1179, 1184-86 (8th Cir. 1974).
    \10\ Graoch Assocs. #33, L.P., 508 F.3d at 374 (quoting Griggs 
v. Duke Power Co., 401 U.S. 424, 431 (1971) (a Title VII case)).
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    HUD had for decades--consistent with this judicial consensus--
concluded that facially neutral practices that have an unjustified 
discriminatory effect on the basis of a protected characteristic, 
regardless of intent, violate the Act.\11\ For example, in 1994, HUD, 
along with nine other agencies and the Department of Justice, issued a 
joint policy statement that recognized disparate impact liability under 
the Act.\12\
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    \11\ 78 FR, 11460, 11461 (Feb. 15, 2013) (citing, e.g., HUD v. 
Twinbrook Village Apts., No. 02-00025600-0256-8, 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. Carlson, No. 
08-91-0077-1, 1995 WL 365009 (HUD ALJ June 12, 1995) (``A policy or 
practice that is neutral on its face may be found to be violative of 
the Act if the record establishes a prima facie case that the policy 
or practice has a disparate impact on members of a protected class, 
and the Respondent cannot prove that the policy is justified by 
business necessity.''); HUD v. Ross, No. 01-92-0466-18, 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, No. 
03-90-0058-1, 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\ 78 FR 11460, 11461 (citing Policy Statement on 
Discrimination in Lending, 59 FR 18266, 18269 (Apr. 15, 1994)).
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    Although there had been some minor variation in the application of 
the discriminatory effects framework prior to the 2013 Rule, HUD and 
the federal appellate courts were largely in agreement. HUD has always 
used a three-step burden-shifting approach,\13\ as did many federal 
courts of appeals prior to the 2013 Rule.\14\ Thus, HUD's 2013 Rule 
simply codified a familiar standard.
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    \13\ 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. 18266, 18269 (Apr. 15, 1994) 
(applying three-step test without specifying where the burden lies 
at each step).
    \14\ 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, 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, 844 F.2d 926, 939 (2d Cir. 
1988).
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HUD's 2013 Discriminatory Effects Rule

    In February 2013, after notice and public comment, and taking 
decades of caselaw into consideration, HUD published the 2013 Rule, 
which ``formalize[d] its long-held recognition of discriminatory 
effects liability under the Act and, for purposes of providing 
consistency nationwide, formalize[d] a burden-shifting test for 
determining whether a given practice has an unjustified discriminatory 
effect, leading to liability under the Act.'' \15\ In promulgating the 
2013 Rule, HUD noted the Act's ``broad remedial intent;'' \16\ HUD's 
prior positions, including that discriminatory effects liability was 
``imperative to the success of the civil rights law enforcement;'' \17\ 
and the consistent application of discriminatory effects liability in 
the four previous decades (with minor variations) by HUD, the 
Department of Justice, nine other federal agencies, and federal 
courts.\18\
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    \15\ 78 FR 11460.
    \16\ See also 2011 Notice of Proposed Rulemaking, 76 FR 70911, 
70922 (Nov. 16, 2011) (``In keeping with the `broad remedial intent' 
of Congress in passing the Fair Housing Act, and consequently the 
Act's entitlement to a `generous construction' HUD . . . has 
repeatedly determined that the Fair Housing Act is directed to the 
consequences of housing practices, not simply their purpose.'') 
(citing Havens Realty v. Coleman, 455 U.S. 363, 380 (1982); City of 
Edmonds v. Oxford House, Inc., 514 U.S. 725, 731-732 (1995) 
(internal citations removed)).
    \17\ 78 FR 11460, 11461 (citing 126 Cong. Rec. 31,166-31,167 
(1980) (statement of Sen. Mathias reading into the record letter of 
HUD Secretary)).
    \18\ 78 FR 11460, 11461-62.
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    Among other things, the 2013 Rule codified a three-part burden-
shifting framework consistent with frameworks on which HUD and courts 
had long relied: (1) The plaintiff or charging party is first required 
to prove as part of the prima facie showing that a challenged practice 
caused or predictably will cause a discriminatory effect; (2) if the 
plaintiff or charging party makes this prima facie showing, the 
defendant or respondent must then prove that the challenged practice is 
necessary to achieve one or more substantial,

[[Page 33592]]

legitimate, nondiscriminatory interests of the defendant or respondent; 
and (3) if the defendant or respondent meets its burden at step two, 
the plaintiff or charging party may still prevail by proving that the 
substantial, legitimate, nondiscriminatory interests supporting the 
challenged practice could be served by another practice that has a less 
discriminatory effect.\19\
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    \19\ 78 FR 11460, 11482; see, e.g., Inclusive Cmtys. Project, 
Inc., 576 U.S. at 527 (overviewing the 2013 Rule's burden shifting 
framework).
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The 2015 Inclusive Communities Supreme Court Decision

    In 2015, the Supreme Court confirmed that the Act provides for 
discriminatory effects liability in Texas Department of Housing and 
Community Affairs v. Inclusive Communities Project, Inc.\20\ The Court 
was asked to answer two questions: (1) Whether disparate-impact claims 
are cognizable under the Act, and (2) if they are, what standards and 
burdens of proof should apply?\21\ The Court declined to consider the 
second question.\22\
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    \20\ Inclusive Cmtys. Project, Inc., 576 U.S. at 519, 532-35.
    \21\ See Petition for a Writ of Certiorari, in Tex. Dep't of 
Hous. & Cmty. Affairs et al., v. Inclusive Cmtys. Project, Inc., 573 
U.S. 991, No. 13-1371, 2014 U.S. S. Ct. Briefs LEXIS 1848, at *9; 
See Questions Presented in, Tex. Dep't of Hous. & Cmty. Affairs et 
al., v. Inclusive Cmtys Project, Inc., 573 U.S. 991, The United 
States Supreme Court 1, 1, https://www.supremecourt.gov/qp/13-01371qp.pdf.
