Federal Trade Commission recently announced agreements with two auto dealerships and the former general manager of a third dealership. Under the agreements, the parties will no longer be required to comply with court-ordered fair-lending programs or restrictions against certain forms of alleged credit discrimination.
The Northern District of Illinois, which handled one of the cases, said it was not given an opportunity to review one of the new agreements. Arizona Attorney General Chris Mays, a plaintiff in another affected case, called the FTC’s decision “outrageous.”
The FTC said it was withdrawing the requirements because the defendants did not explicitly direct sales staff to treat Black and Latino borrowers differently. The agency had previously accused all three parties of charging borrowers of color higher discretionary markups and additional fees, on average, than white borrowers. (Disclosure: The author of this article previously worked for the FTC but was not involved in any of the matters discussed here.) In one case involving Passport Auto Group, the FTC alleged that a financial institution sent the dealership chain multiple letters notifying it of disparities in the markup rates charged to Black borrowers. A lawyer for Passport declined to comment on the agreement.
The FTC and the state of Arizona previously charged Coulter Motor Company and Gregory DePaola, a former general manager at a Phoenix-area dealership, with violating the federal Equal Credit Opportunity Act and other laws. The allegations involved charging Latino customers higher interest rates and additional fees for optional products.
DePaola did not respond to requests for comment, although he signed one of the new agreements. Coulter and the attorney who represented both Coulter and DePaola in the 2024 settlement also did not respond to requests for comment.
“The FTC and the Attorney General’s Office partnered on this case to ensure Arizonans can purchase a car without being misled or charged additional fees because of their ethnicity,” Mays said. “I find it appalling that the FTC would withdraw the settlement and treat its state partners this way, not to mention the substantive discrimination against Arizonans.”
In a press release, the FTC said the previous cases relied on statistical analyses intended to establish disparate-impact liability. The agency said it would not pursue similar allegations in the future. Disparate-impact discrimination occurs when a seemingly neutral policy or practice disproportionately harms a protected group, even without evidence of discriminatory intent. It differs from disparate-treatment discrimination, which involves intentional unequal treatment based on a protected characteristic.
“This is actually a very difficult theory, where you have to identify a particular policy, prove that it caused the disparity, and, most difficult, prove that the policy does not serve a legitimate purpose,” said Aaron Rieke, principal legal engineer at legal startup Prilex and a former FTC attorney advisor.
Logan Koepke, senior project director at Upturn, a nonprofit that studies technology’s impact on civil rights, said disparate-impact analysis is increasingly important as artificial intelligence and other automated decision-making systems become more common in high-stakes decisions, including loan approvals. These systems can produce discriminatory outcomes even when they are not designed to discriminate.
Last year, the Trump administration directed the FTC and other agencies to review prior orders and take “appropriate action” under an executive order titled “Restoring Equality of Opportunity and Meritocracy.” The administration said disparate-impact liability “undermines national values.”
The timing of the changes is unusual. The agreements were approved by the commission in early August and took effect in November, more than six months ago. Although the FTC typically must prioritize enforcement actions because of limited resources, approving and implementing the agreements removes two provisions from each order. That could make it more difficult for future administrations to reverse the changes.
Source: www.wired.com