It is neither legally authorized nor equipped to enforce civil-rights law.
It is neither legally authorized nor equipped to enforce civil-rights law.
I t is no secret that the Federal Trade Commission (FTC) under Chair Lina Khan has an expansive enforcement agenda and has brought previously unthinkable antitrust charges against Big Tech firms. Whether attempting to ban non-compete agreements, focusing on labor welfare in antitrust analysis, or seeking to advantage competitors over consumers, Khan’s FTC has proceeded based on novel and untested theories of harm. While the agency’s competition enforcement soaks up much of the attention, recently it has attempted to use its consumer-protection authority to police “disparate impact,” i.e., discrimination and racial equity. The idea of disparate-impact enforcement is in itself controversial, but it is clear that the agency’s conduct continues to step well outside its legal authority, all the while attempting to broaden its jurisdiction covertly and outside of oversight.
Although the legality and efficacy of the FTC’s antitrust agenda has been widely debated, this new foray into disparate-impact enforcement is especially concerning. There is no clear basis for expanding the agency’s consumer-protection authority. Policing alleged racial bias is not something the FTC is equipped to, and numerous other agencies, including the courts, already have such a mandate. A politically charged priority like this one would further erode the FTC’s non-partisan credentials at a time when faith in the impartiality of the federal bureaucracy generally, and the FTC particularly, is faltering.
In August 2024, the FTC brought two cases against automotive dealers under Section 5 of the FTC Act, which authorizes the agency to prosecute both antitrust matters and a broad umbrella of general commercial torts in the name of “consumer protection.” In particular, Section 5 empowers the agency to police “unfair and deceptive conduct,” which includes scams or unduly harmful business practices. Such unscrupulous conduct includes charging fees without consent after the initial transaction. The definition of unfair and deceptive conduct was kept purposefully broad so as to enable the agency to police a wide array of harmful commercial conduct, but specifically conduct most often associated with traditional common-law notions of fraud or negligence or dealing in bad faith.
The cases brought against the automotive dealers involved charging secret fees and add-ons — standard cases worthy of prosecution, and well within the consumer-protection power of the FTC. However, at the end of the list of charges was an unusual claim of racial discrimination: charging higher fees and interest rates for black and Latino consumers. Although the FTC had no evidence of intentional discrimination, it relied on a disparate-impact assessment to arrive at its conclusion. That is, the FTC inferred racial discrimination from the fact that consumers of color were paying more on average, and decided to use that inference in its enforcement action.
Two major complications come from this civil-rights charge. First, the agency is not authorized to bring racial-bias charges, a key theme in the dissenting statements of the Republican-appointed commissioners Andrew Ferguson and Melissa Holyoak. Second, it is not clear how the agency arrived at its disparate-impact conclusion given that the agency does not collect demographic data. On this matter, the ranking member of the Senate Commerce Committee, Ted Cruz, sent a letter to the agency asking for the methodology it employed and whether it was the highly discredited Bayesian Improved Surname Geocoding (BISG). (BISG assumes the race of an individual based on their surname and geographic location, and the Consumer Financial Protection Bureau was previously condemned by Congress for employing the method in disparate-impact enforcement.)
Although civil-rights enforcement is a noble endeavor, the FTC is neither legally authorized nor equipped to undertake it. While Khan’s expansionist use of antitrust has advanced theories of harm and prosecutorial discretion that are at least vaguely plausible, her agency’s new foray into racial discrimination is both unprecedented and illegal.
When Congress writes a civil-rights law, it specifies what classes of people it seeks to protect and what industry or activity the statute applies to. The FTC’s taking on racial discrimination would fundamentally break Congress’s industry-specific civil-rights legislation because the agency possesses economy-wide enforcement authority. Chair Khan even acknowledged this reality when she wrote that the agency, upon wading into matters of racial discrimination, would “use our existing enforcement tools to protect consumers to the fullest.”
It is clear that the FTC understands that what it is doing is legally dubious. The agency has deliberately abstained from bringing racial-discrimination charges in litigation, only attaching them to cases that result in a settlement. This strategy avoids judicial scrutiny and gradually creates a precedent for FTC discrimination enforcement.
Attempts to continually expand the FTC’s power will eventually result in far greater congressional oversight that may undermine the Commission’s legitimacy and operational capacity. In 2022, then-FTC commissioner Noah Phillips criticized the use of disparate-impact theory by pointing out that the logical conclusion would be that the “FTC would make a federal case over Spotify recommending Ed Sheeran more often than Taylor Swift.”
Ultimately, the FTC faces a choice: adopting fashionable political preferences that today may be Biden’s equity agenda but tomorrow could be Trump’s American First platform, or returning to its traditional focus on consumer welfare regardless of political fashion or a desire to be all things for all people.
The FTC was created to be a non-partisan economic regulator with a powerful roster of attorneys and economists trained in consumer protection rooting out fraudsters and market manipulators. Everyone benefits when the Commission diligently enforces the law and focuses on consumer welfare, and everyone is harmed when it chooses to defy the law in pursuit of matters outside its proper purview.
Ethan Yang is a legal associate at the Cato Institute and an adjunct research fellow at the American Institute for Economic Research. Ryan Yonk is senior faculty at the American Institute for Economic Research.