UNITED STATES OF AMERICA 

FEDERAL TRADE COMMISSION 

WASHINGTON, D.C. 20580 

Office of Commissioner 

Noah Joshua Phillips 

Dissenting Statement of Commissioner Noah Joshua Phillips 

Regarding Federal Trade Commission vs. Passport Automotive Group, Inc. et al. 

FTC File No. 2023199 

October 14, 2022 

For over 80 years, the Federal Trade Commission Act’s Section 5 unfairness authority has 

allowed the Commission to protect consumers from harmful practices ranging from unilateral 

changes to contracts without consumers’ express informed consent1 to poor data security that 

exposed consumers’ most sensitive personal information.2 The language of the unfairness 

standard has given the FTC the flexibility to combat new threats to consumers that accompany 

the development of new industries and technology. Still, there are limits to the Commission’s 

unfairness authority. Because this complaint includes an unfairness count that aims to transform 

Section 5 into an undefined antidiscrimination statute, I respectfully dissent. 

Defendants in this case (hereinafter, “Passport”) own and operate auto dealerships. As alleged in 

the complaint, Passport regularly advertised specific prices for their vehicles; but when 

consumers would attempt to purchase a vehicle at the advertised price, Passport would charge 

them additional hundreds or thousands of dollars in fees. Passport claimed that these fees, such 

as reconditioning, inspection, preparation, and certification fees were required. They were not. 

Counts I and II of the complaint allege that Passport’s misrepresentations about the specific price 

at which they would sell a vehicle and that certain fees were required were deceptive in violation 

of Section 5. 

In addition, as described in the complaint, Passport had a policy of charging consumers for 

whom it arranged financing a markup of 200 basis points or 2%. Employees were permitted to 

reduce or eliminate that markup for specific reasons, namely if the consumer had a competing 

credit offer or if the consumer had a cap on the monthly payment they could afford. Employees 

were supposed to document the reasons for any deviations from the standard markup on a 

certification form, those forms were to be reviewed by other employees not involved in the sale, 

and the policy was to be regularly monitored for compliance. Passport did not follow these 

protocols, and the complaint alleges that the discretionary markup policy resulted in Black and 

Latino consumers being charged, on average, higher markups than non-Latino White consumers. 

1 In the matter of Orkin Exterminating Co. Inc., 117 F.T.C. 747 (1994), https://www.ftc.gov/legallibrary/browse/cases-proceedings/orkin-exterminating-company-inc. 

2 FTC v. Equifax, Case No. 1:19-cv-03297-TWT (N.D. Ga. 2019), https://www.ftc.gov/legal-library/browse/casesproceedings/172-3203-equifax-inc. 

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From August 2017 to August 2020, Black consumers were charged, on average, $291 and Latino 

consumers were charged, on average, $235 more in interest than similarly situated non-Latino 

White consumers. 

The complaint also alleges that Passport’s practice of adding extra inspection, reconditioning, 

vehicle preparation, and certification fees resulted in Black and Latino consumers being charged 

these fees more frequently, and in higher amounts, than non-Latino White consumers. 

The Equal Credit Opportunity Act (ECOA) prohibits creditors from discriminating against an 

applicant with respect to any aspect of a credit transaction on the basis of race, color, religion, 

national origin, sex, marital status, age, or because of receipt of public assistance.3

 Per the 

complaint, Passport’s discretionary markup policy imposed higher costs on Black and Latino 

consumers in violation of ECOA.4 

The complaint also alleges that the higher costs Passport imposed on Black and Latino 

consumers caused substantial injury to those consumers, were not reasonably avoidable by them, 

and were not outweighed by any benefits to consumers and competition, and therefore Passport’s 

conduct was unfair. This is the first case in which the Commission has alleged that the disparate 

impact of business conduct is unfair in violation of Section 5. 

I have no quarrel with Counts I and II, nor Count IV’s allegation that Passport’s discretionary 

markup policy violated ECOA.5 I would have voted in favor of a complaint limited to those 

complaint counts.6 

I cannot support Count III and its novel interpretation of unfairness. 

As a threshold matter, Count III is entirely gratuitous. First, it condemns conduct that is already 

covered by Count IV. Second, Count III is not necessary for the injunctive relief being sought, 

and does not allow the Commission to obtain monetary redress for harmed consumers or a civil 

penalty. Count III accomplishes nothing in this case. The sole reason for its inclusion is to 

announce to the world that the FTC has expanded its unfairness jurisdiction to include 

3 15 USC 1691 et seq. 

