CFPB Proposes Amendments to Regs Implementing Equal Credit Opportunity Act
Commentary by Steven Lofchie
The Consumer Financial Protection Bureau ("CFPB") proposed amendments to Regulation B, the regulation implementing the Equal Credit Opportunity Act (ECOA or Act), to clarify compliance obligations and promote merit-based, race-neutral regulatory standards.
The rule change amends provisions on disparate impact, discouragement of applicants or prospective applicants, and special purpose credit programs ("SPCPs") under Regulation B. The CFPB explained that these changes are intended to align with recent Executive Orders emphasizing the elimination of unlawful discrimination.
In the rulemaking, the CFPB proposed to:
- Eliminate Disparate-Impact Liability to explicitly state that ECOA does not authorize disparate-impact ("effects test") claims. The CFPB explained that ECOA lacks the effects-based statutory language needed to support such liability and that relying on legislative history alone is insufficient. The Bureau also warned that disparate-impact frameworks may pressure creditors to consider prohibited characteristics, undermining ECOA’s purpose.
- Narrow the Discouragement Prohibition by limiting it to statements that would lead a reasonable person to believe they would be denied credit or receive less favorable terms because of a prohibited characteristic. The CFPB clarified that a prohibited "oral or written statement" refers only to spoken words or visual images and does not include broader business practices like marketing strategy or branch placement. The proposal would also specify that targeted outreach to certain consumers is not inherently discouraging to others and also adopts a "knows or should know" standard for determining when discouragement occurs.
- Restrict SPCPs Offered by For-Profit Entities by prohibiting the use of protected characteristics—such as race, color, national origin, and sex—as eligibility criteria for these programs. For SPCPs based on other permissible prohibited bases, the CFPB would require more robust written plans demonstrating program need, explaining why the target group would not receive credit otherwise, and justifying the use of the characteristic. The proposal would also raise the eligibility threshold and require participant-level evidence showing each applicant would not have obtained credit absent the program.
Comments on the proposal are due on or before December 15, 2025.
Commentary
Elimination of the threat of a disparate impact charge is particularly significant with respect to banks and other credit institutions use of AI. For example, a bank could be found liable if AI made a credit decision that the bank could not explain (often inherent in AI), leading to a disparate impact charge.