Author: James M. Moore, CRCM
Disparate impact occurs when a lending policy or practice that appears neutral on its face has a disproportionately negative effect on a protected class (such as race, national origin, sex, age, etc.) even if there is no intent to discriminate. In practice, the rule results in significantly fewer approvals, worse pricing, or higher denial rates for a protected group. For disparate impact, regulators or courts don’t have to prove the lender meant to discriminate. The effect itself can be enough.
Examination teams from the OCC, FDIC, and NCUA have included procedures for testing for disparate impact in their examination manuals for years. This is changing. In April 2025, President Trump signed Executive Order 14281, titled “Restoring Equality of Opportunity and Meritocracy.” The order states that disparate-impact liability is “unlawful” and directs federal agencies, including the DOJ, to deprioritize enforcement of any statutes or regulations that rely on disparate impact theory. It also revoked prior regulatory approvals that supported such liability under Title VI of the Civil Rights Act.
The Trump Administration has stated they believe disparate impact theory is illegal. The Supreme Court has not. The Executive Branch of the government has the ability and the right to direct their time and resources as they should. This appears to be simply an enforcement rollback as no laws have been changed. The legal foundation for disparate-impact liability established by Supreme Court precedent (e.g., Griggs v. Duke Power Co., 1971) and reinforced in Texas Dept. of Housing v. Inclusive Communities (2015) remains intact. A new administration can reverse course at any time.
Use caution if you make changes to your fair lending programs. It may not be prudent for a Financial Institution to remove disparate impact theory and associated risks from their fair lending programs at this time. This may only be a temporary reprieve during the current exam cycle.
Disparate impact occurs when a lending policy or practice that appears neutral on its face has a disproportionately negative effect on a protected class (such as race, national origin, sex, age, etc.) even if there is no intent to discriminate. In practice, the rule results in significantly fewer approvals, worse pricing, or higher denial rates for a protected group. For disparate impact, regulators or courts don’t have to prove the lender meant to discriminate. The effect itself can be enough.
Examination teams from the OCC, FDIC, and NCUA have included procedures for testing for disparate impact in their examination manuals for years. This is changing. In April 2025, President Trump signed Executive Order 14281, titled “Restoring Equality of Opportunity and Meritocracy.” The order states that disparate-impact liability is “unlawful” and directs federal agencies, including the DOJ, to deprioritize enforcement of any statutes or regulations that rely on disparate impact theory. It also revoked prior regulatory approvals that supported such liability under Title VI of the Civil Rights Act.
The Trump Administration has stated they believe disparate impact theory is illegal. The Supreme Court has not. The Executive Branch of the government has the ability and the right to direct their time and resources as they should. This appears to be simply an enforcement rollback as no laws have been changed. The legal foundation for disparate-impact liability established by Supreme Court precedent (e.g., Griggs v. Duke Power Co., 1971) and reinforced in Texas Dept. of Housing v. Inclusive Communities (2015) remains intact. A new administration can reverse course at any time.
Use caution if you make changes to your fair lending programs. It may not be prudent for a Financial Institution to remove disparate impact theory and associated risks from their fair lending programs at this time. This may only be a temporary reprieve during the current exam cycle.
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