CFPB Issues Final Rule Amending its Fair Lending Regulations: A Misfire on Discouragement?
Today, April 21, 2026, the CFPB’s final rule amending Regulation B, which implements the Equal Credit Opportunity Act (ECOA), was on public inspection at the Federal Register. The final rule is expected to be published in the Federal Register tomorrow, on April 22, 2026. ECOA is the only fair lending statute that the CFPB administers, and these changes will substantially change the CFPB’s oversight over fair lending under this current administration. The final rule narrows Regulation B in three important areas: disparate impact, discouragement of prospective applicants (a regulatory provision used for redlining cases in the past), and special purpose credit programs. This final rule follows the CFPB’s November 2025 proposed rule (which I wrote about here). I will briefly summarize the CFPB’s amendments and provide some thoughts below.
I. Disparate Impact
The CFPB’s final rule deletes text in Regulation B’s section 1002.6 and the accompanying official staff commentary (commentary) that indicates that disparate impact liability is applicable under ECOA. The CFPB stated that “the Bureau has examined Regulation B, considered comments, and determined that, under the best reading of the statute, disparate-impact claims are not cognizable under ECOA.” The CFPB cited the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo (which I wrote about here), in which the Court overruled the Chevron doctrine and held that courts cannot defer to agency interpretations of statutes and must interpret statutes themselves. The CFPB noted that the Court in Loper Bright also reiterated that statutes have a “single, best meaning.” The CFPB used this as support for finding that the best reading of ECOA does not support disparate impact liability. The CFPB engaged in a lengthy analysis of case law analyzing whether various anti-discrimination statutes contained disparate impact liability, including citing the Court’s holding in Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc. that found disparate impact liability applies when the statute refers to “consequences of actions” (which case also held that the Fair Housing Act supports disparate impact liability). The CFPB essentially found that ECOA’s statutory language does not contain such effects-based language and thus, does not support disparate impact liability. The CFPB also found that the legislative history of ECOA, which the Federal Reserve Board relied on in originally promulgating the regulatory text supporting disparate impact liability, was insufficient to support disparate impact liability in light of the statutory language.
Significantly, the CFPB also raised concerns about the constitutionality of disparate impact liability. The CFPB stated that, “the Bureau remains concerned that disparate-impact liability raises constitutional concerns to the extent it requires creditors to engage in balancing of race and other constitutionally suspect factors in order to minimize the risk of disparate-impact liability.” The CFPB continued, “disparate-impact liability encourages and, in some cases, may require covered entities to engage in the intentional use of balancing to eliminate disparate outcomes by treating individuals based on constitutionally implicated characteristics (such as race, national origin, or sex) differently from others similarly situated—the exact conduct the Equal Protection Clause forbids.”
There were several industry commenters requesting clarification regarding certain issues that the CFPB declined. A number of commenters requested certain amendments that supported compliance, including language allowing the use of proxies to assess demographic makeup of applicants, and the analysis of demographic impacts for business and community reinvestment purposes, as well as to comply with other disparate impact laws. But the CFPB declined to make such amendments to Regulation B or the commentary, because “the level of guidance that would be required to respond to these concerns would likely be too nuanced and detailed to be appropriate for inclusion in a regulation” and the CFPB does not administer the other laws. In addition, commenters asked for clarification that statistical imbalances alone, or statistically lagging behind peers, would not be sufficient to establish a disparate treatment claim under ECOA (which, unlike disparate impact, requires showing intent to discriminate). But the CFPB declined because “courts are best positioned to render an opinion on whether certain evidence suffices to establish a prima facie case of discrimination.”
The CFPB deleted text referring to disparate impact in the regulation and the commentary. The CFPB added to the regulatory text of section 1002.6(a) the following sentence: The Act does not provide that the “effects test” applies for determining whether there is discrimination in violation of the Act. The CFPB also added comment 6(a)-2, which specifically addresses disparate impact liability, stating that “the Act does not provide for the prohibition of practices that are facially neutral as to prohibited bases, except to the extent that facially neutral criteria function as proxies for protected characteristics designed or applied with the intention of advantaging or disadvantaging individuals based on protected characteristics.” The CFPB also deleted references to disparate impact liability from current comment 2(p)-4, which discusses credit scoring systems.
II. Discouragement
These amendments appeared targeted to address the Acting Director’s concerns with the CFPB’s Townstone Financial lawsuit based on redlining (as a reminder, I represented Townstone Financial throughout the CFPB’s investigation and lawsuit). As background regarding the current law, currently, section 1002.4(b) of Regulation B prohibits creditors from making “any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application.” The commentary expands “oral or written statement” to also include “acts or practices directed at prospective applicants that could discourage a reasonable person, on a prohibited basis, from applying for credit.” In addition, the commentary interprets this term broadly to include “the use of words, symbols, models or other forms of communication in advertising….”
