Equal Credit Opportunity Act (Regulation B)

Federal RegisterApr 22, 2026

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CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Part 1002

[Docket No. CFPB-2025-0039]

RIN 3170-AB54

Equal Credit Opportunity Act (Regulation B)

AGENCY:

Consumer Financial Protection Bureau.

ACTION:

Final rule.

SUMMARY:

The Consumer Financial Protection Bureau (Bureau or CFPB) is issuing a final rule that amends provisions related to disparate impact, discouragement of applicants or prospective applicants, and special purpose credit programs under Regulation B, the regulation implementing the Equal Credit Opportunity Act (ECOA or Act). The amendments facilitate compliance with ECOA by clarifying the obligations imposed by the statute.

DATES:

This final rule is effective July 21, 2026.

FOR FURTHER INFORMATION CONTACT:

Dave Gettler, Paralegal Specialist, Office of Regulations, at 202-435-7700 or

https://reginquiries.consumerfinance.gov/.

If you require this document in an alternative electronic format, please contact

CFPB_Accessibility@cfpb.gov.

SUPPLEMENTARY INFORMATION:

I. Summary

Pursuant to its authority under ECOA, 15 U.S.C. 1691b(a), and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), 12 U.S.C. 5512(b), the Bureau is amending provisions in Regulation B, 12 CFR part 1002, pertaining to: whether disparate impact is cognizable under the Act; under what circumstances a creditor may be deemed to be discouraging an applicant or prospective applicant; and under what conditions a creditor may offer special purpose credit programs (SPCPs).

In 2020, the Bureau issued a Request for Information on ECOA and Regulation B (RFI).

The RFI solicited information about disparate impact, prospective applicants, and SPCPs, among other topics. The Bureau reviewed the comments submitted in response to the RFI and obtained other information in the course of carrying out its statutory responsibilities. In November 2025, the Bureau issued a notice of proposed rulemaking amending Regulation B (proposal or proposed rule). The Bureau has considered the comments submitted in response to the proposed rule.

85 FR 46600 (Aug. 3, 2020).

90 FR 50901 (Nov. 13, 2025). Corrections to the proposed amendatory text to conform with the public inspection copy were published at 91 FR 9191 (Feb. 25, 2026).

The Bureau now finalizes the rule as proposed. The Bureau's final rule provides that ECOA does not authorize disparate-impact liability (effects test), further defines discouragement, and adds prohibitions and conditions for SPCPs.

II. Background

A. Introduction

Congress enacted ECOA in 1974 (1974 Act)

“to insure that the various financial institutions and other firms engaged in the extensions of credit exercise their responsibility to make credit available with fairness, impartiality, and without discrimination on the basis of sex or marital status.” To that end, section 701(a) of ECOA made it “unlawful for any creditor to discriminate against any applicant on the basis of sex or marital status with respect to any aspect of a credit transaction.” The Board of Governors of the Federal Reserve System (Board) promulgated regulations implementing ECOA. In 1976, Congress reenacted ECOA in its entirety, amending ECOA to add additional categories of prohibited discrimination (1976 Act).

Since 1976, ECOA makes it unlawful for

Public Law 90-321, tit. VII,

as added by

Public Law 93-495, tit. V, sec. 502, 88 Stat. 1521 (15 U.S.C. 1691

et seq.

Equal Credit Opportunity Act Amendments of 1976, Public Law 94-239, 90 Stat. 251.

any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) because all or part of the applicant's income derives from any public assistance program; or (3) because the applicant has in good faith exercised any right under [the Consumer Credit Protection Act] (prohibited basis).

15 U.S.C. 1691(a).

The Board, which at the time had exclusive rulemaking authority under ECOA, promulgated regulations, after notice-and-comment, to implement the 1976 Act.

In 2011, the Dodd-Frank Act transferred responsibility for ECOA from the Board to the Bureau.

It granted primary authority to the Bureau to supervise and enforce compliance with ECOA and Regulation B for entities within the Bureau's jurisdiction and to issue regulations and guidance to implement and interpret ECOA.

On December 21, 2011, the Bureau established a new Regulation B, 12 CFR part 1002, that substantially duplicated the Board's Regulation B, 12 CFR part 202, making only certain non-substantive, technical, formatting, and stylistic changes.

