What’s Changing in Fair Lending, and What Isn’t?

If you were to ask a member of the Board of Directors or executive management of a financial institution about what compliance regulations are important (based on risk, enforcement actions, and annual training) they’d likely mention the Bank Secrecy Act, Fair Lending, Regulation O, GLBA, and a handful of other regulations. One of these topics, namely Fair Lending, has changed in a meaningful way at the federal level due to a CFBP rule issued on 4/22/2026 that is effective 7/21/2026.

Background

For years compliance professionals have provided training to the Board, executive management, and others on the key elements of Fair Lending including Regulation B (ECOA), Regulation C (HMDA), and the Fair Housing Act (FHA), highlighting the fact that Fair lending laws are key to upholding equality and preventing discrimination in lending practices. They help ensure that all individuals, regardless of their background, have access to credit and housing opportunities. Violations of these laws have led to enforcement actions and large penalties for lenders. Regulation B (ECOA) is by far the most significant of the Fair Lending regulations. Enacted in 1974, the ECOA prohibits discrimination in any aspect of credit transactions, including the initial application, evaluation process, and the final credit decision, based on the protected characteristics of race, color, religion, national origin, sex, marital status, age, or the receipt of public assistance. This law ensures that all individuals have equal access to credit and that lenders cannot treat applicants differently or discourage an application based on these characteristics.

What Changed

On 4/22/2026, the CFPB issued a final rule that amends provisions related to disparate impact, discouragement of applicants or prospective applicants, and special purpose credit programs under Regulation B, the regulation implementing the Equal Credit Opportunity Act (ECOA). The first two provisions, disparate impact and discouragement, are the most pertinent to banks and credit unions, and will be discussed below. The April 22, 2026 rule finalizes the proposed rule from November 13, 2025 as it was written without meaningful changes. The first two provisions, disparate impact and discouragement, are the most pertinent to banks and credit unions, and will be discussed below.

• Disparate impact: Going forward, ECOA will not authorize disparate-impact liability. This means lenders cannot be held liable solely because neutral policies produce statistically different outcomes among protected classes.
• Discouragement:  Going forward, the ‘discouraging applicants or prospective applicants’ will be based on statements of intent to discriminate, and will not triggered by negative consumer impressions. Moreover, directing encouraging statements at one group of consumers is not considered prohibited discouragement as to applicants or prospective applicants who were not in that group.

The Path Forward for Institutions

The above two changes are significant enough to require a reassessment of Fair Lending risks by all lenders, but specifically by banks and credit unions. Note, though, that many states have their own Fair Lending laws and regulations that have not changed and enforcement actions regarding Disparate Impact and Discouragement may still be brought at the state level. There is also the threat of private legal action, which we discuss in the paragraph below. Therefore, we’re providing the following advice to institutions in terms of how to move forward:

• Risk Assessment, Policies/Procedures, and Training: Fair Lending risk assessments going forward will likely need to describe and assess federal risk separate from state risk, and policies/procedures and training that support Fair Lending might not change significantly, other than to call out the federal changes in the CFPB’s final rule.
• Statistical Analysis: It might not be a good idea for banks and credit unions to forego statistical analysis as management should still remain aware of the impact of policies/procedures on all applicants and borrowers.
• Relax Now/Lookback Later: The industry is expecting the CFPB’s final rule to be challenged and litigated, and that the rule could be found to be invalid. This raises risk that a bank, credit union, or other lender could change policies, procedures, and processes, only to have to look back on transactions during that period and make customers whole based on prior requirements.
• Don’t Forget About UDAAP: UDAAP has long been regarded as the ‘catch-all’ to fair banking practices of all kinds. There’s risk that transactions made under the CFPB’s new rule could somehow be deemed unfair, deceptive, or abusive.

Potential Legal Action and Resulting Risk

Chief Risk Officers might assume that the industry has experienced a reduction in litigation risk due to the narrowing of federal enforcement, the reality might be quite the opposite.

The CFPB’s new rule might actually spark private action lawsuits and the dreaded class action.  With a private lawsuit in state courts under state fair lending requirements, an institution’s statistical information, advertisements, and communications can still be used to show discrimination, the intent to discriminate, or redlining.  

We’ve heard it said in the industry many times that a federal enforcement action is the least of an institution’s worries when compared to a private action lawsuit. The industry shouldn’t rejoice too much at the CFPB’s final rule.  Refer to our path-forward advice above, and proceed carefully through the next few months.

The subject matter experts at eDelta Consulting can support all litigation pertaining to statistical soundness and model performance as expert witnesses. For more information, contact Jon Bosco at JBosco@edeltaconsulting.com