The CFPB finalized its proposed amendments to Regulation B’s discouragement provisions. The CFPB’s preamble to the final rule acknowledged that, ECOA only prohibits discrimination against “applicants” and does not prohibit “discouragement.” The CFPB also acknowledged that the statute defines “applicant” as a “person who applies to a creditor” for credit.” But then the CFPB described how the Federal Reserve Board originally promulgated this regulatory “discouragement” provision that extends to “prospective applicants” based on the “adjustment authority under ECOA section 703(a).” Specifically, ECOA allows the CFPB’s rules to include “adjustments and exceptions for any class of transactions, as in the judgment of the Bureau are necessary or proper to effectuate the purposes of this subchapter, to prevent circumvention or evasion thereof, or to facilitate or substantiate compliance therewith.”
The CFPB then, instead of limiting its regulation to the statutory language as it did for disparate impact (as described above), in agreement with the prior CFPB leadership, asserted that the “discouragement” provision was necessary to prevent evasion of ECOA and noted that the 7th Circuit Court of Appeals held in the Townstone Financial case (I discussed how terrible this decision was on our podcast here)that the provision was authorized by the CFPB’s adjustment authority. It is extremely surprising that the CFPB blessed the legality of this pure regulatory creation of “discouragement” against “prospective applicants” when the statute is clearly limited to “applicants.” The Townstone Financial case was maligned by Acting Director Vought as an abuse of the CFPB’s power. Our arguments in Townstone’s motion to dismiss that the “discouragement” provision’s extension to “prospective applicants” was not supported by the statute won at the district court level. The 7th Circuit’s opinion was clearly not well reasoned (it was only a handful of pages that did not address any of our arguments) and essentially gave the CFPB carte blanche to do whatever it wanted under the statute’s “adjustment authority.” This would appear to be exactly the kind of regulatory overreach of which the current administration would disapprove. Instead, the Acting Director just blessed this overreach. This affirmation of the discouragement provision is short sighted, unwise, and, like the 7th Circuit’s opinion, is not well reasoned. The next Democrat-led CFPB will heavily rely on Acting Director Vought’s stamp of approval on this purely regulatory expansion (which abuses the statutory adjustment authority) when it completely reverses the Acting Director’s narrowing of this provision. Also, in the past, when the CFPB, DOJ, or another agency pursued a redlining claim under this regulatory provision, it also cited the general prohibition against discrimination under ECOA, meaning that this narrowing of the regulatory provision will not prevent similar types of redlining claims by the government. This final rule will only serve to harm future attempts to challenge this unlawful expansion of the CFPB’s jurisdiction under the regulatory “discouragement” provision.
Getting back to the actual amendments, the CFPB revised the discouragement provision in three areas: (1) what constitutes an oral or written statement, (2) encouraging statements to an applicant or prospective applicant, and (3) the standard for showing prohibited discouragement. Significantly, the CFPB confirmed in the final rule that “these revisions continue to prohibit illegal discouragement of applicants and prospective applicants,” but stated that the provisions “no longer exceed that purpose in ways that may impose unnecessary constraints in the marketplace.”
A. Oral or Written Statement.
The CFPB added language to section 1002.4(b) that defines “oral or written statement” as “spoken or written words, or visual images such as symbols, photographs, or videos.” The final rule also amends the commentary to take out the expansionary language that includes “acts or practices” (as described above), and limit the commentary to this new regulatory definition of “oral or written statement.”
The CFPB reasoned that the prior application of this provision to “acts or practices” would cover business practices that “do not reflect the circumvention or evasion of ECOA’s prohibition against discrimination that the discouragement provision was designed to address,” and specifically mentioned business decisions such as where to locate branches, where to advertise, and where to engage with the community. The CFPB stated that “the business practices noted above would not constitute prohibited discouragement even if they had some communicative effect that some consumers could arguably find discouraging.” This reference to the “communicative effect” of such business decisions could help a future Democrat-appointed head of the agency to reverse these changes.
B. Encouraging Statements to Applicants or Prospective Applicants
The CFPB added a sentence to comment 4(b)-1 that states “encouraging statements directed at one group of consumers cannot discourage other consumers who were not the intended recipients of the statements.” The CFPB stated in the preamble that the current regulation “has been interpreted to prohibit the selective encouragement of certain applicants or prospective applicants (for example, geographically targeted advertising) on the basis that such encouragement could discourage applicants or prospective applicants who did not receive it,” but the CFPB determined that this interpretation is “overbroad.”
The CFPB stated that, despite this new amendment, the new rules “do not permit a lender to hang signs that express a discriminatory preference or policy of exclusion.” The CFPB reiterated that “the final rule will allow for targeted outreach and business communications without chilling free speech or expanding discouragement liability but will not allow creditors to disguise statements that indicate a discriminatory preference or policy as permissible encouraging statements.”
The CFPB also removed current comment 4(b)-2, which states that “a creditor may affirmatively solicit or encourage members of traditionally disadvantaged groups to apply for credit, especially groups that might not normally seek credit from that creditor.” The CFPB stated that it was unnecessary and noted that its new commentary regarding encouraging statements to consumers made this current comment duplicative.