Under the Dodd-Frank Act, it is the Bureau's responsibility to ensure that outdated, unnecessary, or unduly burdensome regulations over which the Bureau has authority are regularly identified and addressed,

and to correctly interpret ECOA.

Public Law 111-203, 124 Stat. 1376 (2010).

Dodd-Frank Act section 1029 generally excludes from this transfer of authority, subject to certain exceptions, any rulemaking authority over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.

76 FR 79442 (Dec. 21, 2011).

12 U.S.C. 5511(b)(3).

In 2020, the Bureau published an RFI seeking comments and information to identify opportunities to prevent credit discrimination, encourage responsible innovation, promote fair, equitable, and non-discriminatory access to credit, address potential regulatory uncertainty, and develop viable solutions to regulatory compliance challenges under ECOA and Regulation B.

The RFI requested information related to disparate impact, prospective applicants, and SPCPs, among other issues. In response to the RFI, the Bureau received and reviewed over 35 comment letters. In addition, the Bureau has obtained pertinent information in the course of carrying out its supervisory and enforcement responsibilities.

85 FR 46600.

In 2025, the President issued several Executive Orders (E.O.s) relevant to the Bureau's administration of ECOA. E.O. 14173, entitled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” states in part that “[t]he Federal Government is charged with enforcing our civil-rights laws. The purpose of this order is to ensure that it does so by ending illegal preferences and discrimination.”

E.O. 14281, entitled “Restoring Equality of Opportunity and Meritocracy,” states in part that “[i]t is the policy of the United States to eliminate the use of disparate-impact liability in all contexts to the maximum degree possible to avoid violating the Constitution, Federal civil rights laws, and basic American ideals.”

90 FR 8633 (Jan. 31, 2025).

90 FR 17537 (Apr. 28, 2025).

On November 13, 2025, the Bureau issued a proposed rule that would amend Regulation B. The proposed rule:

(1) provided that ECOA does not authorize disparate-impact claims; (2) proposed to amend the prohibition on discouraging applicants or prospective applicants to clarify that it prohibits statements of intent to discriminate in violation of ECOA and is not triggered merely by negative consumer impressions, and to clarify that encouraging statements by creditors directed at one group of consumers is not prohibited discouragement as to applicants or prospective applicants who were not the intended recipients of the statements; and (3) proposed to amend the standards for SPCPs offered or participated in by for-profit organizations to include new standards and related conditions.

The Bureau received approximately 64,500 comments on the proposed rule. A majority of those comments were from individual commenters, including consumers and individuals commenting from their personal and professional experience. The Bureau also received many comments from consumer advocate commenters, industry commenters, policy group commenters, State Attorneys General commenters, and Members of Congress. All comments are available on the public docket for this rulemaking.

Relevant information received via comment letters is discussed below in subsequent parts of this document, as applicable.

See https://www.regulations.gov/docket/CFPB-2025-0039/comments.

Consistent with the above discussed actions and after consideration of the comments, the Bureau is finalizing the rule as proposed. This final rule will take effect 90 days after publication in the

Federal Register

B. Disparate Impact

Griggs

Duke Power Co.

and subsequent cases, the Supreme Court held that certain provisions in antidiscrimination statutes may authorize disparate-impact claims. Under a disparate-impact claim, a plaintiff may challenge as unlawful discrimination facially neutral policies that have a disproportionate effect along prohibited basis lines. The Supreme Court has noted that “[i]n contrast to a disparate-treatment case, . . . a plaintiff bringing a disparate-impact claim challenges practices that have a disproportionately adverse effect on minorities and are otherwise unjustified by a legitimate rationale.”

401 U.S. 424 (1971).

Texas Dep't of Hous. & Cmty. Affairs

Inclusive Cmtys. Project, Inc.,

576 U.S. 519, 524 (2015).

Griggs,

the Supreme Court held that disparate-impact claims are cognizable under section 703(a)(2) of title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment practices. In

Smith

City of Jackson,

a plurality of the Supreme Court held that the Age Discrimination in Employment Act (ADEA) authorizes disparate-impact claims. Most recently, in

Texas Department of Housing & Community Affairs

Inclusive Communities Project, Inc.,

the Supreme Court held that disparate-impact claims are cognizable under the Fair Housing Act (FHA). However, the Supreme Court has not held that disparate-impact claims are necessarily available under all antidiscrimination statutes. Instead, the Court has reviewed each statutory provision, when challenged, to determine whether it authorizes disparate-impact claims, whether disparate-impact claims are consonant with the intended operation of the statute, and in particular whether the statutory provisions have “effects-based” language that indicates that Congress intended for the statutory provision to permit disparate-impact claims.

