Why Facebook is Subject to Fair Lending

By Ray Snytsheuvel

On March 19, 2019, the National Fair Housing Alliance (NFHA) announced it had settled with Facebook, Inc. (Facebook) for alleged fair lending violations. This came a year after NFHA, a consumer advocacy group focused on fair housing and fair lending protections for consumers, filed suit against Facebook for providing a marketing platform that enables its users to eliminate protected-class consumers from receiving housing-related advertising  

NFHA’s initial action was triggered by an article by ProPublica on October 28, 2016 in which it was reported that Facebook’s online platform enable advertisers to exclude Facebook users assigned black, Hispanic and other “ethnic affinities” from seeing advertisements in the housing category through its advertising portal. In response, NFHA tested Facebook by applying for advertising services. In that process, NHFA allegedly discovered, “Facebook first provides the option for the advertisers to exclude families with children and women from receiving advertisements, as well as users with interests based on disability and national origin. Then Facebook approves and permits advertisers to publish these ads in a discriminatory manner without consumers ever knowing they have been excluded.” The NFHA objected to Facebook’s practices, claiming, “the stealth nature of Facebook’s technology hides housing ads from entire groups of people.”

The settlement requires Facebook to change its advertising platform such that a user can no longer exclude protected classes from advertisements, create a page whereby all Facebook users may review all housing-related advertising disseminated through Facebook, provide educational material to inform advertisers about Facebook’s anti-discrimination policies, and requires advertisers to certify they are complying with those policies. Additionally, NFHA will monitor Facebook’s progress and efforts to ensure they comply with the settlement.

This is not Facebook’s only challenge on the fair housing front. In August 2018 the U.S. Department of Housing and Urban Development (HUD) also took action by filing a complaint alleging similar violations of the Fair Housing Act. As an interesting turn, however, while NFHA settled with Facebook, HUD doubled down by filing charges against Facebook on March 28 for the alleged violations, seeking injunctive relief and monetary damages.

Why It Matters

Generally, those familiar and experienced in mortgage fair lending requirements should not find this as a total surprise. For decades, compliance officers have defended against marketing strategies that included the use of protected-class information to target the desired consumers.

Still, there are a few points to consider here that make these legal actions notable and relevant to a compliance officer’s every-day objective.

Can a Fair Housing Act violation be aimed at a non-housing related company?

Interestingly, the actions here are not against a lender or other company involved in housing-related services. Facebook is not a housing-related company. It is a marketing platform. It would seem reasonable that both NFHA and HUD would have pursued the housing-related companies who used the platform, but to hold a non-housing related company who liable? Well, yes, it’s possible. The Fair Housing Act simply provides that is unlawful to make, print or publish any advertisement that discriminates based on race, color, religion, sex, handicap, familial status, or national origin. (42 USC § 3604(c)). Neither the Fair Housing Act nor its corresponding regulation expressly limits its application to only housing-related companies, which means those who do the advertising may also be liable under the Fair Housing Act. NFHA cited case law to highlight this by stating, “[t]hese prohibitions apply to both the person who drafted or placed the ad as well as the publisher of the ad because the negative effect of discriminatory advertising would be magnified if widely circulated by newspapers and other mass media.” (citing United States v. Hunter 459 F.2d 205 (4th Cir. 1972), in which the Federal Fourth District Appellate Court held that a newspaper can be held liable for a Fair Housing Law violation by publishing discriminatory housing-related advertising).

The reach of the Fair Housing Act, therefore, is broader than just the housing-related companies who engage in advertising. It appears those who facilitate the advertising too can be liable.

Will a showing of an overall-balanced marketing strategy allow a lender to continue using a platform similar to Facebook’s?

It is possible that a lender, or a lender’s marketing department, may raise the question as to whether it is permissible to still eliminate protected classes of consumers from one advertising campaign, but make up for it by over-including them in another advertising campaign. The premise is that the net results of the marketing strategy would yield an overall balanced advertising strategy, thus netting no harm. The answer is no, that is not permissible.

While neither NFHA’s and HUD’s actions address or speak to this, it appears the act alone, no matter how many compensating and mitigating factors are applied, will not remedy a single intentional act of excluding protected-class consumers from receiving advertisements.

Why is HUD continuing its legal action when Facebook is making all the necessary changes?

The public is often not privy to the details, negotiations and motivations of the parties in legal actions, but we offer this observation. The NFHA settlement from all accounts appears to be more focused on Facebook reforming itself into a better fair-housing citizen. This is noble and necessary. The settlement does not, however, address how harmed consumers could be compensated for Facebook’s alleged violations. In HUD’s charges filed last month, it is seeking, among other things, awards for damages that will “fully compensate aggrieved persons for any harm caused by [Facebook’s] discriminatory conduct,” and also civil penalties associated with fair housing act violations. HUD may have a different dog in this fight than NFHA and thus is determined to continue its legal action.