    \22\ Inclusive Cmtys. Project, Inc., 573 U.S. 991 (2014), 2014 
U.S. LEXIS 4912 at *1 (``Petition for writ of certiorari to the 
United States Court of Appeals for the Fifth Circuit granted limited 
to Question 1 presented by the petition.''); See also Questions 
Presented in, Inclusive Cmtys Project, Inc., 573 U.S. 991, The 
United States Supreme Court 1, 1, https://www.supremecourt.gov/qp/13-01371qp.pdf.
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    The Court found that Congress's use of the phrase ``otherwise make 
unavailable'' in Sec.  804(a) and the term ``discriminate'' in Sec.  
805(a) parallel language that the Court had previously held to provide 
for discriminatory effects liability under other civil rights 
statutes.\23\ Moreover, the Court held that Congress's 1988 amendment 
of the Act without altering the relevant text of Sec. Sec.  804(a) or 
805(a) indicated that Congress ``accepted and ratified the unanimous 
[pre-1988] holdings of the [c]ourts of [a]ppeals finding disparate-
impact liability.'' \24\ The Court further held that Congress's 
addition of provisions that presuppose disparate impact liability as 
part of the 1988 amendments further provided ``convincing confirmation 
of Congress' understanding that disparate-impact liability exists under 
the FHA.'' \25\ The Court further observed that disparate impact claims 
are ``consistent with the FHA's central purpose'' of ``eradicat[ing] 
discriminatory practices within a sector of our [n]ation's economy.'' 
\26\
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    \23\ Inclusive Cmtys. Project, Inc., at 534 (citing Griggs v. 
Duke Power Co., 401 U.S. 424 (1971); Bd. of Educ. v. Harris, 444 
U.S. 130 (1979); Smith v. City of Jackson, 544 U.S. 228 (2005)).
    \24\ Id. at 536.
    \25\ Id. at 537.
    \26\ Id. at 539 (citing 42 U.S.C. 3601).
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    As the Court recognized: ``Much progress remains to be made in our 
Nation's continuing struggle against racial isolation. . . . But since 
the passage of the Fair Housing Act in 1968 and against the backdrop of 
disparate-impact liability in nearly every jurisdiction, many cities 
have become more diverse. The FHA must play an important part in 
avoiding the Kerner Commission's grim prophecy that our Nation is 
moving toward two societies, one black, one white--separate and 
unequal. The Court acknowledges the Fair Housing Act's continuing role 
in moving the Nation toward a more integrated society.'' \27\
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    \27\ Id.at 546-47 (internal citations and quotations omitted).
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    In reaching this holding, the Court explained that from its first 
decision to recognize disparate impact liability, in Griggs v. Duke 
Power Co., it ``put important limits'' on the scope of liability.\28\ 
For example, with respect to employment discrimination claims under 
Title VII of the Civil Rights Act, Griggs explained that an employer 
can justify a practice that has a disparate impact with a ``business 
necessity'' defense, such that Title VII ``does not prohibit hiring 
criteria with a `manifest relationship' to job performance.'' \29\ 
Similarly, after holding that the Act provided for disparate impact 
liability, the Inclusive Communities Court noted that, under the Act, 
``disparate-impact liability has always been properly limited in key 
respects.'' \30\ Quoting Griggs, the Court explained that it has always 
been true that disparate impact liability under the Act ``mandates the 
`removal of artificial, arbitrary, and unnecessary barriers,' not the 
displacement of valid governmental policies.'' \31\
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    \28\ Id. at 531.
    \29\ Id. (quoting Griggs, 401 U.S. at 431-32).
    \30\ Id. at 540.
    \31\ Id. (quoting Griggs, 401 U.S. at 431).
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    The Court then sketched out some of these long-standing limitations 
on the scope of disparate-impact liability, including: (i) The 
requirement that ``housing authorities and private developers [have] 
leeway to state and explain the valid interest served by their policies 
. . . analogous to the business necessity standard under Title VII;'' 
and (ii) the requirement that a ``claim that relies on a statistical 
disparity must fail if the plaintiff cannot point to a defendant's 
policy or policies causing that disparity.'' \32\
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    \32\ Id. at 541, 542.
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    HUD accounted for these same well-settled limitations in the 2013 
Rule, which requires a charging party or plaintiff to challenge a 
specific practice causing the alleged discriminatory effect and permits 
a defendant to defend a practice that causes such an impact by 
demonstrating that it is necessary to achieve a substantial, 
legitimate, nondiscriminatory interest. The Court did not call into 
question the 2013 Rule's framework for analyzing discriminatory effects 
claims, nor did it suggest that HUD should make any modifications to 
that framework. To the contrary, the Court cited HUD's 2013 Rule 
multiple times with approval.\33\ For instance, the Court noted that 
the burden-shifting framework of Griggs and its progeny, adopted by HUD 
in the 2013 Rule, adequately balanced the interests of plaintiffs and 
defendants by giving housing providers the ability ``to state and 
explain the valid interest served by their policies.'' \34\ Multiple 
courts have since read Inclusive Communities as affirming or endorsing 
the 2013 Rule's burden-shifting test.\35\
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    \33\ Id. at 527 (explaining the 2013 Rule, its burden shifting 
framework, and how the second prong is analogous to Title VII's 
requirement that a challenged practice be job related), 528 (noting 
the Court of Appeals for the Fifth Circuit relied on HUD's 2013 
Rule), 541 (citing the 2013 Rule in explaining that disparate impact 
liability is properly limited to give housing authorities and 
private developers leeway to state and explain the valid interest 
served by their policies via step two of the burden shifting 
framework); 542 (approvingly noting that HUD recognized in its 2013 
Rule that disparate impact liability ``does not mandate that 
affordable housing be located in neighborhoods with any particular 
characteristic'').
    \34\ Id. at 540-541.
    \35\ See, e.g., MHANY Mgmt. Inc. v. Cnty. of Nassau, 819 F.3d 
581, 618 (2d Cir. 2016) (``The Supreme Court implicitly adopted 
HUD's approach''); Ave 6E Invs., LLC v. City of Yuma, 818 F.3d 493, 
512-513 (9th Cir. 2016) (citing the 2013 Rule in describing the 
three-prong analytical structure set forth in Inclusive 
Communities); Nat'l Fair Hous. All. v. Travelers Indem. Co., 261 F. 