544 U.S. 228 (2005) (plurality op.).

576 U.S. 519.

The Supreme Court has not examined whether a disparate-impact claim is permitted under ECOA. As noted above, section 701(a) of ECOA, as enacted in 1974, made it “unlawful for any creditor to discriminate against any applicant on the basis of sex or marital status with respect to any aspect of a credit transaction.” In the 1976 Act, ECOA makes it unlawful for “any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) because all or part of the applicant's income derives from any public assistance program; or (3) because the applicant has in good faith exercised any right under [the Consumer Credit Protection Act].”

15 U.S.C. 1691(a).

The text of ECOA does not state that disparate-impact claims are cognizable under ECOA, nor does it contain effects-based language of the type that has been found in other statutes to invoke disparate-impact liability. However, in promulgating Regulation B, the Board relied on legislative history to support authorizing disparate-impact liability. For example, the Senate Report accompanying the 1976 Act stated:

In determining the existence of discrimination on these grounds, as well as on the other grounds discussed below, courts or agencies are free to look at the effects of a creditor's practices as well as the creditor's motives or conduct in individual transactions. Thus judicial constructions of anti-discrimination legislation in the employment field, in cases such as

Griggs

. . . and

Albemarle Paper Company

Moody,

are intended to serve as guides in the application of this Act, especially with respect to the allocations of burdens of proof.

S. Rep. No. 94-589, at 4-5 (1976).

A House Report similarly provides evidence that ECOA authorizes disparate-impact claims.

H. Rep. No. 94-210, at 5 (1975).

The Board's regulations to implement the 1976 Act explicitly and solely relied on this legislative history to conclude that Congress intended for ECOA to permit an “effects test concept,”

i.e.,

disparate-impact proof of liability.

Although there have been minor amendments to the relevant language in Regulation B since 1977, Regulation B has continued to point to the legislative history of ECOA to support the conclusion that disparate-impact claims are cognizable under ECOA.

42 FR 1242, 1255 n.7 (Jan. 6, 1977) (“The legislative history of the Act indicates that the Congress intended an “effects test” concept, as outlined in the employment field by the Supreme Court in the cases of

Griggs,

401 U.S. 424, and

Albemarle Paper Co.,

422 U.S. 405, to be applicable to a creditor's determination of creditworthiness.”). This footnote was later moved to the text of § 1002.6 when the Bureau republished Regulation B after responsibility for the rule was transferred from the Board to the Bureau.

See

76 FR 79442.

See, e.g.,

50 FR 48018, 48050 (Nov. 20, 1985) (adopting official staff commentary, including comment 6(a)-2, which explains that the “effects test” is a “judicial doctrine” that Congress intended to “apply to the credit area”).

Current Rule

Regulation B provides in § 1002.6 that the legislative history of ECOA indicates that the Congress intended an “effects test” concept, as outlined in the employment field by the Supreme Court in the cases of

Griggs,

401 U.S. 424, and

Albemarle Paper Co.,

422 U.S. 405, to be applicable to a creditor's determination of creditworthiness. Current comment 6(a)-2 explains the “effects test,” cited to the legislative history of ECOA, and provides an example. Current comment 2(p)-4, which relates to the definition of “empirically derived and other credit scoring systems,” refers to the “effects test,” noting that neutral factors used in credit scoring systems could nonetheless be subject to challenge under the effects test and cross-referencing comment 6(a)-2.

Part III.B below discusses the ways in which this final rule changes the current rule regarding disparate impact.

C. Discouragement

Regulation B § 1002.4(b) provides that, “[a] creditor shall not make 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 to § 1002.4(b) provides additional details about conduct prohibited or permitted under the provision.