4 While the Supreme Court has never heard a case directly on the question of whether disparate impact is cognizable 

under ECOA, others have. See, e.g., Fair Hous. Ctr. Of Cent. Indiana, Inc. v. Rainbow Realty Grp., Inc., Case No. 

1:17-cv-1782, 2020 WL 1493021 (S.D. Ind. Mar. 27, 2020); Ramirez v. GreenPoint Mortg. Funding, Inc., 633 

F.Supp. 2d 922 (N.D. Cal. 2008). And I am aware of no court that has held that liability may not be imposed for 

disparate impact claims under ECOA. 

5 I agree with the concerns Commissioner Wilson raises in her separate statement regarding the application of 

individual liability in this case. 

6

 I supported similar counts in our cases against Bronx Honda and Napleton. See FTC v. Liberty Chevrolet, Inc. 

(“Bronx Honda”), No. 1:20-cv-03945-PAE (S.D.N.Y. 2020), https://www ftc.gov/legal-library/browse/casesproceedings/162-3238-bronx-honda; FTC and the People of the State of Illinois v. North American Auto Services, 

Inc. et al. (“Napleton”), No. 1:22-cv-01690 (N.D. Ill. 2022), https://www.ftc.gov/legal-library/browse/casesproceedings/2023195-napleton-auto. 

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antidiscrimination. But because that announcement raises myriad questions about the liability 

rule, it serves no useful function for businesses eager to stay on the right side of the law. 

The FTC Act is not an antidiscrimination statute. When Congress wishes to make discrimination 

illegal, it says so. The Civil Rights Act of 1964 makes it unlawful to “discriminate.” 7 The Equal 

Pay Act of 1963 bars “discrimination.”8 The Americans with Disabilities Act says it is illegal to 

“discriminate.”9

 Congress knows how to tell the public (and law enforcers) when it is addressing 

discrimination. There is simply nothing to suggest that, in the 1938 Wheeler-Lea amendments to 

the FTC Act, Congress did so.10 Nor is there anything to suggest that, in 1994 – after Congress 

had adopted numerous antidiscrimination laws – its clarification of “unfairness” did.11 

Section 5 looks nothing like the antidiscrimination laws Congress passed; and as applied to 

address discrimination, it would sweep more broadly than any. For one critical thing, Section 5 

does not tell us on what basis discrimination is impermissible, which classes the law protects. 

Title VII of the Civil Rights Act of 1964 prohibits employment discrimination “because of such 

individual’s race, color, religion, sex, or national origin.”12 Title IX prohibits discrimination “on 

the basis of sex.”13 The Age Discrimination in Employment Act prohibits employment 

discrimination against individuals aged 40 and over.14 Those are just three examples of how 

Congress can and has identified pernicious discrimination and banned it. Section 5 provides no 

such guidance, and so under the theory articulated in Count III there are no limits. The 

Commission’s theory of Section 5 could make disparity on the basis of qualification or customer 

loyalty illegal. 

Second, unlike other antidiscrimination statutes, Section 5 does not identify any contexts to 

which it applies.15 The statutes on the books define clearly the areas in which discrimination is 

illegal, such as housing, employment, and credit.16 They reflect a congressional judgment that 

7 Title VII of the Civil Rights Act of 1964, Pub. L. 88-325. 

8

 The Equal Pay Act of 1963, Pub. L. 88-38. 

9

 The Americans with Disabilities Act, 42 USC 12101. 

10 Wheeler-Lea Amendment, Pub. L. No. 75-447, 52 Stat. 111 (1938) (codified as amended at 15 U.S.C. 45(a)(1)). 

11 15 U.S.C. 45(n). 

12 Title VII of the Civil Rights Act of 1964, Pub. L. 88-325. 

13 Title IX of the Education Amendments Act of 1972, 20 U.S.C. §1681-1688. 

14 29 U.S.C. § 621 et seq. 

15 The Commission’s Section 5 jurisdiction is limited to acts or practices in or affecting commerce. The Commission 

also does not have jurisdiction over, among others, nonprofits, banks, and common carriers. 15 U.S.C. 45(a). 

16 The Fair Housing Act, 42 USC 3601 et seq., prohibits discrimination by direct providers of housing, such as 

landlords, and other entities, such as banks and homeowners insurance companies whose discriminatory practices 

make housing unavailable because of an individual’s race, color, sex, national origin, familial status, or disability. 

The Americans with Disabilities Act, 42 USC 12101, prohibits discrimination against people with disabilities in 

employment, transportation, public accommodations, communications, and access to state and local governments’ 

programs and services. Equal Credit Opportunity Act (“ECOA”), 15 USC 1691 et seq., covers the extension of 

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such discrimination exists, that it is pernicious, and that it must stop. As a nation, we are better 

off because of the exercise of that judgment. But Section 5 has no such definition; and, under the 

theory of Count III, it will be up for the Commission to decide. 

