On August 7, the Federal Trade Commission (FTC) announced in a policy statement that it will no longer pursue claims based on disparate impact or a theory of “unfair discrimination.” In the press release announcing the statement, the agency said it lacks the statutory authority to bring disparate impact claims under either the Equal Credit Opportunity Act (ECOA) or Section 5 of the FTC Act, which prohibits unfair or deceptive acts or practices (UDAP). In light of the new policy, the FTC reviewed past settlements based on a disparate impact theory of liability and modified compliance obligations in three settlements reached during the Biden administration.
The FTC’s statement follows an April 23 executive order titled, “Restoring Equality of Opportunity and Meritocracy,” where the Trump administration declared it federal policy to eliminate the use of disparate impact liability “in all contexts to the maximum degree possible.”
Executive order
Disparate impact is a theory of liability where facially neutral policies and practices may violate applicable anti-discrimination laws if they have a disproportionate negative or adverse impact on members of protected classes.
The executive order directed all agencies to “deprioritize” enforcement of statutes and regulations to the extent that they include disparate impact liability. It further directed the attorney general to repeal or amend regulations implementing the Civil Rights Act of 1964 for all agencies, to the extent that they contemplate disparate impact liability. All other agencies were instructed to work with the attorney general to report existing regulations, guidance, rules or orders that impose disparate impact liability and determine whether to amend or repeal them, as well as review state-level laws and decisions.
The executive order requires agencies, including the FTC, to assess all pending proceedings that relied on theories of disparate impact liability and take appropriate action consistent with the order. The order also directs agencies to review existing consent judgments and permanent injunctions that rely on disparate impact theories and take appropriate action in those matters.
The statement
Eliminating disparate impact claims
The FTC asserts that due to its lack of statutory authority to bring disparate impact claims and the “fundamental legal and policy defects of disparate-impact liability” described in the executive order, the FTC will no longer pursue disparate impact claims.
The FTC explains that it has previously exceeded its statutory authority by pursuing disparate impact claims under both Section 5 of the FTC Act and ECOA. The FTC asserts that Section 5 does not support an antidiscrimination cause of action, and, moving forward, the FTC will no longer bring discrimination claims under Section 5. Further, while ECOA does prohibit intentional discrimination, the FTC states it does not authorize disparate impact claims, citing a recent Department of Justice (DOJ) Office of Legal Counsel opinion concluding that the best reading of ECOA permits liability only for intentional discrimination.
Eliminating antidiscrimination claims under Section 5
The FTC separately adopts a policy against pursuing any antidiscrimination claims under Section 5’s unfairness authority, confirming it will treat Section 5 solely as a consumer protection statute.
What’s next?
The FTC’s action is the latest effort to eliminate disparate impact liability across the federal government in response to the executive order, following similar steps by the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency and DOJ.
The policy statement raises several notable points:
- Enforcement focus shifts, but does not disappear. As the FTC will continue to pursue disparate treatment (intentional discrimination) claims under ECOA, companies in FTC-regulated industries, including auto lending and dealer finance, should not read the statement as a complete retreat from discrimination enforcement generally – only from disparate impact and “unfair discrimination” theories.
- Litigation risk remains for private plaintiffs and state regulators. The policy statement governs only the FTC’s own enforcement priorities. Private plaintiffs and state attorneys general may still pursue disparate impact theories where state law independently permits them.
- Durability beyond this administration is uncertain. Because this is a policy statement rather than a rule or statutory change, a future FTC could revisit or reverse this position without the procedural hurdles that would apply to a formal rulemaking.