- What's at Stake: The bureau acknowledges that the elderly, minorities and people with low incomes may be harmed by the changes.
- Expert Quote: The proposed rule "will effectively invite a return to redlining and exclusion," said Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition.
- Key Insight: The CFPB claims the statutory language of ECOA makes no reference to disparate-impact claims and should be eliminated.
The Consumer Financial Protection Bureau wants to eliminate protections against indirect discrimination from the Equal Credit Opportunity Act of 1974.
On Thursday, the CFPB
The CFPB's 73-page proposal, signed by acting CFPB Director Russell Vought, would change the language in Regulation B to state that the Equal Credit Opportunity Act "does not authorize disparate impact claims."
Disparate impact has been a tool used to target lenders that engage in discriminatory practices or redlining in mortgages and other markets. It is based on a 1971 Supreme Court ruling, Griggs v. Duke Power Co., that found facially neutral policies or practices can be deemed discriminatory if they are found to have a disproportionately negative impact on protected groups — even where there is no proof of intentional discrimination.
President Trump issued an executive order in April aimed at eliminating disparate impact liability in federal programs "to the maximum degree possible." The order, titled "Ending Illegal Discrimination and Restoring Merit-Based Opportunity," states, in part, that the federal government "is charged with enforcing our civil-rights laws. The purpose of this order is to ensure that it does so by ending illegal preferences and discrimination."
The CFPB proposal and the executive order are significant because they impact how federal agencies enforce civil rights laws.
The CFPB said in its proposal that: "The text of ECOA does not state that disparate-impact claims are cognizable under ECOA, nor does it contain effects-based language of the type that has been found in other statutes to invoke disparate-impact liability."
The proposal would go further by putting restrictions for special purpose credit programs, created by for-profit banks and lenders, that seek to address historical inequality.
And the plan would amend the law's so-called "discouragement provision," that prohibits creditors from discouraging any current or prospective credit applicants from applying for credit through statements, advertising or other actions.
The Trump administration also wants to clarify that ECOA prohibits statements of intent to discriminate but "is not triggered merely by negative consumer impressions."
The CFPB acknowledged that the elderly, minorities and people with low incomes may be harmed by the changes in legal protections.
"Some consumers may be more likely to be denied credit or to pay higher prices without effects-based legal protection," the bureau said. "Removing such liability could potentially have a negative impact on some consumers. Consumers who are adversely affected by neutral policies would lose legal options and opportunities for redress."
The proposal is part of the Trump administration's broad attack on civil rights, said Stephen Hayes, co-managing partner at the law firm Relman Colfax.
"The proposal is legally and factually flawed," Hayes said. "Many companies value the doctrine because it provides a framework to explore whether their systems can be modified to increase opportunities for new consumers."
Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition, called the plan "an outright assault on civil rights in lending."
"By gutting disparate impact analysis and banning race- or gender-based Special Purpose Credit Programs, this rule will effectively invite a return to redlining and exclusion," Van Tol said.
In a strange twist, the bureau claims that disparate impact liability would allow lenders to discriminate against non-protected classes.
"Creditors may believe that they are required not only to consider the impact of facially neutral policies and procedures on protected classes, but to adjust those policies with the goal of achieving particular protected class outcomes, in order to avoid potential disparate-impact claims," the proposal states. "This may even involve policy changes that disadvantage certain protected classes in an effort to reduce the disadvantages for others. That the application of disparate-impact liability may promote, rather than prohibit, such intentional protected class discrimination further indicates that interpreting ECOA as not permitting disparate-impact claims is the most appropriate reading of the statute."
The CFPB will likely be sued if the final rule is issued along the lines of the proposal, Hayes said.
In the first Trump administration, CFPB Director Kathy Kraninger issued a request for information seeking comment related to disparate impact, prospective applicants, and special purpose credit programs, among other issues, but never made any changes to ECOA.
The CFPB reviewed roughly 35 comment letters in 2020 and claims to have obtained "pertinent information in the course of carrying out its supervisory and enforcement responsibilities," the proposal states.
