You may have heard of President Trump’s Executive Order, “Restoring Equality of Opportunity and Meritocracy”, which has been publicized as ending disparate impact liability. Specifically, it stated that it…is the policy of the United States to eliminate the use of disparate-impact liability in all contexts to the maximum degree possible…. While that may signal relief for many financial institutions, we’re not sure it’s quite as easy as it seems.
The Order highlights the principle that equal opportunity does not guarantee equal outcomes and looks to end any presumption of illegal discrimination based upon different outcomes. In an April 16, 2025, internal memo to CFPB staff, Chief Legal Officer Mark Paoletta, seemingly reinforced this sentiment:
The Bureau will not engage in redlining or bias assessment supervisions or enforcement based solely on statistical evidence and/or stray remarks that may be susceptible to adverse inferences. The Bureau will pursue only matters with proven actual intentional racial discrimination and actual identified victims. Such matters shall be brought to the leadership's attention and maximum penalties will be sought.
The risk of disparate impact undoubtedly causes many challenges for financial institutions and forces them to look at the potential impacts of a new product offering, a change in business practices, loan policy changes, etc. and consider whether they will have the same effect on everyone. That can be pretty tough to do in some cases and virtually impossible in others. So, while the thought of doing away with any risk of disparate impact would be welcomed, we just don’t believe that disparate impact risks can be eliminated altogether.
Jerod gave some additional insight into the state of fair lending during our May Monthly Connection.
2025/06/05