Austin News

U.S. Senate Commerce Committee Ranking Member Ted Cruz (R-Texas) has requested information from the Federal Trade Commission (FTC) following a report suggesting that the FTC is suing U.S. companies for millions of dollars using a fringe legal theory of discrimination. This approach allegedly relies on a discredited computer model that stereotypes individuals' race based on their names. The letter also questions why the FTC has not disclosed its use of this methodology to the companies subject to enforcement actions.

In his letter, Sen. Cruz argues that the FTC is improperly utilizing the disparate impact legal theory without statutory authorization to pursue enforcement actions for alleged discrimination based on statistical racial disparities. Congress had previously rejected this approach and blocked a similar effort by the Consumer Financial Protection Bureau (CFPB) in 2018. According to Sen. Cruz, even if Congress had permitted this approach, accusing a company of racial discrimination based on assumptions does not meet the standard set by the Supreme Court to ensure defendants are not unjustly held responsible for racial disparities they did not cause. He suggests that this practice may violate 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."

He further criticizes stereotyping individuals' race by their name as unseemly and prone to significant inaccuracies: "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 senator elaborates on his concerns regarding disparate impact theory: "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."

Sen. Cruz questions whether only Congress has authority over such sweeping policy changes and notes Congress has not granted such authority: "...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..."

He also addresses concerns about using Bayesian Improved Surname Geocoding (BISG) method without informing affected companies: “Commissioner Melissa Holyoak recently cautioned against using methods deployed by the FTC... It thus appears that when deciding to pursue enforcement actions and calculate remedies, the FTC is adopting...a data proxy methodology called Bayesian Improved Surname Geocoding (BISG).”

"The BISG method estimates probability that a person belongs to a particular race or ethnicity by combining their first and last name with geographical data... it also appears [the] FTC does not inform parties subject to enforcement actions of its 'enforcement methodology.'"

Concluding his letter, Sen. Cruz requests detailed information from the FTC regarding its use of statistical proxy models like BISG in enforcement actions over past five years, including specific models used and how BISG data was utilized.