WASHINGTON — At the same time it has eliminated its Credit Union Advisory Council and other councils, the Consumer Financial Protection Bureau will hold a meeting of its Consumer Advisory Board in the coming week to review and seek feedback on a sweeping effort to roll back anti-discrimination safeguards that have governed credit and lending practices for decades.
The agenda, as reported by Reuters, shows the session will include discussion of a recent rule proposal that would narrow the scope of the Equal Credit Opportunity Act (ECOA), eliminate “disparate impact” liability and place new limits on so-called Special Purpose Credit Programs. Those programs currently permit lenders to offer targeted credit to underserved communities as a remedy for historical inequities.
What’s Being Proposed
Under the proposal, lenders would no longer be held liable if neutral lending policies result in disproportionate harm to protected groups, according to Reuters.
The CFPB also plans to narrow the definition of prohibited “discouragement” — which now covers practices that might deter loan applications from certain demographics — so that only explicit statements or marketing materials would count as potential violations, according to Spencer Fane.
The advisory board meeting will feature several notable participants — including representatives from a mortgage firm that settled with the CFPB last year over alleged racial discrimination and executives from a buy-now, pay-later company that specializes in firearm-related purchases, Reuters reported.
‘Significant Departure’
The Center for Responsible Lending noted the changes mark a significant departure from previous enforcement norms. Disparate-impact standards have long underpinned regulators’ efforts to root out redlining and unintentional bias in lending, even where no overt discrimination was proven. Critics — including civil-rights organizations and fair-lending advocates — warn that removing this tool will make systemic discrimination harder to detect and challenge.
In addition to scaling back disparate-impact liability, the proposal would impose stricter requirements on offering and administering Special Purpose Credit Programs, including eliminating race, national origin, color and sex as permissible criteria for program eligibility. The CFPB also suggests restricting other eligibility criteria — such as religion, marital status, age or low income — and requiring lenders to justify program eligibility and show that credit would otherwise be unavailable to borrowers outside the program.
Potential Implications
Analysts have said that as the advisory panel prepares to meet, the broader financial community and consumer advocates are watching closely. Changes to ECOA could reshape access to credit across the country — especially for historically underserved communities — and could prompt a wave of legal and regulatory challenges if finalized.
