Trump’s CFPB Proposes Gutting Fair Lending Enforcement Standards

The Consumer Financial Protection Bureau is proposing to weaken fair lending laws by eliminating efforts to combat unintentional bias and tightening standards for going after lenders that discourage certain borrowers from seeking loans.

The CFPB’s proposal, set to be published in the Federal Register Thursday, would also bar companies from using race, gender, national origin, or other protected classes when designing “special purpose credit programs” to boost lending.

The proposal comes as the Trump administration has moved to dial back fair lending enforcement across the federal government. President Donald Trump signed an executive order in April barring agencies’ use of disparate impact—a type of review targeting facially neutral practices that can have systemic discriminatory effects.

The Justice Department and federal labor regulators were specifically ordered to stop using disparate impact in Trump’s order. The Office of the Comptroller of the Currency told examiners to stop using the tool in June.

The Trump administration’s proposal is a “radical departure from the way even Republican administrations have looked at fair lending issues,” said Brad Lipton, the director of the corporate power and financial regulation program at the Roosevelt Institute, a progressive think tank, and a former top CFPB official.

Because the CFPB under acting Director Russell Vought has already stopped nearly all enforcement and supervisory activities, the proposal would make private lending discrimination lawsuits and even cases from state attorneys general potentially more difficult, he said.

“It seems like its intent is to severely limit that as well,” Lipton said.

Disparate Impact

Disparate impact has been a critical tool for targeting redlining in the mortgage market and discriminatory lending practices in other markets.

But the CFPB said in its proposal that the theory, which the US Supreme Court upheld in its 2015 opinion in Texas Department of Housing & Community Affairs v. The Inclusive Communities Project, Inc., can have a chilling effect on lenders.

“Under a regime with disparate-impact liability, 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 CFPB’s proposal said.

The CFPB said the Supreme Court’s decision was limited to the use of disparate impact under the Fair Housing Act. The Equal Credit Opportunity Act, enacted in 1974, doesn’t have the same language allowing disparate impact claims, the proposal said.

Discouraging Borrowers

The CFPB is also proposing to tighten the definition of what constitutes “discouragement” under fair lending laws.

Under the proposal, only language that explicitly says a lender won’t provide credit to specific racial, gender, or ethnic groups, among others, will be considered discouragement under the ECOA.

The CFPB in the past has brought cases alleging that lenders engaged in improper discouragement by declining to advertise in publications read by communities of color or other protected classes.

The agency in its proposal also said that advertising or other language encouraging specific groups to apply for loans would no longer be considered discouraging to others.

During the first Trump administration, the CFPB sued a Chicago-area mortgage lender, Townstone Financial Inc., for fair lending violations, including claims that the company and its co-founder discouraged borrowers through racist statements about Black neighborhoods on radio shows and podcasts as well as advertising patterns. The CFPB under Vought sought to overturn court rulings against the lender and even to return a $105,000 settlement, arguing that the agency had failed to consider the defendants’ First Amendment rights.

A federal judge blocked that effort in June, but the fair lending rule rewrite appears to address concerns raised by Vought’s CFPB in the case.

“It does seem like a radical attempt to relitigate what a panel of Republican judges decided in the Townstone matter,” Lipton said, referring to a previous decision by the US Court of Appeals for the Seventh Circuit overturning a lower court ruling that dismissed the CFPB’s case.

Another prong of the CFPB’s proposal would bar for-profit lenders from targeting specific ethnic or racial groups, among other protected classes of people, in special purpose credit programs aimed at boosting credit availability. Several large banks have deployed such programs to great success, but those efforts may be at risk should the CFPB proposal go final, Lipton said.

The CFPB’s proposal comes as the agency has said in court that its funding from the Federal Reserve is illegal and that it expects its cash reserves to run out by early 2026.

Comments on the CFPB’s proposal are due 30 days after publication in the Federal Register, so it’s unclear whether the agency will have the cash on hand to finish the regulation. Typically, comment periods on significant rules can last around 60 days.