Supp. 3d 20, 28-29 (D.D.C. 2017) (stating that the Supreme Court 
``carefully explained that disparate-impact liability has always 
been properly limited'' and that ``disparate-impact liability under 
the FHA can be proven under a burden-shifting framework analogous to 
that used in employment discrimination cases.'') (internal citations 
and quotations omitted); Prop. Cas. Insurers Ass'n of Am. v. Carson, 
No. 13-CV-8564, 2017 U.S. Dist. LEXIS 94502, at *28-*30 (N.D. Ill. 
June 20, 2017) (finding that HUD's 2013 adoption of the 3-step 
burden-shifting framework a reasonable interpretation of the Act, 
finding that ``in short, the Supreme Court in Inclusive Communities 
. . . did not identify any aspect of HUD's burden-shifting approach 
that required correction.''); Burbank Apartments Tenant Ass'n v. 
Kargman, 474 Mass. 107, 126-27 (Mass. 2016) (explaining that it was 
following the ``burden-shifting framework laid out by HUD and 
adopted by the Supreme Court in [Inclusive Communities].''); but see 
Inclusive Cmtys. Project v. Lincoln Prop. Co., 920 F.3d 890, 902 
(5th Cir. 2019) (noting that ``debate exists regarding whether in 
ICP the Supreme Court adopted the [2013] regulation's approach or 
modified it'' but that it believed that ICP ``announced a more 
demanding test'' through the announcement of ``safeguards'' to 
incorporate into the burden shifting framework, such as a ``robust 
causality'' requirement'').

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[[Page 33593]]

HUD's 2016 Notice: Application of the Fair Housing Act's Discriminatory 
Effects Standard to Insurance

    In 2016, HUD published a notice (``2016 Notice'') supplementing its 
response to certain comments concerning homeowners insurance received 
during rulemaking for the 2013 Rule.\36\ The notice responded to an 
order issued in Property Casualty Insurers Association of America 
(PCIAA) v. Donovan. In that case, the U.S. District Court for the 
Northern District of Illinois had issued a decision upholding the 2013 
Rule's burden-shifting framework for analyzing discriminatory effects 
claims,\37\ while remanding for further consideration of certain 
comments concerning homeowners insurance.\38\ In its 2016 Notice, HUD 
stated, inter alia, that ``[a]fter careful reconsideration of the 
insurance industry comments in accordance with the court's decision . . 
. HUD has determined that categorical exemptions or safe harbors for 
insurance practices are unworkable and inconsistent with the broad fair 
housing objectives and obligations embodied in the Act. HUD continues 
to believe that the commenters' concerns regarding application of the 
discriminatory effects standard to insurance practices can and should 
be addressed on a case-by-case basis.'' \39\
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    \36\ 81 FR 69012, 69012.
    \37\ Prop. Cas. Insurers Ass'n of Am. v. Donovan, 66 F. Supp. 3d 
1018, 1051-53 (N.D. Ill. 2014).
    \38\ Id. at 1049, 1054.
    \39\ 81 FR 69012, 69012.
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HUD's 2020 Disparate Impact Rule

    On June 20, 2018, HUD published an Advance Notice of Proposed 
Rulemaking (``ANPRM''), inviting public comment on ``what changes, if 
any'' should be made to the 2013 Rule.\40\ HUD then published a Notice 
of Proposed Rulemaking on August 19, 2019 (``2019 Proposed Rule''). In 
the 2019 Proposed Rule, HUD proposed to ``amend HUD's interpretation of 
the Fair Housing Act's disparate impact standard to better reflect the 
Supreme Court's 2015 ruling in Inclusive Communities, and to provide 
clarification regarding the application of the standard to State laws 
governing the business of insurance.'' \41\
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    \40\ 83 FR 28560.
    \41\ 84 FR 42854.
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    In response to the 2019 Proposed Rule, HUD received approximately 
45,000 comments, most of which opposed the proposed changes and many of 
which raised significant legal and policy concerns with the 2019 
Proposed Rule. Commenters objected that the proposed changes did not 
align with caselaw and made discriminatory effects claims effectively 
impossible to plead and prove in many instances, thus contravening the 
core holding of Inclusive Communities.\42\ HUD's own experience 
investigating, charging, and litigating discriminatory effects cases 
aligned with these comments, as will be detailed later.
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    \42\ See, e.g., 85 FR 60317, 60319 (overview of some of the 
comments making these points).
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    On September 24, 2020, HUD published the 2020 Rule, which, inter 
alia, removed the definition of discriminatory effect, added pleading 
elements that made it far more difficult to initiate a case, altered 
the burden-shifting framework, created new defenses, and limited 
available remedies in disparate impact claims.\43\ Some of these 
changes are described more fully below, along with HUD's explanation 
for why it now believes they are unwarranted.
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    \43\ 85 FR 60288.
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Massachusetts Fair Housing Ctr. v. HUD Order Staying Implementation of 
the 2020 Rule.

    Following publication of the 2020 Rule, HUD was sued in three 
separate federal courts--Massachusetts Fair Housing Ctr., et al. v. 
HUD, No. 3:20-cv-11765 (D. Mass.); National Fair Housing Alliance, et 
al. v. HUD, No. 3:20-cv-07388 (N.D. Cal.); Open Communities, et al. v. 
HUD, No. 3:20-cv-01587 (D. Conn.). The plaintiffs in each case 
contended that the 2020 Rule was invalid because it was inconsistent 
with the Act and that its promulgation violated the Administrative 
Procedure Act (``APA''). Prior to the effective date of the 2020 Rule, 
the U.S. District Court for the District of Massachusetts in 
Massachusetts Fair Housing Ctr. v. HUD issued a preliminary injunction 
staying the implementation and postponing the effective date of the 
2020 Rule. The district court ordered HUD to ``preserve the status quo 
pursuant to the regulations in effect as of the date of this Order.'' 
\44\
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    \44\ Mass. Fair Hous. Ctr. v. HUD, No. 20-11765-MGM, 2020 U.S. 
