On June 21, the Department of Justice (DOJ) filed a lawsuit and a settlement framework with Meta Platforms, Inc. (previously known as Facebook) to resolve allegations that Meta’s advertising placement algorithms discriminate against Facebook users based on their race, color, religion, sex, disability, familial status, and national origin (Protected Characteristics) in violation of the Fair Housing Act (FHA). The DOJ action is a direct outgrowth of the discrimination charge filed by HUD against Facebook in 2019.

The DOJ’s Lawsuit

The DOJ specifically alleges that:

  • Meta enabled and encouraged advertisers to target their housing ads by relying on Protected Characteristics or close proxies of such characteristics to decide which Facebook users will be eligible and ineligible to receive housing ads, at least prior to 2019;
  • Meta created an ad targeting tool known as “Lookalike Audience,” later changed to “Special Ad Audience,” for housing, employment, and credit advertisements that uses a machine-learning algorithm that considers Protected Characteristics in finding Facebook users who share similarities with an advertiser’s source audience, and thus are eligible to receive housing ads; and
  • Meta’s ad delivery system uses machine-learning algorithms that rely in part on Protected Characteristics to help determine which subset of an advertiser’s targeted audience will actually receive a housing ad.

The DOJ alleges both disparate treatment and disparate impact discrimination under the FHA.

The Settlement Framework

The settlement framework is set up as an “agreement to attempt to agree,” which is structured so that either party can bow out and terminate the agreement as of December 2022. The agreement provides as follows:

  • Meta must stop using the “Special Ad Audience” tool by December 31, 2022.
  • Meta must, by December 2022, develop a new system for housing advertisements that addresses disparities for Protected Characteristics, measured by the disparities between eligible audience members of protected classes and users who actually see an advertisement.
  • If the DOJ determines that the new system adequately addresses discriminatory disparities, then Meta must implement the system by December 31; if not, the settlement agreement will terminate, and the parties will litigate the suit.
  • Meta and the DOJ will select an independent, third-party reviewer to investigate and verify on an ongoing basis whether the new system is meeting agreed upon compliance standards.
  • Meta must not provide any targeting options for housing advertisers that directly describe or relate to Protected Characteristics and must notify the DOJ if it intends to add any targeting options.
  • Meta must pay a $115,054 civil penalty, which is the maximum penalty available under the FHA.

Several Quick Takeaways

We believe there are some interesting things to note about this lawsuit and settlement.

First, the allegations all appear to stem from the alleged actual use of Protected Characteristics or very close, obvious proxies to Protected Characteristics. There are disparate impact allegations, but they all stem from the direct use of Protected Characteristics or the same close proxies. However, even though the allegations are more truly in the nature of disparate treatment, the settlement agreement, vague as it is, seems to adopt a disparate impact style of analysis to see if the problem has been solved by measuring whether ads are actually placed in a nondiscriminatory way based on race, ethnicity, or sex.

Second, it’s worth noting that, from a more practical standpoint, the DOJ alleged that simply eliminating problematic variables will not solve the problem because the machine-learning algorithms would likely reach the same conclusions using other available data.

Third, if Meta and the DOJ can reach an agreement by December 2022, it may pave the way for financial institutions to feel more confident about Facebook advertising — many have shied away from, or limited, Facebook advertising because of the allegations in the 2019 HUD charge.

We’ll be monitoring any further developments with this lawsuit and settlement. In the meantime, please be on the lookout for a discussion of the Meta lawsuit and settlement on an upcoming episode of the Consumer Finance Podcast.