Bank Regulator Stops Hunting for Unintentional Bias Under Trump

A key federal banking regulator is no longer policing markets for statistical evidence of unintentional discrimination as the Trump administration looks to curtail federal enforcement of fair lending laws.

The Office of the Comptroller of the Currency informed examiners and at least one fellow banking regulator last week that it stopped using disparate impact theory as part of fair lending reviews, according to multiple people familiar with the matter who requested anonymity to avoid retaliation.

The change follows an April executive order from President Donald Trump directing agencies to stop relying on the theory, which says facially neutral practices can have systemic discriminatory effects.

The OCC will instead rely solely on disparate treatment as the standard for bringing cases, according to a June 25 internal OCC email obtained by Bloomberg Law. That means examiners will have to find overt acts of discrimination rather than conducting statistical analyses of banks’ loan books.

The OCC previously used both theories in fair lending reviews. The agency declined to comment.

The OCC’s shift comes as other federal agencies, such as the Justice Department and the Consumer Financial Protection Bureau, pull back from anti-redlining efforts.

The DOJ’s Civil Rights Division is also shifting its attention away from traditional anti-discrimination efforts involving racial minorities and focusing instead on what it says is bias against Christians and political conservatives.

Those changes will fundamentally reshape fair lending enforcement in the US, said Jonice Gray, the chair of Paul Hastings LLP’s consumer financial services practice.

“Fair lending supervision and enforcement is going to look very different,” she said.

The pullback also come as Americans grapple with high housing costs that Trump vowed to alleviate during the 2024 campaign.

Allowing fair housing enforcement to go by the wayside would enable lenders and housing providers to avoid Black and Latino communities with less wealth, eliminating a competitive pressure to reduce housing costs.

“The administration’s and OCC’s actions are curious given the escalating fair and affordable housing crisis,” said Maureen Yap, the senior counsel for fair lending at the National Fair Housing Alliance and a former Federal Reserve fair lending official.

‘Deprioritized’ Tool

The US Supreme Court affirmed that the disparate impact theory could be used to target housing discrimination in its 2015 ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project Inc. The ruling allowed federal and state banking regulators, private plaintiffs, and others to use statistical evidence to allege unintentional discrimination.

But Trump in his executive order told agencies to “deprioritize” the enforcement of laws that include disparate impact liability and to reevaluate all pending and completed enforcement actions relying on it.

“Federal agencies cannot pursue any new fair lending supervisory actions arising from examinations or undertake investigations or enforcement actions based on the disparate impact legal theory,” said Lori Sommerfield, a partner in Troutman Pepper Locke LLP’s consumer financial services practice group.

The OCC’s internal email said examiners will no longer use disparate impact theory “in all contexts” and will review how to handle existing “matters requiring attention” citing the theory that were issued to banks.

Fair lending exams are scheduled up to a year in advance, so banks may not have seen a significant shift yet, Sommerfield said.

Other federal banking and housing regulators have or will likely take their own steps to pull back on fair lending enforcement.

“There have been policy shifts that we’ve already seen that indicate this isn’t just limited to disparate impact,” said Michelle Rogers, the chair of Cooley LLP’s financial services enforcement and regulatory group.

In an April memo that predated Trump’s order, for instance, the CFPB said it will no longer focus on redlining in its examinations.

Meanwhile, the Federal Housing Finance Agency is broadly moving away from equitable housing and other fair housing initiatives, and the Department of Housing and Urban Development is eyeing changes that would make it harder to bring housing discrimination lawsuits.

The Fed declined to comment for this story. The Federal Deposit Insurance Corp. didn’t respond to a request for comment.

Law Remains

Banks shouldn’t get overly comfortable with the new paradigm.

Because the Supreme Court has allowed disparate impact to remain a viable legal theory, state attorneys general and financial regulators can still use it to investigate lenders and bring claims.

“They have a powerful tool kit which includes their own fair lending laws as well as certain federal laws,” Gray said of state enforcers.

And private litigation remains an option, said Anneliese Lederer, a senior policy counsel at the Center for Responsible Lending.

Private litigants can do their own product testing to ensure people of all races and genders are getting the same treatment, using public information such as mortgage data collected under the Home Mortgage Disclosure Act to bring their own cases, she said.

Banks and other lenders must also keep in mind that a future president could always order federal agencies to revive disparate impact. The statutes undergirding fair lending enforcement—such as the Fair Housing Act and the Equal Credit Opportunity Act—are still on the books and have years-long lookback periods.

Federal law enforcers and bank regulators can have a greater reach than private and state litigants, particularly when it comes to national banks, Lederer noted.

“There’s nothing to stop the next administration from getting rid of this executive order,” she said.