Regulation B § 1002.2(z) defines “prohibited basis” as “race, color, religion, national origin, sex, marital status, or age (provided that the applicant has the capacity to enter into a binding contract); the fact that all or part of the applicant's income derives from any public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act or any state law upon which an exemption has been granted by the Bureau.”

The Board adopted § 202.4(a), a precursor to current § 1002.4(b), in its 1975 final rule implementing the 1974 Act.

The 1974 Act did not specifically mention discouragement of applicants or prospective applicants. To adopt the provision, the Board thus relied on its authority under ECOA section 703(a)—authority that the Dodd-Frank Act subsequently transferred to the Bureau—to make adjustments in Regulation B that, in its judgment, were necessary or proper to effectuate ECOA's purposes.

Specifically, ECOA section 703(a) provides that the Bureau (previously the Board) “shall prescribe regulations to carry out the purposes of [ECOA],” and that such regulations:

40 FR 49298 (Oct. 22, 1975). In 1977, the Board moved this provision, with minimal changes, to § 202.5(a).

See

42 FR 1242. In 2003, the Board moved this provision to § 202.4(b).

See

68 FR 13144.

15 U.S.C. 1691b(a). For ease of reference, the Bureau refers to this authority herein as “adjustment” authority.

[M]ay contain but are not limited to such classifications, differentiation, or other provision, and may provide for such adjustments and exceptions for any class of transactions, as in the judgment of the Bureau are necessary or proper to effectuate the purposes of [ECOA], to prevent circumvention or evasion thereof, or to facilitate or substantiate compliance therewith.

15 U.S.C. 1691b.

In its rulemaking, the Board stated that it believed that a prohibition against discouragement was “necessary to protect applicants against discriminatory acts occurring before an application is initiated.”

40 FR 49298 at 49299.

In 1975, ECOA prohibited discrimination based only on sex or marital status, and the discouragement prohibition as initially adopted was limited accordingly. In 1977, consistent with the 1976 Act that expanded ECOA to prohibit discrimination based on protected characteristics beyond sex or marital status, the Board revised the discouragement provision to its current phrasing, prohibiting discouragement “on a prohibited basis.”

The Board later added commentary providing examples of prohibited conduct.

In 1991, Congress amended ECOA to require enforcing regulatory agencies to refer to the Department of Justice (DOJ) cases that the agencies believed involved a pattern or practice of one or more creditors

discouraging

or denying applications for credit in violation of ECOA section 701(a).

42 FR 1242.

50 FR 48018.

15 U.S.C. 1691e(g) (emphasis added).

In 2011, the Bureau republished Regulation B's discouragement provision without material change in what is now § 1002.4(b) and the commentary thereto. In 2024, the U.S. Court of Appeals for the Seventh Circuit held that Regulation B's prohibition against discouragement is consistent with the plain text of the ECOA. In so holding, the court observed that the discouragement provision had been adopted pursuant to the Board's (now the Bureau's) broad authority to “prescribe regulations to carry out the purposes of [ECOA],” and to “provide for such adjustments and exceptions” that, in the Bureau's judgment, “are necessary or proper to effectuate the purposes of [ECOA], to prevent circumvention or evasion thereof, or to facilitate or substantiate compliance therewith.”

Consumer Fin. Prot. Bureau

Townstone Fin., Inc.,

107 F.4th 768, 774, 777 (7th Cir. 2024).

Part III.C below discusses the ways in which this final rule changes the current rule regarding discouragement.

D. Special Purpose Credit Programs

As noted above, ECOA prohibits a creditor from discriminating on a prohibited basis regarding any aspect of a credit transaction. At the same time, ECOA section 701(c)(3) (15 U.S.C. 1691(c)(3)) states that it does not constitute discrimination under the Act for a creditor “to refuse to extend credit offered pursuant to . . . 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].”

See

Public Law 94-239, sec. 701(c)(3), 90 Stat. 251, 251 (1976).

The intent of ECOA section 701(c)(3), as reflected in the legislative history, is as follows:

[I]n the case of special purpose credit programs offered by profit-making organizations, the Conferees approved the language common to both the House bill and the Senate amendment exempting such programs from the restrictions of the Act so long as they conform to Board regulations. The intent of this section of the statute is to authorize the Board to specify standards for the exemption of classes of transactions when it has been clearly demonstrated on the public record that without such exemption the consumers involved would effectively be denied credit.