Dist. LEXIS 205633, at *20-21 (D. Mass. Oct. 25, 2020).
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    In its order, the district court preliminarily found that many 
significant changes made by the 2020 Rule were likely not supported by 
Inclusive Communities or other case law. Similarly, the court concluded 
that the 2020 Rule did not appear to bring clarity to the 
discriminatory effects framework, but rather introduced new concepts 
that had never been part of disparate-impact caselaw without fully 
explaining their meaning. In support of its conclusions, the court 
pointed to numerous provisions in the 2020 Rule as problematic, 
including Sec.  100.500(b) (``requiring at `the pleadings stage,' among 
other things, that plaintiffs `sufficiently plead facts to support' . . 
. `[t]hat 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'''); Sec.  100.500(c)(2) (permitting defendants to 
```rebut a plaintiff's allegation under (b)(1) . . . that the 
challenged policy or practice is arbitrary, artificial, and unnecessary 
by producing evidence showing that the challenged policy or practice' 
merely `advances a valid interest'''; Sec.  100.500(c)(3) (requiring 
``at the third step of the burden-shifting framework that the plaintiff 
prove `a less discriminatory policy or practice exists that would serve 
the defendant's identified interest (or interests) in an equally 
effective manner without imposing materially greater costs on, or 
creating other material burdens for, the defendant''' (emphasis in 
original)); Sec.  100.500(d)(1) and (d)(2)(iii) (``conflating of a 
plaintiff's prima facie burden and pleading burden''); and Sec.  
100.500(d)(2)(i) (the outcome prediction defense).\45\
---------------------------------------------------------------------------

    \45\ Id. at *9, *10 n.2, *17-18.
---------------------------------------------------------------------------

    The district court stated that the ``practical business, profit, 
policy consideration'' language, the ``outcome prediction'' defense, 
changes to the third element of the burden-shifting framework, and the 
conflating of a plaintiff's prima facie burden and pleading burden, ran 
the risk of ``effectively neutering'' discriminatory effects liability 
under the Act, and were all likely unsupported by Inclusive Communities 
or other judicial decisions.\46\ The district court also stated that 
the 2020 Rule's use of ``new and undefined terminology, altered burden-
shifting framework, and perplexing defenses'' accomplished ``the 
opposite of clarity'' and was likely ``arbitrary and capricious.'' \47\ 
The court stated that ``[t]here can be no doubt that the 2020 Rule 
weakens, for housing

[[Page 33594]]

discrimination victims and fair housing organizations, disparate impact 
liability under the Fair Housing Act. . . . In addition, the 2020 Rule 
arms defendants with broad new defenses which appear to make it easier 
for offending defendants to dodge liability and more difficult for 
plaintiffs to succeed. In short, these changes constitute a massive 
overhaul of HUD's disparate impact standards, to the benefit of 
putative defendants and to the detriment of putative plaintiffs.'' \48\ 
The court stated that the 2020 Rule's ``massive changes . . . pose a 
real and substantial threat of imminent harm'' to the Massachusetts 
Fair Housing Center by raising the burdens and costs of pursuing claims 
under a discriminatory effects theory.\49\
---------------------------------------------------------------------------

    \46\ Id. at *17-18.
    \47\ Id. at *18-*19.
    \48\ Id. at *10.
    \49\ Id. at *19.
---------------------------------------------------------------------------

II. HUD'S Reconsideration of the 2020 Rule

    On January 26, 2021, President Biden issued a Memorandum ordering 
the Department to ``take all steps necessary to examine the effects of 
the [2020 Rule], including the effect that amending the [2013 Rule] has 
had on HUD's statutory duty to ensure compliance with the Fair Housing 
Act'' and ``take any necessary steps . . . to implement the Fair 
Housing Act's requirements that HUD administer its programs in a manner 
that . . . furthers . . . HUD's overall duty to administer the Act [] 
including by preventing practices with an unjustified discriminatory 
effect.'' \50\
---------------------------------------------------------------------------

    \50\ See 86 FR 7487, 7488.
---------------------------------------------------------------------------

    Consistent with the President's Memorandum, HUD has reconsidered 
the 2020 Rule and proposes that the 2013 Rule be recodified. In so 
proposing, HUD considered prior public comments on the various 
rulemakings described above, HUD's responses to those comments, HUD's 
2016 supplemental explanation regarding the 2013 Rule's applicability 
to the insurance industry, legal precedent including Inclusive 
Communities, the Massachusetts Fair Housing Center court's order, and 
HUD's own experience with discriminatory effects cases over 40 years.
    In HUD's experience, the 2013 Rule sets a more appropriately 
balanced standard for pleading, proving, and defending a fair housing 
case alleging a policy or practice has a discriminatory effect. The 
2013 Rule provides greater clarity about what each party must show by 
relying on concepts that have a long history in judicial and agency 
precedent. It appropriately balances the need to ensure that frivolous 
claims do not go forward with a realistic understanding of the 
practical challenges to litigating these claims. With regard to the 
2020 Rule, HUD's experience investigating and prosecuting 
discriminatory effects cases informs that many of the points made by 
commenters and the Massachusetts District Court are, in HUD's opinion, 
correct, including that the changes the 2020 Rule makes, such as 
amending pleading standards, changing the burden shifting framework, 
and adding defenses, all favoring respondents, will at the very least 
introduce unnecessary confusion and will at worst make discriminatory 
effects liability a practical nullity.
    HUD now proposes to recodify the 2013 Rule's discriminatory effects 
standard and invites comments on this proposal. HUD believes that this 
standard is more consistent with the Act's purpose, prior caselaw under 
the Act, including Inclusive Communities, other civil rights 
authorities, including the Equal Credit Opportunity Act and Title VII, 
and HUD's prior interpretations of the Act. While HUD previously stated 
that the 2020 Rule was simply intended to implement the Supreme Court's 
opinion in Inclusive Communities, HUD now believes that Inclusive 
Communities maintained the fundamentals of long-established disparate-
impact precedent rather than changing them. Moreover, based on HUD's 
experience investigating and litigating discriminatory effects cases, 
HUD believes that the practical effect of the 2020 Rule's amendments is 
to severely limit HUD's and plaintiffs' use of the discriminatory 
effects framework in ways that substantially diminish that frameworks' 
effectiveness in accomplishing the purposes that Inclusive Communities 
articulated.