C. Standard for Discouragement
The CFPB amended the “discouragement” regulatory provision to narrow the prohibition against discouragement to only include oral or written statements “that the creditor knows or should know would cause a reasonable person to believe that” the creditor would deny or approve on less favorable terms an application on a prohibited basis. In contrast, the current regulatory provision applies to such statements that “would discourage” a reasonable person from “making or pursuing an application.” The CFPB also added commentary to address statements that would not be prohibited. The examples include “statements in support of local law enforcement,” statements recommending consumers investigate a neighborhood’s crime statistics, and statements encouraging consumers to develop their financial literacy.
The CFPB raised concerns that the current language would cover scenarios that “involve potentially controversial statements by creditors” but that “do not involve statements that an objective creditor would know, or should know, would” cause a reasonable person to believe they’d be denied credit or granted less favorable terms. The CFPB reiterated that “a statement is prohibited discouragement only if a creditor ‘knows or should know’ that the statement would” discourage in this manner. The CFPB stated that “statements that are controversial or unpopular are not the type of statements that Congress intended to be prohibited under ECOA.”
III. Special Purpose Credit Programs
As background, ECOA permits “any special purpose credit program offered by a profit-making organization to meet special social needs which meets standards prescribed in regulations by the Bureau.” The current CFPB rules provide that an SPCP can require “all program participants…to share one or more common characteristics (for example, race, national origin, or sex) so long as the program was not established and is not administered with the purpose of evading the requirements of the Act….”
The main change in the final rule for special purpose credit programs (SPCPs) is that the CFPB’s amendments prohibit an SPCP from “us[ing] the race, color, national origin, or sex, or any combination thereof, of the applicant, as a common characteristic or factor in determining eligibility for the program.” The CFPB stated that using such prohibited bases is “beyond what is presently necessary to meet the expressly limited congressional intent for such SPCPs,” and the CFPB “has determined that it is inconsistent with ECOA’s purpose.” The CFPB stated that it is “prescribing standards that permit these SPCPs’ use of religion, marital status, age, or income derived from a public assistance program as eligibility criteria,” but that the “use of race, color, national origin, or sex as eligibility criteria is beyond what is necessary to meet the expressly limited congressional intent for such SPCPs.” The CFPB also stated that “the Bureau finds there is no evidence (submitted by commenters or otherwise) of any credit markets in which consumers ‘would effectively be denied credit’ because of their race, color, national origin, or sex in the absence of SPCPs offered or participated in by for-profit organizations.”
In addition, the CFPB adopted new conditions for SPCPs, in addition to the current conditions. These new conditions require the written plan for an SPCP to:
Explain why, under the organization’s standards of creditworthiness, the class of persons would not receive such credit in the absence of the program; and
When the persons in the class are required to share one or more common characteristics that would otherwise be a prohibited basis, explains why meeting the special social needs addressed by the program:
Necessitates that its participants share the specific common characteristics that would otherwise be a prohibited basis; and
Cannot be accomplished through a program that does not use otherwise prohibited bases as participant eligibility criteria.
In addition, the current regulations allow the SPCP to be established for the purpose of extending credit to persons who “probably” would not receive credit “or would receive it on less favorable terms than are ordinarily available” under the organization’s “customer standards.” But the CFPB’s final rule narrows this provision to only allow programs established to “extend credit to a class of persons who, under the organization’s standards of creditworthiness, would not receive such credit,” requiring that the organization show that the consumer would actually not receive credit under the organization’s actual underwriting standards, rather than a mere probability of not receiving credit or receiving less favorable terms under “customary” standards.
The CFPB also amended the regulatory text regarding SPCPs that require participants to share a common characteristic that would otherwise be a prohibited basis (subject to the new prohibition on using race, color, national origin, or sex) to require the organization to “provide[] evidence for each participant who receives credit through the program that in the absence of the program the participant would not receive such credit as a result of those specific characteristics.”
Regarding these new conditions, the CFPB states that it “thinks it fully appropriate to require any creditor that wishes to circumvent ECOA’s central prohibition to explain why the applicant’s prohibited basis characteristics would make credit otherwise unavailable, including from that creditor, and therefore why it would be necessary for those characteristics to form the basis of an SPCP.”
These changes severely limit the situations in which SPCPs would be supportable, and will also make SPCPs extremely difficult to operationalize.
IV. Effective Date
The final rule becomes effective 90 days after publication in the Federal Register. The rule should be published tomorrow, April 22, 2026, resulting in an effective date of July 21, 2026. Significantly, the CFPB states that this is a prospective rule and that for SPCPs, if the SPCP credit was extended before the effective date, “it must comply with the SPCP rule in place at the time the SPCP was established and SPCP credit was extended.”
If you would like assistance with implementing these amendments, would like to discuss any of the issues in this blog post, or would like to hear me rant some more about the discouragement provision, please email me at rich@garrishorn.com.
