On August 7, the Federal Trade Commission (FTC) formally announced that it will no longer pursue legal actions under Section 5 of the FTC Act based on disparate-impact theories. As part of this policy shift, the FTC modified existing compliance obligations for three automotive businesses that had previously been subject to disparate-impact requirements. Disparate impact is a longstanding legal doctrine used to identify discrimination under federal civil rights laws. It generally applies when a seemingly neutral policy or practice disproportionately harms members of a protected group, even in the absence of discriminatory intent.
The FTC’s action follows a 2025 Executive Order rejecting the use of disparate-impact theories of liability by federal agencies and directing agencies to limit reliance on disparate-impact liability. This marks the second time the FTC has taken automobile dealer-specific action in response to the Executive Order. In August 2025, NIADA reported that the Commission had dropped racial discrimination claims against three Texas dealerships in accordance with the Order.
While NIADA supports the FTC’s new regulatory and enforcement approach at the federal level, dealers should be aware that the Executive Order does not preempt or otherwise affect state-based fair lending or disparate-impact laws. Several states have either implemented or are pursuing new disparate-impact laws and regulatory frameworks in response to the Executive Order. Dealers and lenders should also remember that compliance with applicable fair lending laws and regulations remains critical. Violations can carry significant legal and financial consequences. Dealers are therefore strongly encouraged to maintain policies and practices that promote consistent treatment and equal access to credit for all consumers.