    By comparison, in HUD's experience, the 2013 Rule has provided a 
workable and balanced framework for investigating and litigating 
discriminatory effects claims that is consistent with the Act, HUD's 
own guidance, Inclusive Communities, and other jurisprudence.
    As noted above, the Court in Inclusive Communities heavily relied 
on Griggs, which is the foundation of Title VII disparate impact 
jurisprudence, to illustrate the well-settled principles of disparate 
impact under the Act, all of which are fully consistent with the 2013 
Rule.\51\ In Griggs, the Court explained that, under Title VII, 
``[w]hat is required by Congress is the removal of artificial, 
arbitrary, and unnecessary barriers to employment when the barriers 
operate invidiously to discriminate on the basis of racial or other 
impermissible classification.'' \52\ Quoting from its foundational 
decision in Griggs, the Supreme Court in Inclusive Communities observed 
that ``[d]isparate-impact liability mandates the `removal of 
artificial, arbitrary, and unnecessary barriers,' not the displacement 
of valid governmental policies.'' \53\ This quotation from a seminal 
decision of longstanding disparate impact doctrine is properly read as 
maintaining existing law, not profoundly changing it. As Inclusive 
Communities explicitly stated, ``disparate-impact liability has always 
been properly limited in key respects'' (emphasis added), making clear 
that it was not adding additional pleading or proof requirements or 
calling for a significant departure from pre-existing precedent under 
the Act and Title VII.\54\ Furthermore, reading Inclusive Communities 
to support a heightened pleading standard is contradicted by the fact 
that the ``heartland'' cases cited by the Court would not have survived 
a motion to dismiss under that standard because plaintiffs in those 
cases did not have specific facts to plausibly allege that a policy or 
practice was arbitrary, artificial, or unnecessary until after 
discovery.\55\ Finally, because Inclusive Communities considered a 
judgment reached after discovery and bench trial, the Court had no 
occasion or opportunity to consider the proper pleading standards for 
cases brought under the Act. The parties did not brief or argue such 
questions to the Court, making it particularly unlikely that the Court 
intended to reach them.
---------------------------------------------------------------------------

    \51\ See generally Inclusive Cmtys. Project, Inc., 576 U.S. 519 
(2015).
    \52\ Griggs v. Duke Power Co., 401 U.S. 424, 430-31 (1971).
    \53\ Inclusive Cmtys. Project, Inc., 576 U.S. at 540 (quoting 
Griggs, 401 U.S. at 431); see also Inclusive Cmtys. Project, Inc., 
576 U.S. at 544 (cautioning against proof standards that ``displace 
valid governmental and private priorities, rather than solely 
`remov[ing] . . . artificial, arbitrary, and unnecessary barriers' 
'') (quoting Griggs, 401 U.S. at 431) (alterations in original).
    \54\ Id. at 540.
    \55\ See, e.g., Town of Huntington, NY v. Huntington Branch, 
NAACP, 488 U.S. 15 (1988); United States v. City of Black Jack, 508 
F.2d 1179, 1184, 1187-88 (8th Cir. 1974) (specific facts produced 
during the case supported the court's determination that the policy 
was one of those ``artificial, arbitrary, and unnecessary'' 
practices that is properly invalidated under disparate impact 
doctrine); Greater New Orleans Fair Hous. Action Ctr. v. St. Bernard 
Parish, 641 F. Supp. 2d 563, 567-568 (E.D. La. 2009) (relying on 
information gathered after the pleadings to find disparate impact).
---------------------------------------------------------------------------

    For these reasons and others, HUD believes that Inclusive 
Communities' quotation of Griggs' decades-old ``artificial, arbitrary, 
and unnecessary'' formulation is best construed as

[[Page 33595]]

maintaining continuity with longstanding disparate-impact 
jurisprudence, as reflected in the 2013 Rule. Accordingly, HUD proposes 
to recodify the 2013 Rule.
    HUD believes other changes the 2020 Rule made create problems that 
could be cured by a return to the 2013 Rule. For example, the 2020 Rule 
eliminated the 2013 Rule's definition of ``discriminatory effect,'' 
stating that the definition was unnecessary because it ``simply 
reiterated the elements of a disparate impact claim.'' \56\ In 
eliminating this definition, the 2020 Rule erased ``perpetuation of 
segregation'' as a recognized type of discriminatory effect distinct 
from disparate impact, contrary to well established precedent.\57\ HUD 
now proposes to reaffirm that perpetuation of segregation remains, as 
it always has been, a basis for contending that a policy has an 
unlawful discriminatory effect. HUD now believes that for clarity, a 
discriminatory effects rule should explicitly state that perpetuation 
of segregation is a type of discriminatory effect, distinct from 
disparate impact.
---------------------------------------------------------------------------

    \56\ 84 FR 42854; 85 FR 60288, 60306-07, 60332.
    \57\ See, e.g., Graoch Assocs. # 33, L.P., 508 F.3d at 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.''); Ave. 6E 
Invs. v. City of Yuma, 818 F.3d 493, 503 (9th Cir. 2016) (``[A]s the 
Supreme Court recently reaffirmed [in ICP], the FHA also encompasses 
a second distinct claim of discrimination, disparate impact, that 
forbids actions by private or governmental bodies that create a 
discriminatory effect upon a protected class or perpetuate housing 
segregation without any concomitant legitimate reason.'') (emphasis 
added); see also Huntington Branch, NAACP v. Huntington, 844 F.2d 
926, 937 (2nd Cir. 1988); Metro. Hous. Dev. Corp. v. Vill. of 
Arlington Heights, 558 F.2d 1283, 1290 (7th Cir. 1977); Nat'l Fair 
Hous. All. v. Bank of Am., NA., 401 F. Supp. 3d 619, 641 (D. Md. 
