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.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Chris Capurso Chris Capurso

Chris’ practice focuses on consumer financial services law, primarily on federal and state law compliance matters. Chris regularly advises financial institutions, lenders, and sales finance companies in the development and maintenance of closed-end and open-end lending, automobile finance, fintech, point-of-sale, small dollar, and…

Chris’ practice focuses on consumer financial services law, primarily on federal and state law compliance matters. Chris regularly advises financial institutions, lenders, and sales finance companies in the development and maintenance of closed-end and open-end lending, automobile finance, fintech, point-of-sale, small dollar, and other credit programs. He provides guidance on federal consumer protection laws and regulations, including TILA, ECOA, ESIGN, and GLBA.

Photo of Chris Willis Chris Willis

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending…

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.

Chris also leverages insights from his litigation and enforcement experience to help clients design new products and processes, including machine learning marketing, fraud prevention and underwriting models, product structure, advertising, online application flows, underwriting, and collection and loss mitigation strategies.

Chris brings a highly practical focus to his legal advice, informed by balancing a deep understanding of the business of consumer finance and the practical priorities of federal and state regulatory agencies.

Chris speaks frequently at conferences across the country on consumer financial services law and has been featured in numerous articles in publications such as the Wall Street Journal, the New York Times, the Washington PostAmerican BankerNational Law JournalBNA Bloomberg, and Bank Safety and Soundness Advisor.

Photo of Alan D. Wingfield Alan D. Wingfield

Alan Wingfield is a partner in the firm’s Consumer Financial Services practice, with a focus on Financial Services Litigation and consumer law compliance counseling. Alan has represented businesses in many venues nationally in class action and individual consumer litigation. Alan’s practice includes compliance…

Alan Wingfield is a partner in the firm’s Consumer Financial Services practice, with a focus on Financial Services Litigation and consumer law compliance counseling. Alan has represented businesses in many venues nationally in class action and individual consumer litigation. Alan’s practice includes compliance counseling to help businesses with the myriad federal and state consumer protection laws and laws regulating financial services companies.

Photo of David N. Anthony David N. Anthony

David is an experienced trial attorney with a concentration in litigating financial services and business disputes, including class actions related to the FCRA, FDCPA, TCPA and other consumer protection statutes.

Photo of Lori Sommerfield Lori Sommerfield

With over two decades of consumer financial services experience in federal government, in-house, and private practice settings, and a specialty in fair lending regulatory compliance, Lori counsels clients in supervisory issues, examinations, investigations, and enforcement actions.

Photo of Mark Furletti Mark Furletti

Mark is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He focuses on federal and state consumer and small business lending and payments laws, including those that apply to payment cards, buy-now-pay-later transactions, vehicle-secured loans, lines of credit, unsecured…

Mark is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He focuses on federal and state consumer and small business lending and payments laws, including those that apply to payment cards, buy-now-pay-later transactions, vehicle-secured loans, lines of credit, unsecured loans, and deposit products. He counsels providers of consumer and small business financial services, including banks, on regulatory compliance, and defends them in class action litigation and government supervisory and enforcement matters. He also counsels purchasers of merchant receivables, companies that specialize in online small business lending, and companies that interact with their customers electronically or that set up recurring billing arrangements with their customers.

Mark regularly provides guidance on electronic payments and payment network rules, electronic contracting and mobile commerce, online banking, retail installment sales, preparing for examinations by the Consumer Financial Protection Bureau (CFPB), responding to CFPB supervisory requests (including so-called PARR letters), Article 9 of the Uniform Commercial Code, lease-purchase transactions and consumer protection laws, such as the Telephone Consumer Protection Act (TCPA), Truth in Lending Act (TILA), Fair Credit Reporting Act (FCRA), Equal Credit Opportunity Act (ECOA), Electronic Funds Transfer Act (EFTA), Electronic Signatures in Global and National Commerce Act (E-SIGN), and statutes prohibiting unfair, deceptive, and abusive acts and practices.

He is the co-chair of the American Bar Association’s (ABA’s) National Institute on Consumer Financial Services Basics. He previously served as co-chair of the Electronic Financial Services Subcommittee of the ABA’s Consumer Financial Services Committee.

Previously, Mark worked for the Federal Reserve Bank of Philadelphia for several years, during which he wrote more than 15 articles on consumer credit and payments topics and advised those crafting regulations on consumer credit and consumer payments issues. One article, “The Debate Over the National Bank Act and the Preemption of State Efforts to Regulate Credit Cards,” 77 Temple L. Rev. 425 (2004), was named best student article by the American College of Consumer Financial Services Lawyers. Other published articles include “Credit Card Pricing Developments and Their Disclosure,” 13 J. of Fin. Transformation 5 (2005).

Mark also worked as a business consultant, assisting the nation’s largest retail banks and credit card lenders with customer strategy issues, and as a manager at one of the largest credit card issuers in the United States.