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.