2019) (allowing claim to proceed past motion to dismiss where 
plaintiff pleaded facts sufficient to allege that defendant's 
policies ``forestall housing integration and freeze existing racial 
segregation patterns''); Hallmark Devs., Inc. v. Fulton Cnty., 386 
F. Supp. 2d 1369, 1383 (N.D. Ga. 2005).
---------------------------------------------------------------------------

    The 2020 Rule also eliminated from the Act's prohibitions policies 
or practices that could ``predictably result[ ] in a disparate impact 
on a group of persons,'' i.e., those for which the disparate impact has 
not yet manifested but will predictably do so.\58\ As HUD stated in 
2013, the Act prohibits discrimination that is predictable because it 
defines an ``aggrieved person'' as any person who ``believes that such 
person will be injured by a discriminatory housing practice that is 
about to occur.'' \59\ And consistent with the Act's plain language, 
courts have found that predictable discriminatory effects may violate 
the Act: ``[t]o establish a prima facie case of racial discrimination, 
the plaintiff need prove no more than that the conduct of the defendant 
actually or predictably results in racial discrimination; in other 
words, that it has a discriminatory effect.'' \60\ The 2020 Rule did 
not adequately explain how the Act and caselaw construing it can be 
read to require waiting until harm is inflicted before an action with 
predictable discriminatory effects can be challenged, nor does HUD 
perceive that any such explanation would be availing, given the plain 
language of the Act and the caselaw interpreting it. Thus, HUD proposes 
to recodify the 2013 Rule to correct this error.
---------------------------------------------------------------------------

    \58\ 84 FR 42854; 85 FR 60288, 60306-07, 60322.
    \59\ 42 U.S.C. 3602(1)(2) (emphasis added).
    \60\ See Inclusive Cmtys. Project, Inc., 576 U.S. at 539-40 
(2015) (describing City of Black Jack, 508 F.2d at 1184 as ``at the 
heartland of disparate-impact liability'').
---------------------------------------------------------------------------

    In addition, the 2020 Rule created new and confusing defenses at 
both the pleading and post-pleading stage, including that the 
challenged policy or practice is ``reasonably necessary to comply with 
a third-party requirement.'' \61\ The 2020 Rule's preamble stated that 
this defense would not require a showing that the challenged policy is 
the only way to comply with such a requirement, only that the policy 
serves that purpose.\62\ HUD now believes that this defense is 
inconsistent with the Act, which specifies that state and local laws 
requiring or permitting discriminatory housing practices are invalid. 
The defense would preclude many otherwise proper discriminatory effects 
claims, because, for example, a plaintiff may not have any practical 
means of knowing whether some other party's policies also contributed 
to the defendant's practice. Nothing in Inclusive Communities suggests 
this defense is required, let alone reasonable, for HUD to create. 
Accordingly, HUD proposes to eliminate these provisions by recodifying 
the 2013 Rule.
---------------------------------------------------------------------------

    \61\ 85 FR 60288, 60316-17.
    \62\ 85 FR 60288, 60290.
---------------------------------------------------------------------------

    The 2020 Rule also created a new ``outcome prediction'' defense, 
which would in practice exempt most insurance industry practices (and 
many other housing-related practices that rely on outcome predictions, 
such as lending practices) from liability under a disparate impact 
standard. This is inconsistent with HUD's repeated finding, including 
in the 2020 Rule, that ``a general waiver of disparate impact law for 
the insurance industry would be inappropriate.'' \63\ Although unclear, 
it appears that this defense would suggest using comparators that are, 
in HUD's experience, inappropriate. At the very least, the defense 
introduces unnecessary confusion into the doctrine.
---------------------------------------------------------------------------

    \63\ 85 FR 60321 (citing ``Application of the Fair Housing Act's 
Discriminatory Effects Standard to Insurance'' 81 FR 69012).
---------------------------------------------------------------------------

    The 2020 Rule limited remedies in discriminatory effects cases in 
three respects. It specified that ``remedies should be concentrated on 
eliminating or reforming the discriminatory practice so as to eliminate 
disparities between persons in a particular protected class and other 
persons.'' \64\ It prohibited HUD in administrative proceedings from 
pursuing anything but ``equitable remedies'' except that ``where 
pecuniary damage is proved, HUD will seek compensatory damages or 
restitution.'' \65\ And it restricted HUD from seeking civil penalties 
in discriminatory effects cases unless the respondent had been adjudged 
within the last 5 years to have committed intentional unlawful housing 
discrimination under the Act.\66\ HUD believes that these limitations 
have no basis in law and run contrary to public interest and the 
purpose of the Act. While the 2020 Rule cited Inclusive Communities as 
supporting these limitations,\67\ no part of Inclusive Communities 
suggested such limitations.\68\ Moreover, they are in conflict with the 
plain language of the Act, which provides in all cases for a wide 
variety of remedies, including injunctive relief, actual damages, 
punitive damages, and civil penalties.\69\

[[Page 33596]]

Whereas Congress has chosen to limit the remedies available in 
disparate-impact cases under Title VII,\70\ it has made no such choice 
with respect to the Act. Thus, HUD proposes to eliminate these 
provisions by recodifying the 2013 Rule.
---------------------------------------------------------------------------

    \64\ 85 FR 60288, 60333.
    \65\ Id.
    \66\ Id.
    \67\ Id.
    \68\ See Inclusive Cmtys. Project, 576 U.S. at 544-45 (noting 
considerations for courts on how to properly construct remedial 
orders (i.e., be consistent with the Constitution, concentrate on 
the elimination of the offending practice, strive to be race-
neutral), but in no way suggesting that remedial orders should be 
the sole or favored remedy in disparate impact cases, or that civil 
penalties in administrative proceedings are somehow inappropriate).
