The Consumer Financial Protection Bureau (“CFPB”) has issued its proposed rule scaling back the interpretation of and regulations under the Equal Credit Opportunity Act (“ECOA”). While the agency placed the proposal on its official regulatory agenda months ago, conventional wisdom indicated that the rule would address interpretations of the Act’s applicability to prospective applicants and to disparate impact claims. The proposal does address those topics, and significantly narrows the availability of special purpose credit programs (“SPCPs”). Comments are due on the proposal within a short 30 days (by December 15, 2025).
CFPB Proposes No Disparate Impact Under ECOA
ECOA generally prohibits creditors from discriminating against any applicant, with respect to any aspect of a credit transaction, on the basis of: race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract); because all or part of the applicant’s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the federal Consumer Credit Protection chapter. While ECOA clearly prohibits intentional discrimination, some have argued that it does not prohibit a creditor’s neutral policies or practices that nonetheless result in a disparate impact on a protected class of applicants.
The CFPB took a deep dive and emphasized in the proposed rule that it has preliminarily determined that ECOA does not authorize disparate impact claims. First, the agency explains that, under orders from President Donald Trump, it must eliminate the use of disparate impact in all contexts to the maximum degree possible. With that, the agency looked for any specific mandate from the statute itself to apply it to such claims – and found none.
The CFPB recognized that certain legislative reports do in fact provide evidence that Congress intended ECOA to apply to the “effects” of a creditor’s practices (i.e., disparate impact), as well as to intentional discrimination or disparate treatment. The CFPB also recognized that the Supreme Court held (in Inclusive Communities) that disparate impact claims are viable under the Fair Housing Act, even though that Act does not include effects-based language. However, the CFPB stated that the Court did not address how that reasoning could or should extend that reasoning to ECOA. The agency expressed concern that the prospect of disparate impact liability may lead creditors to actually consider prohibited characteristics, and to disadvantage some protected classes in an effort to reduce disadvantages for others. The prospect of disparate impact liability also may discourage creditors from innovating or cost-cutting measures.
Accordingly, the agency asserts that authorizing disparate impact claims is not the best reading of ECOA. However, the CFPB recognizes that neutral criteria may function as proxies for protected characteristics, and any such criteria would violate ECOA, but only if the creditor applies those criteria with the intent of treating individuals differently based on protected characteristics.
With this proposed rule, then, the CFPB would change Regulation B under ECOA in the following ways:
- Delete a sentence providing that “[t]he legislative history of the Act indicates that the Congress intended an ‘effects test’ concept . . . to be applicable to a creditor’s determination of creditworthiness;”
- Add in its place a sentence stating that ECOA does not provide that the “effects test” applies for determining whether there is discrimination under the Act;
- Clarify in the commentary that ECOA does not prohibit facially neutral policies, except to the extent facially neutral criteria function as proxies for protected characteristics designed or applied with the intention of advantaging or disadvantaging individuals based on protected characteristics; and
- Delete commentary language related to scoring systems that refers to an “effects test.”
CFPB Proposes a “Tailored” Discouragement Prohibition
Regulation B under ECOA prohibits a creditor from making any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage, on a prohibited basis, a reasonable person from making or pursuing an application. While ECOA itself does not directly address discouraging applicants on a prohibited basis, it directs regulatory agencies to refer matters to the Justice Department upon belief that a creditor has engaged in a pattern or practice of discouraging (or denying) applications in violation of ECOA. The Seventh Circuit Court of Appeals recently upheld the regulation’s prohibition against discouragement in the Townstone Financial case.
In the CFPB’s proposed rule, the agency does not suggest deleting the regulation forbidding the discouragement of potential applicants on a prohibited basis, recognizing that doing so could allow creditors to evade ECOA’s core principles. However, the CFPB has “preliminarily determined” that the discouragement prohibition must be properly tailored so as not to unnecessarily infringe upon a creditor’s rights and business activities. First, the prohibition should apply only to actual statements or visual images, and not to acts or practices such as where to locate branches or where to advertise.
Second, the prohibition should not apply to statements that encourage certain potential applicants. The CFPB provides an example of advertisements aimed at a particular geographical region, encouraging individuals in that region to apply. The proposed rule would delete a sentence from the commentary providing that “[t]he use of words, symbols, models or other forms of communication in advertising that express, imply, or suggest a discriminatory preference or a policy of exclusion in violation of the Act” would be prohibited.
With this proposed rule, in addition to the deletion described above, the agency would change Regulation B under ECOA to:
- Add language to clarify that a discouraging “oral or written statement” means spoken or written words, or visual images such as symbols, photographs, or videos.
- Replace commentary references to discouraging “acts” or “practices” with references to oral or written statements.
- Add the following examples of statements that do not constitute prohibited discouragement:
- Statements directed at one group of consumers, encouraging that group to apply for credit;
- Statements in support of local law enforcement;
- Statements recommending that, before buying a home in a particular neighborhood, consumers investigate, for example, the neighborhood’s schools, its proximity to grocery stores, and its crime statistics; and
- Statements encouraging consumers to seek out resources to develop their financial literacy.
