Cruz Seeks Info on FTC’s Use of Racial Stereotypes to Target U.S. Companies

Letter questions FTC's use of a fringe, left-wing legal theory and controversial data method to guess individuals' race for enforcement actions

WASHINGTON, D.C. - U.S. Senate Commerce Committee Ranking Member Ted Cruz (R-Texas) is seeking information from the Federal Trade Commission (FTC) following an alarming report that the FTC is suing U.S. companies for millions of dollars using a fringe, left-wing legal theory of discrimination and basing such allegations on a discredited and congressionally-rejected computer model that stereotypes a person's race based on their name. The letter also seeks information on why the FTC has not disclosed its use of this methodology to companies that have been subject to enforcement actions.

In the letter, Sen. Cruz argues that the FTC is improperly using - without statutory authorization - the disparate impact legal theory to pursue enforcement actions for alleged discrimination based on statistical racial disparities. Congress rejected this approach and blocked a similar effort by the Consumer Financial Protection Bureau (CFPB) in 2018. Even if Congress had permitted this approach, accusing a company of racial discrimination based on a "guess" falls short of the standard set by the Supreme Court for ensuring defendants aren't unjustly held responsible for racial disparities they didn't cause. The FTC's apparent avoidance of this requirement, therefore, may violate parties' constitutional due process rights.

Sen. Cruz writes in his letter to FTC Chairwoman Lina Khan:

"I am writing to request information about the data and methods used by the Federal Trade Commission (FTC) when suing American companies over multi-million dollar claims of racial discrimination. I am concerned that instead of relying on sound evidence and acting within the law, the FTC is suing-and threatening to sue-companies for racial discrimination under the fringe, left-wing disparate impact legal theory. Perhaps even more troublingly, the FTC is basing such discrimination claims on a discredited and congressionally rejected model that guesses a person's race based on their name."

"Stereotyping a person's race by their name is not just unseemly, but prone to significant inaccuracy. Moreover, the FTC's use of race-guessing to bring lawsuits may be unconstitutional."

"The highly controversial legal theory of disparate impact imposes liability for a facially-neutral practice-one that has no discriminatory intent or motive-if that practice results in different statistical outcomes for protected classes."

"In effect, under this theory, any statistical racial disparity is the result of racial discrimination. The FTC is thus searching for statistical disparities to justify enforcement actions. But only Congress has the authority to direct such a sweeping policy change as allowing liability based on disparate impact analysis-assuming that would be constitutionally permissible in the first place-and Congress has not done so..."

Sen. Cruz questions the FTC's use of the controversial Bayesian Improved Surname Geocoding (BISG) method to estimate individuals' race for enforcement actions without informing the affected companies.

"Commissioner Melissa Holyoak recently cautioned against using the methods and methodology deployed by the FTC, citing the Congressional report that condemned the very CFPB activity Congress expressly blocked. It thus appears that when deciding to pursue enforcement actions and calculate remedies, the FTC is adopting the same discredited race-based approach as the CFPB, using a data proxy methodology called Bayesian Improved Surname Geocoding (BISG)."

"The BISG method estimates the probability that a person belongs to a particular race or ethnicity by combining a person's first and last name with geographical data. Armed with 'data' showing that a company's actions disproportionally affected members of a particular race, the FTC then sues that company for millions of dollars.

"…it also appears the FTC does not inform parties subject to enforcement actions of its "enforcement methodology" (presumably BISG) to calculate this data."

"...The FTC's pursuit of disparate impact claims is itself, to put it mildly, legally dubious because Congress has never expressly granted the FTC such authority. Even if Congress had done so, accusing a company of racial discrimination and destroying its reputation based on a hunch or guess falls far below the 'robust causality requirement' necessary to establish a prima facie disparate impact claim. As the Supreme Court explained, this requirement is critical to 'protect defendants from being held liable for racial disparities they did not create.' The FTC's apparent avoidance of this requirement therefore may violate parties' constitutional due process rights..."

Sen. Cruz concludes the letter by requesting detailed information from the FTC regarding its use of statistical proxy models, specifically the BISG method, in enforcement actions and public reports in the past five years. In addition, he is seeking answers about the specific models used, how BISG data has been used in enforcement actions and consent decrees, and the FTC's interpretation of its authority under the FTC Act in relation to antidiscrimination and disparate impact theories.

Read the full text of the letter HERE.

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https://www.commerce.senate.gov/2024/8/cruz-seeks-info-on-ftc-s-use-of-racial-stereotypes-to-target-u-s-companies