Joint Explanatory Statement of the Committee of the Conference,

Cong. Rec. H5493 (daily ed. Mar. 4, 1976) (text appears in House and Senate Reports).

The Board promulgated regulations implementing the 1976 Act's SPCP provision in what was then § 202.8.

As noted above, the Dodd-Frank Act transferred ECOA rulemaking authority to the Bureau, which in 2011 republished Regulation B's SPCP provision without material change in what is now § 1002.8 and the commentary thereto. More recently, the Bureau in January 2021 issued an advisory opinion (AO) addressing SPCPs implemented by for-profit organizations to meet special social needs.

The AO clarified the content that a for-profit organization must include in a written plan that establishes and administers an SPCP under Regulation B.

See

42 FR 1242.

86 FR 3762 (Jan. 15, 2021).

Id.

Current Rule

Under current Regulation B, a for-profit organization that offers or participates in an SPCP to meet special social needs is required to establish and administer the SPCP pursuant to a written plan that identifies the class of persons the program is designed to benefit and sets forth the procedures and standards for extending credit pursuant to the program.

In addition, the for-profit organization is required to establish and administer the SPCP to extend credit to a class of persons who, under the organization's customary standards of creditworthiness, probably would not receive such credit or would receive it on less favorable terms than are ordinarily available to other applicants applying to the organization for a similar type and amount of credit.

12 CFR 1002.8(a)(3)(i).

12 CFR 1002.8(a)(3)(ii).

A for-profit organization's SPCP qualifies as such only if it was established and is administered so as not to discriminate against an applicant on any prohibited basis.

However, the

SPCP is permitted to require its participants to share one or more common characteristics that would otherwise be ECOA-prohibited bases so long as the program does not evade the requirements of ECOA or Regulation B.

If the SPCP does require its participants to share one or more common characteristics, and if the program otherwise complies with current Regulation B, a creditor is able to request and consider information regarding the common characteristic(s) in determining the applicant's eligibility for the program.

12 CFR 1002.8(b)(2).

Id.

12 CFR 1002.8(c).

The Bureau discusses the ways in which this final rule changes the current rule regarding SPCPs provided by for-profit organizations in part III.D below.

E. Consultation

The Bureau has consulted with the appropriate prudential regulators and other Federal agencies regarding consistency with any prudential, market, or systemic objectives administered by these agencies as required by section 1022(b)(2)(B) of the Dodd-Frank Act.

III. Discussion of the Final Rule

A. Overview of Bureau's Approach

As discussed in the background section above, in November 2025, the Bureau issued a proposed rule that (i) provided that ECOA does not authorize disparate-impact claims; (ii) proposed to amend the prohibition on discouraging applicants or prospective applicants to clarify that it prohibits statements of intent to discriminate in violation of ECOA and is not triggered merely by negative consumer impressions, and to clarify that encouraging statements by creditors directed at one group of consumers is not prohibited discouragement as to applicants or prospective applicants who were not the intended recipients of the statements; and (iii) proposed to amend the standards for SPCPs offered or participated in by for-profit organizations to include new standards and related conditions.

See

90 FR 50901.

The Bureau received approximately 64,500 comments in response to the proposed rule. A majority of those comments, including individual commenters, consumer advocate commenters, policy group commenters, State Attorneys General commenters, and Members of Congress, opposed the proposed rule. Several commenters stated that the proposed rule is deficient under the Administrative Procedure Act (APA). Some commenters argued that the proposed rule is arbitrary and capricious because after fifty years of the current rule, the Bureau did not provide the required explanation for the significant change in the current rule. Furthermore, the 30-day comment period over the Thanksgiving holiday did not provide a meaningful opportunity to comment on a rule of this significance, according to these commenters. These commenters also stated that the Bureau is exceeding its rulemaking authority with this rule, and that the proposed rule conflicts with ECOA. They also asserted that the proposed rule is inconsistent with ECOA's legislative history and case law.