CFPB Proposes to Significantly Narrow SPCPs
ECOA specifies that it is not a violation of the anti-discrimination prohibition for a creditor to refuse to extend credit offered pursuant to a credit assistance program administered by a nonprofit organization for its members or an economically disadvantaged class of persons; or “any special purpose credit program offered by a profit-making organization to meet special social needs,” so long as the program meets the CFPB’s regulatory standards. Regulation B requires for-profit organizations’ SPCPs to be established and administered to extend credit to a class of persons who, under the organization’s customary standards of creditworthiness, probably would not receive such credit or would receive it on less favorable terms than are ordinarily available to other applicants applying to the organization for a similar type and amount of credit.
Despite that safe harbor under ECOA for targeting credit toward a certain class of persons, relatively few lenders have voluntarily offered an SPCP, at least as such. Low participation in SPCPs could be due to difficulty in creating the required plan and providing the required data and analysis. Mortgage lenders could be concerned that while such programs may be permissible under ECOA, there is no express safe harbor from liability under the Fair Housing Act. The Department of Justice has, in some actions, treated SPCPs as a way to remedy the alleged exclusion by creditors of certain communities of color, so perhaps lenders have worried that developing an SPCP on their own looks like an admission that they were not otherwise lending to underserved communities.
On January 15, 2021, the CFPB (then under the direction of the Biden Administration) published an Advisory Opinion to address reports of regulatory uncertainty with the express hope that broader creation of SPCPs would help expand access to credit among disadvantaged groups and address seemingly intractable disparities in loan denial rates to Black, Hispanic, and Asian borrowers. Some large mortgage lenders, and Fannie Mae and Freddie Mac, developed special programs. However, in line with President Trump’s more recent orders, in March 2025, Federal Housing Finance Agency Director Pulte ordered Fannie Mae and Freddie Mac to terminate any SPCPs they had sponsored.
The CFPB’s new proposal parses the regulations and commentary to clearly delineate the permissible bounds of an SPCP going forward, in an effort to more closely align those bounds with ECOA’s purpose. The CFPB also asserts that times have changed, and the current standards for SPCPs no longer reflect the legal landscape or current credit markets. In fact, the agency states that SPCPs are currently the only known source in the for-profit credit markets “in which consumers would be ‘effectively denied credit’ because of their race, color, national origin, or sex.” However, the agency specifically requests comments on the nature and extent of any current remaining credit discrimination.
With that, the proposal would generally prohibit SPCPs from using race, color, national origin, or sex as the common characteristic in determining eligibility for credit under the program. The proposal also would include restrictions on the extent to which an SPCP could use religion, marital status, age, or whether income is derived from a public assistance program as eligibility criteria. The CFPB emphasizes that those proposed restrictions related to certain categories are separate and independent from the proposed prohibitions applicable to other categories, repeatedly stating that if the prohibitions are not finalized or become inoperable, the restrictions would remain in place. Importantly, a for-profit institution that seeks to develop an SPCP for participants that share race or national origin, for example, would have to provide evidence for each participant who receives credit through the program that, in the absence of the program, he or she would not receive such credit as a result of his or her race or national origin.
Additionally, the proposed rule would make the following changes to Regulation B’s SPCP standards:
- Add new specifications that the written plan must:
- Provide evidence of the need for the SPCP;
- Explain why the class of persons would not receive such credit in the absence of the SPCP; and
- For SPCPs that require persons served by the program to share one or more common characteristics that would otherwise be prohibited classes, explain why meeting special social needs necessitates that its participants share those characteristics and cannot be met otherwise.
- Tighten the provision allowing SPCPs to a class of persons who, under the organization’s customary standards of creditworthiness, probably would not receive such credit or would receive it on less favorable terms than are ordinarily available to other applicants applying to the organization for a similar type and amount of credit.
Timing
The CFPB appears intent on moving quickly with this rulemaking, requesting public comment within just 30 days. Additionally, the agency states that it intends to issue a final rule that would become effective 90 days after that final rule’s publication. The CFPB intends to give creditors with existing SPCPs sufficient time to evaluate whether any loans originated after the effective date of a final rule are consistent with these new parameters. Of course, as with all aspects of the proposal, the CFPB requests comment on that timeline.
State of Fair Lending Enforcement
This proposal is one of many efforts to reshape the federal approach to fair lending analysis and enforcement. In response to President Trump’s orders, the federal banking agencies have removed references in their supervision and examination materials to disparate impact liability, and the Department of Housing and Urban Development (“HUD”) has rescinded several guidance documents and mortgagee letters related to anti-discrimination. HUD also is expected to issue a rulemaking on its disparate impact standards under the Fair Housing Act. The CFPB has even succeeded in at least one instance in convincing a court to release a bank from its continuing obligations under a prior redlining settlement agreement. Although the agency is reportedly running on depleting funds, it is racing to implement its priorities.
While the federal agencies may be scaling back their interpretations and enforcement of certain anti-discrimination principles, ECOA provides for a private right of action for aggrieved applicants, including via class actions, and a court may award such plaintiffs actual and punitive damages, equitable relief, costs, and attorney fees. Accordingly, courts may have an opportunity to opine on the CFPB’s proposed interpretations, if and when they are finalized. In addition, lenders should remain mindful of state anti-discrimination laws, which regulators and courts may interpret as potential remedies for disparate impact or broad discouragement claims.
