The Federal Trade Commission announced Friday that it is no longer pursuing disparate impact claims and has “entered agreements to modify certain compliance-related obligations for Napleton Inc., Passport Auto Group, and an individual previously associated with Coulter Motor Company LLC.”
Driving the news: In stating it is following President Donald Trump’s executive order, the FTC stated it would not pursue disparate impact claims, where a presumed neutral policy harms a group of people.
Further, the FTC claimed in its statement that it lacked the statutory authority to consider claims under the “novel legal theory.”
The commission also claimed that application of disparate impact analysis would have no apparent limits, because “almost any conceivable policy or practice affects different groups differently.”
“Disparate-impact claims are nearly impossible to square with our colorblind Constitution,” said Chairman Andrew N. Ferguson. “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.”
Impact to the auto industry: In recent years, the FTC brought multi-million dollar judgments against the Napleton Automotive Group, the Passport Auto Group and Coulter Motor Company for their selling practices.
The agency stated it was modifying settlements with all three as a result of the new stance.
In its statement Friday, the FTC claimed the commission’s position in the cases against Passport and Coulter “would allow the commission to seek out and punish virtually any statistical disparity that it disliked.”
Further, the FTC stated, “because the defendant may not have access to the sophisticated statistical tools the Commission used to identify the purported disparities in Passport Automotive and Coulter, the defendant may not even be in a position to know whether it is guilty of unlawful discrimination.”
Additionally, the Napleton case was referenced, pointing out the statement by former Chair Lina Khan and Commissioner Rebecca Slaughter mentioning how the “commission should evaluate under its unfairness authority any discrimination that is found to be based on disparate treatment or have a disparate impact.”
What they’re saying: Adam Crowell, Chief Legal and Strategy Officer for KPA, noted the cases revisited by the agency were ones where disparate-impact analysis played a role and not where it alleged direct evidence of discriminatory intent.
“That distinction is important. The message isn't that discrimination enforcement is going away. The FTC appears to be drawing a line between cases involving evidence of intentional discriminatory conduct and cases in which liability or compliance obligations were based on statistical disparities among demographic groups.
“For dealers, that's a meaningful distinction. A negotiated transaction can produce different outcomes for different consumers for any number of legitimate reasons. Statistical differences can certainly be a reason to examine a practice, but they should not, standing alone, be treated as proof that discrimination occurred.”
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Still could be a case for the states: The FTC statement mentioned and Crowell reiterated that the agency’s approach does not prevent state attorneys general or consumers from pursuing cases under disparate impact.
Crowell suggests maintaining strong compliance control and documenting legitimate business reasons for deviations in pricing and financing.
Bottom line: Under Ferguson, the FTC has eliminated enforcement based on unintentional harm, and is more looking at actual discriminatory practices.
“Dealers should absolutely continue maintaining strong fair-lending and anti-discrimination compliance programs,” Crowell said. “But the FTC's new position recognizes that a statistical disparity, by itself, is not the same thing as evidence that a dealer discriminated against a consumer.”
Note: This is a developing story.
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