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Facebook faces potentially 'dramatic' consequences after HUD lawsuit

The U.S. government accused Facebook on Thursday of violating the Fair Housing Act (FHA) by determining which users can see housing-related ads, on the heels of a separate settlement of similar allegations brought by private civil rights groups.

Olivier Sylvain, a professor at Fordham Law School, said the U.S. Department of Housing and Urban Development’s (HUD) complaint is more comprehensive than the civil rights group’s action — and that it could hit revenues harder.

“HUD has a broad regulatory authority so that if this is litigated to a consent decree they can oversee what Facebook does for years looking forward,” he said. “It takes up and makes allegations about what Facebook does that go beyond the complaint in the cases I've seen. I think it's more far-reaching, and implications are potentially more dramatic.”

On Thursday, HUD Secretary Ben Carson told Yahoo Finance that Facebook’s alleged discrimination was “new territory.” He added, “Technology has advanced very significantly … when we can use these sophisticated tools to track people … then use that to discriminate against certain people — that’s a very, very significant problem, it’s not minor at all.”

A HUD spokeswoman also confirmed with Yahoo Finance a Washington Post report saying that last year the Department alerted Twitter and Google that their advertising practices were being scrutinized.

‘We’re surprised by HUD’s decision.’

According to HUD’s complaint, Facebook’s advertising platform, which generated $55 billion in ad revenue in 2018, violates the FHA, a civil rights law that prohibits discrimination in buying, selling or renting housing based on a person’s race, color, national origin, religion, sex, familial status and disability.

HUD put Facebook on notice of its discrimination claims in August last year. According to Facebook, the company had already been addressing the Department’s allegations.

Mark Zuckerberg, chief executive officer and co-founder of Facebook Inc., speaks during the Oculus Connect 5 product launch event in San Jose, California, U.S., on Wednesday, Sept. 26, 2018. Facebook unveiled a wireless virtual-reality headset called Oculus Quest, an attempt to help popularize the developing technology with a more mainstream audience. Photographer: David Paul Morris/Bloomberg via Getty Images

“We're surprised by HUD's decision, as we've been working with them to address their concerns and have taken significant steps to prevent ads discrimination... While we were eager to find a solution, HUD insisted on access to sensitive information — like user data — without adequate safeguards,” Facebook said in a statement, without elaborating on the type of sensitive data HUD requested.

In the settlement reached last week, which included the National Fair Housing Alliance (NFHA), the American Civil Liberties Union (ACLU), the Communication Workers of America (CWA), and other private parties, Facebook agreed to remove features that allow ads for housing, employment and credit opportunities to single out desired audience members by age, gender, or zip code. Facebook also agreed to disable targeting options that describe or appear to relate to classes protected under the Civil Rights Act.

In a statement to Yahoo Finance, HUD responded to Facebook’s statement, suggesting that the company still needs to impose heavier advertising restrictions.

“[U]nresolved fair housing issues remain with Facebook’s advertising platform,” a HUD spokesman said in an email. “Until HUD can verify that Facebook’s practices are in full compliance with the law, we will continue to use all resources at our disposal to protect Americans from the harmful effects of discrimination.”

Broader allegations against the social network

Facebook’s targeted advertising platform is described by the Department’s complaint as operating in two distinct phases: one, where advertisers select attributes of their targeted audience; and another, where Facebook’s algorithms select the ad’s “actual audience” from the selected attributes.

The second phase at issue in HUD’s complaint makes its allegations more broad than the complaint filed by the civil rights groups.

“Facebook has an algorithm that takes that target audience and then tries to figure out how to maximize within that target audience who's most likely to interact with the ad,” Pauline Kim, a law professor at Washington University. “In doing so, they could very well be, behind the scenes, relying on other data that they have collected about the user, both online and offline behavior, to try to figure out who's most likely to interact with the ad.”

OXON HILL, MD, UNITED STATES - 2019/02/28: Ben Carson, United States Secretary of Housing and Urban Development, seen speaking during the American Conservative Union's Conservative Political Action Conference (CPAC) at the Gaylord National Resort & Convention Center in Oxon Hill, MD. (Photo by Michael Brochstein/SOPA Images/LightRocket via Getty Images)

That could cause ad distribution on a discriminatory basis, Kim said, even though the person who's advertising the housing may not have inputted any suspect categories, didn't use any proxies [non protected classes that work as analogues to protected classes], and doesn't want to limit the audience in that way.

“The relief that was agreed to the private housing advocacy groups will limit the ability of people advertising housing opportunities to use those kinds of proxy attributes,” Kim said. However, it does not address Facebook’s own manipulation of data using algorithms that customizes targeted ads based on inferences it makes about its users.

Asked whether Facebook may have a valid concern about handing over too much user data, Kim said HUD could likely explore a third party audit of its algorithm.

“Certainly they would have a legitimate concern if what HUD wanted was for Facebook to just turn over all the data that it has,” Kim said. “I would suspect in order to test whether that algorithm is actually ending up serving ads on a discriminatory basis, you would need to know a lot more about the data that Facebook holds about users, and how it deploys that data, to figure out how to maximize interaction with the ads.”

In 2018, Facebook reported having more than 7 million advertisers. The company’s $55 billion in advertising revenue was a 38% increase over the previous year.

Alexis Keenan is a New York-based reporter for Yahoo Finance. She previously produced live news for CNN and is a former litigation attorney. Follow on Twitter at @alexiskweed.

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