Numerous commenters stated that the proposed rule ignores or dismisses that the current credit market continues to show structural barriers to credit access for certain protected class groups, and that the proposed rule would result in an increase in discrimination for these protected classes. These groups include women, Black, Hispanic, Asian, and American Indian consumers, those who receive income from public assistance programs such as disability income and social security income, and those who exercised their rights under the Consumer Credit Protection Act such as by asserting their rights against improper debt collection, wage garnishment, and credit reporting. Commenters also asserted that the proposed rule runs counter to the goals of growing the economy with small businesses and increasing homeownership as these small business owners and first-time homeowners are likely to be women, Black, or Hispanic consumers who apply for credit for their small business or to buy their first home. In addition, commenters had other comments such as requesting a public hearing on the proposed rule, questioning whether AI was used to draft the proposed rule, and whether the other agencies were in fact consulted on the proposed rule as required by law.

The commenters who supported the proposal, including many industry commenters and some policy group commenters agreed the proposed rule more closely aligns with the Constitution, ECOA's text and purpose, congressional intent, case law, and the policy goals of providing compliance clarity and relief while encouraging innovation and business in the credit markets. Some of these commenters also asked for further clarifications, modifications, exemptions, and safe harbors in the rule. They also requested interagency coordination such as with the prudential regulators on the Community Reinvestment Act of 1977 (CRA),

and the Board on rules for motor vehicle dealers.

Finally, one commenter noted an error with the proposed amendatory text.

Public Law 95-128, tit. VIII, 91 Stat. 1147 (12 U.S.C. 2901

et seq.

As mentioned earlier, under Dodd-Frank Act section 1029, subject to certain exceptions, the Board retains ECOA rulemaking authority over a motor vehicle dealer that is predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.

In both the proposed rule and in this final rule, each of the discussions of disparate impact, discouragement, and SPCPs provides detailed explanations for the rule, satisfying the APA. The discussions include explanations about how the Bureau is acting within its rulemaking authority and how the rule is consistent with ECOA, legislative history, and case law. The sufficiency of the comment period is evidenced by the robust response the Bureau received. The Bureau received approximately 64,500 comment letters from a diverse range of stakeholders. Many of these comments were detailed and substantive. The number and depth of these comments demonstrate that interested parties had adequate time to review the proposal and formulate comprehensive views during the comment period. Thus, the Bureau concludes that the comment period provided a reasonable opportunity to participate in the rulemaking process.

With regard to comments related to policy, policy cannot override the law. As explained in the discussions below, these amendments to Regulation B are to ensure consistency with the letter and intent of ECOA. These amendments in the proposed rule clarify the obligations imposed by ECOA and facilitate compliance with ECOA. As for requests for a public hearing on the proposed rule, a hearing is not necessary to obtain additional information nor required by law. There has been ample exchange of analysis and information through the notice-and-comment process, including the delivery and review of the comment letters on the RFI, and the over 64,500 comment letters on the proposed rule. A public hearing on the proposed rule would not provide more insight or information than what had been collected through the notice-and-comment process required by law. With regard to the Bureau using AI with the proposed rule, that did not occur. Bureau attorneys, paralegals, economists, analysts, and other employees worked on the proposed rule and on this final rule, including its drafting and underlying research. As to whether other agencies were consulted prior to the issuance of the proposed

rule, the Bureau consulted or offered to consult with other agencies as required by the Dodd-Frank Act and ECOA, and considered the feedback the agencies provided. The Bureau is also available for consultations with the prudential regulators regarding their CRA rule and the Board regarding its rule for motor vehicle dealers. Other clarifications, modifications, exemptions, and safe harbors requested by commenters are addressed in detail further below. Finally, with regard to the inadvertent publication errors in the proposed amendatory text in the

Federal Register

, the commenter was correct. The errors were not present in the Public Inspection version of the

Federal Register

published on November 12, 2025.

The Office of the Federal Register published a correction on February 25, 2026.

See https://public-inspection.federalregister.gov/2025-19864.pdf.

91 FR 9191.

After consideration of the comments, the Bureau is finalizing the proposed Regulation B amendments addressing disparate impact, discouragement, and SPCPs as discussed in further detail below.