A third matter. Antidiscrimination law has developed two theories of proving discrimination: 

disparate treatment and disparate impact. Disparate treatment occurs when some individuals are 

treated differently than similarly situated individuals based on a protected characteristic (e.g., 

women are not eligible for a job). Disparate impact occurs when a neutral policy has the effect of 

disproportionately excluding members of a protected class (e.g., a height requirement for getting 

a job has the effect of fewer women being hired). Disparate impact is not cognizable under every 

antidiscrimination statute. The Supreme Court is clear that “antidiscrimination laws must be 

construed to encompass disparate impact claims when their text refers the consequences of 

actions and not just the mindset of actors, and where that interpretation is consistent with 

statutory purpose.”17 

In this case, the Commission is declaring not only that Section 5 is an antidiscrimination statute, 

but also that liability can be predicated upon the disparate impact of conduct. This interpretation 

of Section 5 fails the Court’s test and would give the Commission authority to go far beyond the 

antidiscrimination laws on the books. 

Section 5 does not mention discrimination. It does not identify protected classes, the bases on 

which discrimination is impermissible. Section 5 does not identify any context where Congress 

has determined discrimination exists and must be rooted out. And it gives enforcers and courts 

no guidance whether liability may be predicated on the disparate impact (on, again, any basis) of 

a business practice alone. One obvious takeaway from all of this is that Section 5 is not an 

antidiscrimination statute. No beak, no feathers, no walk, no quack – Section 5 is a terrific 

consumer protection tool, but it is no duck. 

But if it were, Section 5 would be an odd duck indeed. To establish liability under the Fair 

Housing Act using a disparate impact theory, for example, a plaintiff must show that a facially 

neutral policy has resulted in a disparate impact, at which point the burden shifts to the defendant 

to provide a legitimate need for the policy. The burden then shifts back to the plaintiff to show 

that a less discriminatory alternative was available and serves the defendant’s legitimate need.18 

A defendant will not be liable for a disparate impact if there was a valid justification and no less 

discriminatory alternative. That is not how Section 5 works. Unfairness requires that the costs of 

a business practice outweigh its benefits. That leaves open the possibility that the Commission 

could determine that a business practice that was legitimate and for which there was no less 

restrictive alternative was nonetheless illegal discrimination under Section 5 because, in our 

view, the benefits of the conduct didn’t justify the discrimination. Put differently, the theory of 

credit and bars discrimination “with respect to any aspect of a credit transaction” on the basis of race, color, religion, 

national origin, sex, marital status, age, or because of receipt of public assistance. 

17 Texas Dep’t of Hous. & Comty. Affs. v. Inclusive Communities Project, Inc., 576 US 519, 534 (2015). 

18 Id. (adopting this three-step burden-shifting test for disparate-impact under the Fair Housing Act). 

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Count III would allow the Commission to condemn conduct covered by antidiscrimination laws 

but permitted by them. 

If the FTC Act is an antidiscrimination statute encompassing disparate impact liability untethered 

to protected classes or context, then the Commission has the power to declare a great many legal 

things illegal. For example, a dating service that allows users to specify a preference for potential 

partners with a particular gender, religion, race, or national origin, resulting in fewer matches for 

some classes of users.19 Or a music streaming service that uses an algorithm that recommends 

more male artists than female artists to its users.20 It sounds silly to suggest that the FTC would 

make a federal case over Spotify recommending Ed Sheeran more often than Taylor Swift, but 

such a suit would be possible under the majority’s view of unfairness. Businesses trying to 

follow the law will have to wait and see what the Commission chooses to condemn. 

On a more practical note, this pleading also fails as a matter of Section 5. Disparate impact 

liability examines the impact of business conduct. A defendant does something, and that thing 

has a disparate impact. In this case, we apply the Section 5 unfairness test as if the disparate 

impact were the conduct itself. So, we look only to the disparate impact for the substantial injury 

and then again, and only, to the impact in weighing the costs and benefits of the conduct. That 

analysis mistakes the impact for the conduct, effectively conflating two separate parts of the 

Section 5 analysis. 