    \69\ See, e.g., 42 U.S.C. 3601 note (``Nothing in the Fair 
Housing Act as amended by this Act limits any . . . remedy available 
under the Constitution or any other Act of the Congress not so 
amended''); 42 U.S.C. 3612(g)(3) (``If the administrative law judge 
finds that a respondent has engaged . . . in a discriminatory 
housing practice, such administrative law judge shall promptly issue 
an order for such relief as may be appropriate, which may include 
actual damages suffered by the aggrieved person and injunctive or 
other equitable relief. Such order may, to vindicate the public 
interest, assess a civil penalty against the respondent. . .''); 42 
U.S.C. 3612(p) (``[i]n any administrative proceeding brought under 
this section, or any court proceeding arising therefrom, or any 
civil action under section 812, the administrative law judge or the 
court . . . in its discretion, may allow the prevailing party, other 
than the United States, a reasonable attorney`s fees and costs.''); 
42 U.S.C. 3613(c)(1) (``in a civil action under subsection (a), if 
the court finds that a discriminatory housing practice has occurred 
. . . the court may award to the plaintiff actual and punitive 
damages, and subject to subsection (d), may grant as relief, as the 
court deems appropriate, any permanent or temporary injunction, 
temporary restraining order, or other order . . . .'').
    \70\ 42 U.S.C. 2000e-5(g)(1).
---------------------------------------------------------------------------

    In sum, HUD now believes that the 2013 Rule is preferable to the 
2020 Rule. It believes the 2013 Rule is more consistent with judicial 
precedent construing the Fair Housing Act, including Inclusive 
Communities, as well as the Act's broad remedial purpose. Based on its 
experience interpreting and enforcing the Act, HUD also believes the 
2020 Rule, if put into effect, threatens to limit the effectiveness of 
the Act's discriminatory effects doctrine in ways that are inconsistent 
with the doctrine continuing to play its critical role in ``moving the 
Nation toward a more integrated society.'' \71\ On the other hand, HUD 
believes that the 2013 Rule provided clarity, consistency, and a 
workable, balanced framework, recognized by the Supreme Court, under 
which to analyze discriminatory effects claims, and under which HUD can 
better ensure it has the tools to further its ``duty to administer the 
Act [ ] including by preventing practices with an unjustified 
discriminatory effect.'' \72\
---------------------------------------------------------------------------

    \71\ Inclusive Cmtys. Project, 576 U.S. at 547.
    \72\ 86 FR 7487, 7488.
---------------------------------------------------------------------------

III. This Proposed Rule

    For the reasons described above, HUD proposes to amend Sec. Sec.  
100.5 and 100.500 to recodify the discriminatory effects regulation 
specified in the 2013 Rule. As HUD has stated, the 2013 Rule was 
consistent with Inclusive Communities.\73\ The vast majority of courts 
that considered this issue subsequent to Inclusive Communities also 
found that the 2013 Rule was consistent with Inclusive Communities.\74\ 
HUD thus proposes this rule because it believes the 2013 Rule 
accurately reflects the discriminatory effects framework under the Act, 
whereas the 2020 Rule does not.
---------------------------------------------------------------------------

    \73\ See, e.g., Defendants' Opposition to Plaintiff's Motion for 
Leave to Amend Complaint, Prop. Cas. Ins. Assoc. of Am. v. Carson 
and the U.S. Dep't of Hous. and Urb. Dev., No. 1:13-cv-08564 (N.D. 
Ill. 2017); Defendants' Memorandum in Support of Their Motion for 
Summary Judgment and in Opposition to Plaintiffs' Motion for Summary 
Judgment, Am. Ins. Assoc. v. U.S. Dep't of Hous. and Urb. Dev. et 
al., No. 1:13-cv-00966 (RJL) (D.D.C. 2016).
    \74\ See, e.g., MHANY Mgmt. Inc. v. County of Nassau, 819 F.3d 
581, 618-619 (2d Cir. 2016) (deferring to HUD's [2013] regulation, 
noting that ``the Supreme Court implicitly adopted HUD's [burden 
shifting] approach [in 24 CFR 100.500(c)]''); Ave. 6E Invs., LLC, 
818 F.3d at 512-13 (9th Cir. 2016) (citing Inclusive Communities and 
the 2013 Rule at 100.500(c) for the same proposition); Nat'l Fair 
Hous. All. v. Travelers Indem. Co., 261 F. Supp. 3d 20, 29 (D.D.C. 
2017) (citing Inclusive Communities and HUD's 2013 Rule at 
100.500(c) as standing for the same proposition); Prop. Cas. 
Insurers Ass'n of Am. v. Carson, No. 13-CV-8564, 2017 U.S. Dist. 
LEXIS 94502, at *29-30 (N.D. Ill. June 20, 2017) (finding that HUD's 
2013 adoption of the 3-step burden-shifting framework was a 
reasonable interpretation of the Act and that ``in short, the 
Supreme Court in Inclusive Communities . . . did not identify any 
aspect of HUD's burden-shifting approach that required 
correction.''); Burbank Apartments Tenant Ass'n v. Kargman, 474 
Mass. 107, 126-27 (Mass. 2016) (explaining that it was following the 
``burden-shifting framework laid out by HUD and adopted by the 
Supreme Court in [Inclusive Communities].'').
---------------------------------------------------------------------------

    HUD does not propose to amend Sec.  100.70. The 2020 Rule made 
changes unrelated to Sec.  100.500 by simply adding examples to an 
already non-exhaustive list of prohibited activities under the Act at 
Sec.  100.70(d)(5).\75\ Specifically, it noted that enacting or 
implementing ``building codes,'' ``permitting rules,'' or 
``requirements'' that restrict or deny housing opportunities or 
otherwise make unavailable or deny dwellings to persons because of a 
protected class is prohibited.
---------------------------------------------------------------------------

    \75\ 85 FR 60326.
---------------------------------------------------------------------------

IV. Findings and Certifications

Regulatory Review--Executive Orders 13563 and 12866

    Executive Order 13563 (``Improving Regulation and Regulatory 
Review'') directs agencies to propose or adopt a regulation only upon a 
reasoned determination that its benefits justify its costs, emphasizes 
the importance of quantifying both costs and benefits, of harmonizing 
rules, of promoting flexibility, and of periodically reviewing existing 
rules to determine if they can be made more effective or less 
burdensome in achieving their objectives. Under Executive Order 12866 
(``Regulatory Planning and Review''), a determination must be made 
whether a regulatory action is significant and therefore, subject to 
review by the Office of Management and Budget (``OMB'') in accordance 
with the requirements of the order. This proposed rule was determined 
to be a ``significant regulatory action'' as defined in section 3(f) of 
Executive Order 12866 (although not an economically significant 
regulatory action, as provided under section 3(f)(1) of the Executive 
Order).