B. Disparate Impact

Proposed Rule

The Bureau proposed changes to § 1002.6(a) and its accompanying commentary. As the Bureau explained in the proposal, consistent with E.O. 14281 the Bureau examined Regulation B and considered whether disparate-impact claims may be cognizable under ECOA. The Bureau preliminarily determined that, under the best reading of the statute, disparate-impact claims are not cognizable under ECOA. As a result, the Bureau proposed to delete language in § 1002.6(a) and its accompanying commentary indicating that disparate-impact liability, which is referred to in the rule as the “effects test,” may be applicable under ECOA, and proposed to add language stating that the Act does not recognize the “effects test.” The Bureau also proposed deleting the language in comment 2(p)-4 referring to the “effects test.” In the proposal, the Bureau requested comment on these changes and on its preliminary determination that disparate-impact claims are not applicable under ECOA. For the reasons discussed below, the Bureau is adopting the changes as proposed.

In the proposal, the Bureau preliminarily determined that the interpretation in Regulation B that disparate-impact claims may be cognizable under ECOA is not the best interpretation of ECOA. The Bureau noted that the Board (and later the Bureau) relied solely on the legislative history of ECOA to support its conclusion and failed to consider whether ECOA's statutory language itself authorized disparate-impact liability. The Bureau preliminarily determined that ECOA's statutory language does not authorize disparate-impact liability and that the application of disparate-impact liability in the credit context may undermine ECOA's purposes.

The Bureau explained in the proposal that since

Griggs,

although it has not decided the question under ECOA, the Supreme Court has closely examined the relevant statutory language of other antidiscrimination laws to determine whether disparate-impact liability is authorized by those laws. In particular, the Bureau explained that the Supreme Court has examined whether those other statutes include language focused on the effects of the action rather than the motivation of the actor. The Bureau noted that in

Inclusive Communities,

the Supreme Court concluded that “

Griggs

holds and the plurality in

Smith

instructs that antidiscrimination laws must be construed to encompass disparate-impact claims when their text refers to the consequences of actions and not just to the mindset of actors, and where that interpretation is consistent with statutory purpose.”

The Bureau explained in the proposal that the relevant language of ECOA, in contrast, does not include similar effects-based language supporting disparate-impact liability. Section 701(a)(1) of ECOA makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction on the basis of race, color, religion, national origin, sex or marital status, or age.

576 U.S. 519, 533 (2015).

15 U.S.C. 1691(a)(1).

In the proposal, the Bureau explained that section 701(a) of ECOA is a straightforward, plainly stated prohibition against discrimination on the basis of certain characteristics and that it therefore does not require additional consideration of the structure, history, and purpose to interpret its meaning. As a result, the Bureau preliminarily determined that section 701(a) does not authorize disparate-impact claims. As the Bureau explained in the proposal, its conclusion would not change even if it were necessary to resort to other considerations to interpret section 701(a). After balancing these factors, giving the most weight to the language of the statute, the Bureau preliminarily determined that the best interpretation of ECOA is that section 701(a) does not authorize disparate-impact claims.

The Bureau also preliminarily determined that when read together, the Supreme Court cases

Board of Education of City School District of New York

Harris,

444 U.S. 130 (1979), and

Inclusive Communities

suggest that a statutory provision without effects-based language may be ambiguous as to whether it authorizes disparate-impact liability when there is closely connected statutory language that provides for disparate-impact liability. The Bureau's proposal explained, however, that unlike the statutory provisions at issue in

Harris

and

Inclusive Communities

neither section 701(a) of ECOA nor any closely connected statutory provisions include any effects-based language supporting disparate-impact liability. In the absence of such closely connected effects-based language, the Bureau preliminarily determined that the best interpretation of the text of section 701(a) is that it does not provide for disparate-impact liability.

In the proposal, the Bureau also preliminarily determined that interpreting ECOA as not authorizing disparate-impact claims is consistent with the statutory purposes of ECOA. The Bureau, in exercising its expertise, explained that it was concerned that disparate-impact liability may lead some creditors to consider prohibited characteristics in developing policies and procedures, contrary to ECOA's purposes, in order to minimize potential liability. Moreover, the Bureau explained that it was concerned that creditors may be deterred from pursuing innovative or cost-reducing policies and procedures because they are uncertain about the impact on protected classes. In the proposal, the Bureau requested comment on its preliminary determination that interpreting ECOA as not authorizing disparate-impact liability is consistent with the statutory purpose.