Some have argued that Section 5 unfairness can be a “gap filler” for where antidiscrimination 

law does not apply.21 They maintain that discrimination falls cleanly within the scope of 

unfairness, and point to the fact that the Commission can consider public policy in evaluating 

whether conduct is unfair to bolster their argument. This misinterprets the history of Section 5. In 

1938, Congress amended the FTC Act to give the Commission the ability to protect consumers 

from “unfair or deceptive acts or practices.”22 “Unfair” is an elastic term, and it went undefined 

for decades. During the 1960s and 70s, the Commission used the flexibility in the language with 

increasing breadth until its ambitions met with resistance from Congress and the public.23 

Congress shut down the agency.24 In 1980, the Commission issued its Unfairness Policy 

19 Christian Gollayan, Dating apps promote racial discrimination: study, N.Y. POST (Oct. 3, 2018), 

https://nypost.com/2018/10/03/dating-apps-promote-racial-discrimination-study/. 

20 Andres Ferraro, Xavier Serra, & Christine Bauer, Break the Loop: Gender Imbalance in Music Recommenders, 

CHIIR '21: Proceedings of the 2021 Conference on Human Information Interaction and Retrieval, 249-254 (Mar. 14, 

2021), https://dl.acm.org/doi/10.1145/3406522.3446033. 

21 Stephen Hayes and Kali Schellenberg, Discrimination is “Unfair” Interpreting UDA(A)P to Prohibit 

Discrimination, Student Borrower Protection Center (Apr. 2021), https://protectborrowers.org/discrimination-isunfair-interpreting-udaap-to-prohibit-discrimination/. 

22 Wheeler-Lea Amendment, Pub. L. No. 75-447, 52 Stat. 111 (1938) (codified as amended at 15 U.S.C. 45(a)(1)). 

23 See, e.g., J. Howard Beales III, The Federal Trade Commission’s Use of Unfairness Authority: Its Rise, Fall, and 

Resurrection, 22 J. PUB. POL’Y & MKTG. 192 (2003); Ernest Gellhorn, The Wages of Zealotry: The FTC Under 

Siege, 4 REGULATION 33 (1980). 

24 See, Merrill Brown, FTC Temporarily Closed in Budget Dispute, WASH. POST (May 1, 1980), 

https://www.washingtonpost.com/archive/business/1980/05/01/ftc-temporarily-closed-in-budget-dispute/5c63ef5d4e28-471d-8f9c-014d4d28d360/. 

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Statement to impose some limits on what it believed it could condemn.25 Congress codified the 

unfairness test in 1994. Section 5(n) of the FTC Act states that an act or practice is unfair if it 

“causes or is likely to cause substantial injury to consumers or competition which is not 

reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to 

consumers or competition.”26 It also specifically prohibits public policy considerations from 

serving as the primary basis for an unfairness determination.27 Nowhere in this long, rich history 

does the concept of antidiscrimination arise. 

The theory that Section 5 can “fill gaps” in antidiscrimination law runs directly counter to public 

policy, as established by Congress. The gaps in question are in fact lines drawn by the 

legislature. Discrimination is impermissible on this basis (but not that). Discrimination is illegal 

in this context (but not that). Liability is limited to disparate treatment (but not impact). By 

glossing over the distinctions that anchor antidiscrimination law, Section 5 colors outside lines 

Congress carefully drew. In the name of “public policy”, it adopts a policy different from the one 

policymakers specifically promulgated. 

I understand the impulse to declare problematic and even repugnant behavior unfair. As 

Americans, we all want a society devoid of invidious discrimination. In their joint statement in 

the Napleton case, Chair Khan and Commissioner Slaughter expressed their desire to declare 

disparate impact unfair and encouraged the Commission “to use our existing enforcement tools 

to protect consumers to the fullest.”28 Section 5 is versatile, but it is not a Swiss Army knife. It is 

not a tool to tackle any problem or societal ill. If we try to wield it as such, we are not likely to 

come out on top. That will be a step back, not forward, for our common goals. 

25 Letter from the FTC to Hon. Wendell Ford and Hon. John Danforth, Committee on Commerce, Science, and 

Transportation, United States Senate, Commission Statement of Policy on the Scope of Consumer Unfairness 

Jurisdiction (December 17, 1980), Reprinted in International Harvester Co., 104 F.T.C. 949 (1984) (“Unfairness 

Policy Statement”), https://www.ftc.gov/legal-library/browse/ftc-policy-statement-unfairness. 

26 15 U.S.C. 45(n). 

27 Id. 

28 Joint Statement of Chair Lina M. Khan and Commissioner Rebecca Kelly Slaughter In the matter of Napleton 

Automotive Group (Mar. 31, 2022), https://www.ftc.gov/news-events/news/speeches/joint-statement-chair-lina-mkhan-commissioner-rebecca-kelly-slaughter-matter-napleton-automotive. 

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