Why Disparate Impact Still Matters for Financial Institutions

The regulatory landscape for fair lending shifted in a way that many bankers didn’t expect. Through Executive Order 14281, “Restoring Equality of Opportunity and Meritocracy,” the Trump Administration directed federal agencies to eliminate the use of disparate impact liability in their rules, guidance, and enforcement. Within months, agencies responded: the OCC, FDIC, and NCUA each updated their examination manuals and handbooks to remove disparate impact from the scope of fair lending supervision. The CFPB, while not as explicit, announced that it would prioritize cases of clear consumer harm and intentional discrimination, not theories based solely on statistics.

At first glance, this may look like a green light for institutions to stop worrying about disparate impact. After all, if your primary regulator says it’s not going to test your policies for statistical disparities anymore, why put time and resources into monitoring them yourself?

But here’s the catch: disparate impact is still alive in the law. Courts recognize it. State regulators enforce it. And private plaintiffs continue to bring claims under it. Which means that while federal regulators may not be examining for disparate impact during your next compliance exam, your institution could still be on the hook in other venues.

Let’s break down what changed, why it matters, and why a prudent compliance program will continue to watch for disparate impact risk.

Highlights of Executive Order 14281

On March 21, 2025, the White House issued Executive Order 14281. The order directs all federal agencies to eliminate “disparate impact liability” from rules, guidance, and enforcement. The rationale: federal policy should focus on intentional discrimination (disparate treatment), not statistical disparities that may arise from neutral practices.

This EO was part of a broader effort to roll back civil rights interpretations that extended protection beyond intentional bias. In banking, that primarily affects how agencies enforce the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). Both statutes have historically been enforced under two theories:

• Disparate treatment: treating applicants differently because of a prohibited basis such as race, sex, or age.
• Disparate impact: a neutral policy disproportionately harms a protected group, even without intent to discriminate.

Executive Order 14281 tells agencies to set aside the second theory.

How regulators responded

In July 2025, the Office of the Comptroller of the Currency revised its Comptroller’s Handbook for Fair Lending. The new bulletin instructed examiners to evaluate only disparate treatment—not disparate impact. References to statistical testing and neutral policies with disproportionate effects were removed.

On August 29, 2025, the FDIC followed suit, issuing a Financial Institution Letter that stripped disparate impact from its Consumer Compliance Examination Manual. Examiners are now directed to focus exclusively on evidence of disparate treatment in ECOA and FHA reviews.

In September 2025, the National Credit Union Administration announced similar changes. Its Fair Lending Guide and related supervisory materials no longer reference disparate impact. Like the OCC and FDIC, the NCUA told examiners not to review or follow up on disparate impact risk.

The Consumer Financial Protection Bureau has been less formal in its changes, but no less significant. Throughout 2025, the CFPB publicly emphasized that it would focus on intentional discrimination and direct consumer harm and would avoid cases “based solely on statistical evidence or novel legal theories.” While the Bureau has not yet issued a manual revision, the direction is clear: disparate impact is not at the top of its supervisory or enforcement agenda.

What hasn’t changed: The law

Here’s the important part: none of these regulatory changes repealed ECOA or FHA. And both statutes are still interpreted by courts as allowing disparate impact claims.

The Supreme Court’s 2015 decision in Texas Department of Housing v. Inclusive Communities Project affirmed that disparate impact is a valid theory under the FHA. Similarly, multiple federal courts have recognized disparate impact liability under ECOA. That precedent hasn’t been overturned.

While your examiner may no longer bring up disparate impact, a plaintiff’s attorney or a state regulator certainly could. In fact, state enforcement actions have continued even as federal regulators step back. For example, in July 2025, the Massachusetts Attorney General announced a settlement with a lender over alleged disparate outcomes tied to artificial intelligence underwriting models. That case was brought under state unfair and deceptive acts and practices (UDAP) law, not federal supervision.

Why financial institutions should still care

With the background in place, here are four key reasons your institution should continue to evaluate disparate impact, even if federal regulators aren’t looking for it during exams.

1. Litigation Risk: Private plaintiffs can and do bring disparate impact claims in federal court. If a lender’s policies create statistical disparities in approval rates, loan terms, or pricing for protected groups, that data could form the basis for a lawsuit. Defending such a claim is costly, and reputational damage can linger even if the institution ultimately prevails.

2. State Enforcement: Many state regulators have their own fair lending statutes or UDAP laws. Some, like Massachusetts and New York, are especially active in this space. Even if federal examiners are no longer probing for disparate impact, state attorneys general may still pursue it.

3. Reputation and ESG Expectations: Fair lending risk isn’t just about regulatory penalties. Investors, community groups, and the public increasingly expect lenders to demonstrate equitable access to credit. Ignoring disparate impact could expose an institution to reputational harm or criticism from stakeholders who view statistical disparities as evidence of unfairness, even if regulators do not.

4. Future Regulatory Shifts: Regulatory priorities change with administrations. While disparate impact has been de-emphasized in 2025, a future administration could restore it. Institutions that stop monitoring disparities now may find themselves playing catch-up if the pendulum swings back.

Practical steps to manage the risk

What does “continuing to consider disparate impact” look like in practice? Here are a few pragmatic strategies:

• Monitor lending data: Continue running statistical analyses on loan approvals, pricing, and terms across prohibited bases. Even if not required for exams, it’s valuable intelligence for your own risk management.
• Evaluate business justifications: For policies that may have disproportionate effects like minimum loan amounts, credit score cutoffs, or specific marketing channels, document the legitimate business need and explore whether less discriminatory alternatives exist.
• Strengthen governance around AI and models: Automated decision-making systems can unintentionally create disparities. Implement governance frameworks to test for fairness and document oversight.
• Train staff: Ensure lending and compliance staff understand the difference between disparate treatment and disparate impact, and why both matter, even in today’s regulatory climate.
• Engage the board and management: Present fair lending risk holistically, not just as a regulatory exam issue. Highlight litigation, state enforcement, and reputational considerations.

The bottom line

Executive Order 14281 and the subsequent actions by the OCC, FDIC, NCUA, and CFPB represent a significant shift in federal supervision. For the first time in decades, examiners will not be probing institutions’ lending policies for disparate impact.

But that doesn’t mean the theory has disappeared. The courts still recognize it. States still enforce it. Plaintiffs’ attorneys still bring it. And communities still care about it.

Financial institutions that treat this as an invitation to ignore statistical disparities may reduce their exam preparation burden in the short run, but they expose themselves to long-term legal, reputational, and strategic risk. Those that continue to monitor and manage disparate impact, even if not federally required, will be better positioned to weather litigation, satisfy stakeholders, and demonstrate genuine commitment to fair and equitable lending.

In other words: just because the regulators aren’t looking for it doesn’t mean you shouldn’t.