    Because the 2020 Rule never took effect, and therefore did not 
affect the obligations of any regulated entities, this proposed rule is 
only recodifying the 2013 Rule and will have no impact on regulated 
entities except to affirm that the 2013 Rule remains in effect. 
Furthermore, the 2013 Rule itself had little direct effect on regulated 
entities because it only ``formalize[d] the longstanding interpretation 
of the Fair Housing Act to include discriminatory effects liability'' 
and ``[was] not a significant departure from HUD's interpretation to 
date or that of the majority of federal courts.'' \76\ Therefore, HUD 
does not believe that deeper analysis is needed on the impact of this 
rule. However, HUD invites comment on this question.
---------------------------------------------------------------------------

    \76\ 78 FR 11460, 11480.
---------------------------------------------------------------------------

    The docket file is available for public inspection in the 
Regulations Division, Office of the General Counsel, Room 10276, 451 
7th Street SW, 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 202-708-3055 
(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 (this is a toll-free number).

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 amends the Code of Federal Regulations to accurately reflect 
HUD's discriminatory effects regulation as it currently exists. As a 
result, all entities, big and small, have a responsibility to comply 
with the law.
    As discussed above, this Proposed Rule would continue to apply the 
2013 Rule, which has been in effect uninterrupted for over seven years. 
HUD concludes, as it did when it published the 2013 Rule, that the 
majority of entities, large or small, currently comply and will remain 
in compliance with the Fair Housing Act. All entities, large and

[[Page 33597]]

small, have been subject to the Fair Housing Act for over fifty years 
and subject to the 2013 Rule for over seven years. For the minority of 
entities that have failed to institutionalize methods to avoid engaging 
in illegal housing discrimination and plan to come into compliance as a 
result of this rulemaking, the costs will simply be the costs of 
compliance with a preexisting statute and regulation. This proposed 
rule does not change that substantive obligation; it merely recodifies 
the regulation that more accurately reflects the law. Any burden on 
small entities is simply incidental to the pre-existing requirements to 
comply with this body of law. Furthermore, HUD anticipates that this 
Proposed Rule would eliminate confusion for all entities, including 
small Fair Housing Advocacy organizations, by ensuring HUD's regulation 
accurately reflects the current standards. Accordingly, the undersigned 
certifies that this Proposed Rule would not have a significant economic 
impact on a substantial number of small entities. HUD invites comments 
on this certification. HUD specifically invites comments on the number 
of small entities which commenters believe may be affected by this 
regulation.

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

    Aged, Civil rights, Fair housing, Incorporation by reference, 
Individuals with disabilities, Mortgages, and 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 citation for 24 CFR part 100 continues to read as 
follows:

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

Subpart A--General

0
2. In Sec.  100.5, revise paragraph (b) and remove paragraph (d) to 
read as follows:


Sec.  100.5   Scope.

* * * * *
    (b) This part provides the Department's interpretation of the 
coverage of the Fair Housing Act regarding discrimination related to 
the sale or rental of dwellings, the provision of services in 
connection therewith, and the availability of residential real estate-
related transactions. The illustrations of unlawful housing 
discrimination in this part may be established by a practice's 
discriminatory effect, even if not motivated by discriminatory intent, 
consistent with the standards outlined in Sec.  100.500.
* * * * *

Subpart G--Discriminatory Effect

0
3. Revise Sec.  100.500 to read as follows:


Sec.  100.500   Discriminatory effect prohibited.

    Liability may be established under the Fair Housing Act based on a 
practice's discriminatory effect, as defined in paragraph (a) of this 
section, even if the practice was not motivated by a discriminatory 
intent. The practice may still be lawful if supported by a legally 
sufficient justification, as defined in paragraph (b) of this section. 
The burdens of proof for establishing a violation under this subpart 
are set forth in paragraph (c) of this section.
    (a) Discriminatory effect. A practice has a discriminatory effect 
where it actually or predictably results in a disparate impact on a 
group of persons or creates, increases, reinforces, or perpetuates 
segregated housing patterns because of race, color, religion, sex, 
handicap, familial status, or national origin.
    (b) Legally sufficient justification. (1) A legally sufficient 
justification exists where the challenged practice:
    (i) Is necessary to achieve one or more substantial, legitimate, 
nondiscriminatory interests of the respondent, with respect to claims 
brought under 42 U.S.C. 3612, or defendant, with respect to claims 
brought under 42 U.S.C. 3613 or 3614; and
    (ii) Those interests could not be served by another practice that 
has a less discriminatory effect.
    (2) A legally sufficient justification must be supported by 
evidence and may not be hypothetical or speculative. The burdens of 
proof for establishing each of the two elements of a legally sufficient 
justification are set forth in paragraphs (c)(2) and (3) of this 
section.
    (c) Burdens of proof in discriminatory effects cases. (1) The 
charging party, with respect to a claim brought under 42 U.S.C. 3612, 
or the plaintiff, with respect to a claim brought under 42 U.S.C. 3613 
or 3614, has the burden of proving that a challenged practice caused or 
predictably will cause a discriminatory effect.
    (2) Once the charging party 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 is 
necessary to achieve one or more substantial, 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 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.
    (d) Relationship to discriminatory intent. A demonstration that a 
practice is supported by a legally sufficient justification, as defined 
in paragraph (b) of this section, may not be used as a defense against 
a claim of intentional discrimination.

    Dated: June 17, 2021.
Jeanine Worden,
Acting Assistant Secretary, Office of Fair Housing and Equal 
Opportunity.
[FR Doc. 2021-13240 Filed 6-24-21; 8:45 am]
BILLING CODE 4210-67-P


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