- Key insight: The Federal Trade Commission has dropped compliance obligations for three companies that entered into settlements with the FTC under the Biden administration.
- What's at stake: The shift away from enforcing disparate-impact liability is part of the Trump administration's broader agenda to dismantle diversity, equity and inclusion initiatives across the federal government.
- Forward look: The FTC plans to continue prosecuting direct discrimination cases under the Equal Credit Opportunity Act, but says that oversight of indirect discrimination exceeds its authority.
The Federal Trade Commission has pulled the plug on enforcing "disparate-impact" claims, as the Trump administration continues to dismantle policies aimed at addressing unintentional discrimination.
In a
The shift is a part of the Trump administration's efforts to dismantle diversity, equity and inclusion programs across the federal government. President Donald Trump has called disparate impact a "pernicious" policy that forces business to engage in quotas and race-based statistical analyses.
Under disparate-impact theory, facially neutral policies, which on their face do not explicitly discriminate, can nevertheless have a "disparate impact" on a protected class based on race, gender, or religion, that cannot be justified by a business reason.
On Friday, FTC Chairman Andrew Ferguson criticized disparate impact and the federal government's past policies of penalizing companies without proving discriminatory intent. The FTC voted 2-0 to approve the nonbinding policy statement, with Republican Commissioner Mark Meador aligning with Ferguson.
The FTC went even further, saying it reviewed past settlements based on disparate-impact liability and decided to drop compliance obligations in three settlements reached during the Biden administration, under then-FTC Chair Lina Khan. The settlements with
In March 2025, President Trump
To be clear, the Trump administration has not unilaterally repealed disparate impact, which is expressly codified in Title VII of the Civil Rights Act and in other statutes. Neither a federal agency nor the president can repeal a law passed by Congress.
Ferguson now claims that the FTC never had the legal authority to pursue disparate-impact claims under Section 5 of the Equal Credit Opportunity Act. The commission claims that ECOA, a 1974 civil rights law, only prohibits intentional discrimination.
The modified settlements are part of a major shift at the FTC. During the Biden administration, Khan aggressively pushed disparate-impact theory, and faced blowback from the Republican commissioners.
Khan has defended the application of disparate-impact liability under federal antidiscrimination law, pointing to a line of court cases that support her interpretation.
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"Every district and appellate court to face the issue of disparate impact — and there have been many — has accepted that disparate impact is a cognizable basis for ECOA liability,"
Ferguson expressed a sharply divergent view on Friday.
"Disparate-impact claims are nearly impossible to square with our colorblind Constitution," Ferguson said in a press release. "They impose liability for discrimination without any evidence that anyone intended to discriminate, which pushes businesses to make race-based decisions in order to avoid liability. The Commission never had authority to impose disparate-impact liability. Today, we announce that the Commission will never do so again."
Still, the FTC's policy statement included a footnote stating that eliminating disparate impact "does not preempt federal, state, or local laws."
The policy statement follows Trump's executive order last year stating it is "the policy of the United States to eliminate the use of disparate-impact liability in all contexts to the maximum degree possible to avoid violating the Constitution, Federal civil rights laws, and basic American ideals."
Disparate impact has been eliminated by several agencies, including the Department of Justice, the Department of Education, the Equal Employment Opportunity Commission, the Department of Labor, the Department of Treasury, the Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau.
In June, the Department of Justice's Office of Legal Counsel issued a formal opinion that the EEOC's earlier interpretations and guidelines on disparate impact liability were unconstitutional. The DOJ has argued that disparate impact pressures employers to engage in race-based decision-making to avoid statistical disparities, which the agency claims violates the Constitution's equal-protection guarantee.
In April, the CFPB said that it had
Unlike the FTC, which has not published a rulemaking on the issue, the CFPB did publish a
The FTC's policy overhaul states that disparate-impact analysis is "virtually limitless" because almost any neutral policy can produce different outcomes for different groups. The FTC said it will continue prosecuting direct discrimination cases under ECOA, but that oversight of indirect discrimination exceeds its authority.
Several Democratic-led states, including California, Illinois, New Jersey and New York, have passed laws to expressly codify disparate-impact liability under state law, ensuring protections remain even if federal enforcement wanes.
Disparate impact enforcement actions and settlements have historically targeted mortgage and auto lenders. An example is a 2012 consent order between the DOJ and Luther Burbank Savings. The Santa Rosa, California-based bank had, at the time, set a $400,000 minimum loan amount for jumbo mortgages. The DOJ claimed that policy had a disparate impact on Black and Hispanic borrowers, who were given too few loans.
