The Department of Housing and Urban Development has issued a “Charge of Discrimination” against Facebook that charges the company “with engaging in discriminatory housing practices in violation of the [provisions of the Fair Housing Act that prohibit discrimination based on race, color, religion, sex, familial status, national origin or disability.]” HUD’s Charge (which initiates an administrative enforcement proceeding) alleges that Facebook designed its advertising platform in a way that shows advertisements for housing and housing-related services “to large audiences that are severely biased based on characteristics protected by the [FHA].”  In addition to injunctive relief, HUD seeks damages for “any aggrieved persons” and civil money penalties.

The Charge’s factual allegations detail a two-phase process used by Facebook to target advertisements to its users.  The first phase allows advertisers to select the attributes that users who will see their advertisements must have or may not have.  Facebook also offers a “Lookalike Audiences” option under which an advertiser can designate individuals who represent the advertiser’s “best existing customers” and have Facebook identify users who share common qualities with those individuals and thereby become the eligible audience to receive an advertisement.  HUD alleges that to generate this audience, Facebook considers “sex and other close proxies for the other protected classes.”  Examples of such proxies according to HUD include “which pages a user visits, which apps a user has, where a user goes during the day, and the purchases a user makes on and offline.”

The second phase involves Facebook’s selection of the users who will actually recejve an advertisement from the pool of eligible users that was created based on the advertiser’s selection in phase one.  HUD alleges that “even if an advertiser tries to target an audience that broadly spans protected class groups, [Facebook’s] ad delivery system will not show the ad to a diverse audience if the system considers users with particular characteristics most likely to engage with the ad.”  HUD alleges that in creating a “Lookalike Audience” in phase two that will actually receive an advertisement, Facebook uses a process that “inevitably recreates groupings defined by their protected class.”  According to HUD, by grouping users who ‘like” similar pages (unrelated to housing) and presuming a shared interest or disinterest in housing-related advertisements, [Facebook’s] mechanisms function just like an advertiser who intentionally targets or excludes users based on their protected class.”

While HUD’s Charge does not explicitly allege that Facebook knew or had reason to know that the design of its advertising platform resulted in unlawful discrimination (i.e. that Facebook  engaged in intentional discrimination), the Charge does not suggest that HUD is attempting to rely on a disparate impact theory for its FHA claims.  Rather, it appears HUD has framed the action as one involving disparate treatment.

HUD’s action follows recent reports that, to settle a lawsuit filed by several consumer advocacy groups challenging Facebook’s advertising practice, Facebook has agreed to remove age, gender, and zip code targeting for housing, employment, and credit-related advertisements.  In light of that agreement, HUD’s motivation for filing the action is unclear.  It is possible HUD wants to send a message to others by imposing a large penalty or is seeking more extensive changes by Facebook than those it has already agreed to make.

Should HUD’s action result in a settlement, we hope it will offer some guidance to industry, particularly with regard to the use of proxies.