FTC Abandons "Disparate Impact" As A Basis For Section 5 Claims

The Federal Trade Commission just issued a Policy Statement Regarding Disparate-Impact Claims and “Unfair Discrimination” Claims, saying that the Commission is adopting a policy “against pursuing disparate-impact claims in any context.” 

During the prior Administration, the Commission had taken the position that Section 5 of the FTC Act empowered the FTC to pursue consumer protection claims based on disparate impact and unfair discrimination. For example, in the Passport Automotive case, which was settled in 2022, the FTC charged an auto dealer with engaging in unfair practices by discriminating against Black and Latino consumers by charging them higher financing costs and fees. The FTC asserted similar claims in the Napleton Auto case, which was also settled in 2022. 

The FTC said that it is adopting this new policy because it believes that the agency lacks the statutory authority to pursue disparate-impact claims and that such claims are “inconsistent with the Constitution and with equality of opportunity, they impose unnecessary burdens on businesses and the public, and they are contrary to President Trump's executive order.” 

In announcing the release of the policy statement, FTC Chairman Andrew N. Ferguson said, “Disparate-impact claims are nearly impossible to square with our colorblind Constitution. They impose liability for discrimination without any evidence that anyone intended to discriminate, which pushes businesses to make race-based decisions in order to avoid liability. The Commission never had authority to impose disparate-impact liability. Today, we announce that the Commission will never do so again.”

In connection with announcing the new policy, the FTC entered into agreements to modify some of the compliance obligations in previously-settled cases.