Changing disparate impact enforcement creates new compliance challenges for lenders
In April 2025, President Trump signed an executive order titled “Restoring Equality of Opportunity and Meritocracy”, which required the banking agencies to deprioritize enforcement of disparate impact liability, take steps to remove disparate impact liability from rules and regulations and to take steps to end proceedings that rely on the theory of disparate impact liability. This executive order essentially removed enforcement of disparate impact claims.
CFPB proposes removing the “effects test”
Following the April executive order, the CFPB proposed a rule to remove disparate impact from their regulations. On November 13, 2025, the CFPB issued a proposal to amend Regulation B, the implementing regulation for the Equal Credit Opportunity Act (ECOA), by removing the “effects test” and revising language around discouragement.
- By removing the “effects test” language and including an explicit statement that the Act does not recognize the “effects test”, disparate impact liability will be removed from Regulation B if the proposal is finalized.
- The proposal explains that disparate impact was never included within the ECOA and therefore, does not need to be included within Regulation B.
HUD announces plans to eliminate its disparate impact standard rule
On February 13, 2026, HUD issued a proposal to eliminate its disparate impact standard rule, stating it would leave questions related to disparate impact to the courts. This will be the fourth rule from HUD related to their disparate impact standard, with each rule differing depending on which administration is in the White House.
CFPB withdraws joint ECOA rule for noncitizens
On February 12, 2026, the CFPB withdrew its 2023 joint statement on the ECOA and noncitizen borrowers, which was issued with the Department of Justice (DOJ). This joint rule had clarified a provision in Regulation B, which allows consideration of immigration or citizenship status, by stating that there should not be a blanket policy on lending to noncitizens, but rather that creditors should consider the risk of repayment on a case-by-case basis.
The CFPB now argues that ECOA does not impose any limits on the consideration of immigration or citizenship. Accordingly, it has withdrawn the 2023 joint statement.
CFPB also attempts to reverse an existing court settlement in a redlining case
After originally settling a redlining case with Townstone Mortgage in 2024, the CFPB then attempted to reverse its own settlement agreement in 2025. In a statement, the CFPB argued that statistical analysis alone should not be the basis of enforcement (even though the CFPB did find evidence of overt discrimination within Townstone’s radio program).
- Historically, statistical analysis has been the first step in a fair lending analysis to determine if disparities in a creditor’s lending between prohibited basis groups exist, followed by additional testing of peer data to determine if there are disparities in peer data among lenders in the same area.
- If peers have been successful in lending to prohibited basis groups, additional testing is conducted to determine the root cause of the creditor’s disparities and to determine if some form of discrimination has occurred.
While the attempt to reverse the settlement with Townstone Mortgage was unsuccessful in the courts, the overall message was heard that the current CFPB sees the historical process to identify redlining as flawed.
How should financial institutions adapt to these changes in the enforcement of fair lending rules?
These developments in disparate impact enforcement may have you wondering what this means for fair lending programs. For example:
- For those that have included language in policies, procedures and risk assessments covering disparate impact liability or an effects test, should the language be removed?
- Should policies that would have been prohibited or at least cautioned due to the possible negative effect on prohibited basis groups, now be allowed?
- Should you amend your underwriting policies to prohibit lending based on citizenship or immigration status?
- Is statistical analysis of your lending data still necessary?
Financial institutions should consider future regulatory expectations
There are no clear answers to those questions. But you should be aware that the federal government’s perspective on whether disparate impact is a form of discrimination now seems to depend on which administration holds power.
If this remains true, and the White House switches parties after the next election, disparate impact enforcement will most likely return, and actions taken by the current administration will be reversed.
State fair lending laws and court precedents raise additional risks
While it is true that once finalized, Regulation B will no longer recognize disparate impact, some states have their own fair lending laws that do acknowledge disparate impact as a form of discrimination. Historically, the courts have also recognized disparate impact, which is why the Federal Reserve included it within Regulation B when the implementing regulation to the ECOA was written.
So while the risk at the federal level may have disappeared for now, risks of enforcement by the states and civil litigation are still present.
Take a risk management approach to navigating changes to fair lending compliance
As with most things, your financial institution should approach compliance here as a risk-based decision. Make sure you’ve researched relevant state regulations and considered the risk of litigation and future federal policy reversals in your decisions before making any changes to your fair lending and underwriting program.
Nothing lasts forever, and this era, too, will most likely pass.
How Wipfli can help
We advise financial institutions on regulatory compliance and navigating policy change. Let’s talk about how we can help your institution adapt to today’s policy climate while preparing for tomorrow’s. Start a conversation.
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