The Bureau recognized in the proposal that Regulation B previously relied on the legislative history of ECOA for evidence of congressional intent that disparate-impact claims may be cognizable under ECOA. As the Bureau explained, if ECOA contained effects-based language or if the statutory language were ambiguous, then the legislative history would provide stronger evidence to support an interpretation that disparate-impact liability is permitted under ECOA. The Bureau explained, however, that consistent with Supreme Court precedent, the most important

consideration is the statutory language. The Bureau preliminarily determined, therefore, that the evidence from the legislative history is insufficient to support an effects test given the statutory language and the absence of effects-based language in section 701 or anywhere else in ECOA. In the proposal, the Bureau requested comment on this preliminary determination.

In the proposal, the Bureau preliminarily concluded that any reliance interests in the existing regulatory interpretation permitting disparate-impact liability do not outweigh revising Regulation B to bring it into alignment with the statutory text. The Bureau requested comment on this preliminary determination.

In the proposal, the Bureau noted that notwithstanding

Griggs

and its progeny, there are serious concerns about the constitutionality of disparate-impact liability as to certain ECOA-protected classes. The Bureau made no conclusion as to these constitutional questions but noted that its preliminary finding that ECOA does not encompass disparate-impact liability appropriately avoids such constitutional concerns.

The Bureau's proposal noted that, alternatively, it could remove the provisions relating to disparate impact, given the statutory text and based on the fact that neither the Supreme Court nor any other court has made a specific holding with respect to this theory and ECOA. The Bureau noted that, as the Supreme Court made clear in

Loper Bright Enterprises

Raimondo,

courts are the ultimate arbiters of statutory meaning. In the proposal, the Bureau requested comment on this alternative rationale for removing the provisions related to disparate impact.

603 U.S. 369 (2024).

Based on its preliminary determination that disparate-impact claims are not cognizable under ECOA, the Bureau proposed deleting language in § 1002.6(a) and its accompanying commentary indicating that disparate-impact liability, which is referred to in the rule as the “effects test,” may be applicable under ECOA, and proposed adding language stating that the Act does not recognize the “effects test.” The Bureau also proposed deleting the language in comment 2(p)-4 referring to the “effects test.”

Comments Received

Several commenters, including policy group, industry, and individual commenters, supported amending Regulation B to provide that ECOA does not authorize disparate-impact liability. One industry commenter explained that its members and lenders in general have every incentive to make loans to all creditworthy borrowers regardless of their protected characteristics and to identify any unnecessary policies that limit their ability to make prudent loans. Some commenters stated that ECOA's prohibition on disparate treatment provides consumers with appropriate protection against discrimination, including where a creditor intentionally uses a proxy for a prohibited basis to discriminate.

A number of commenters, including consumer advocate commenters, policy group commenters, the State Attorneys General commenters, Members of Congress, and individual commenters, opposed amending Regulation B to provide that ECOA does not authorize disparate-impact liability. Many of these commenters stated that the proposed rule's interpretation of ECOA to not authorize disparate-impact liability is inconsistent with the statutory text. Many of these commenters also maintained that the legislative history, statutory purpose, longstanding agency interpretations, and judicial interpretation all support the conclusion that disparate-impact liability is authorized by ECOA. Many of these commenters also stated that disparate-impact liability is an important tool for identifying and addressing discrimination, particularly with the growth of complex technologies and processes driven by artificial intelligence, and provided examples of circumstances in which they argued that disparate-impact liability was important for addressing discrimination. Several commenters also maintained that disparate-impact liability does not raise constitutional concerns. Some commenters also stated that disparate-impact liability does not stifle innovation or raise significant policy concerns that might undermine the purposes of ECOA.

Many commenters expressing support for the proposed rule agreed with the Bureau's preliminary determination that under the best reading of ECOA, disparate-impact claims are not cognizable under the Act. Commenters generally noted that the proposed rule, if adopted, will harmonize Regulation B with the actual statutory scheme Congress enacted. In addition, some commenters raised various concerns about the application of disparate-impact liability to creditors, including potential unintended consequences that may undermine the purpose of ECOA. A few commenters requested that the Bureau provide clarification on certain topics, including whether creditors may lawfully use statistical techniques, such as proxy analysis, to assess their compliance with ECOA.

Several commenters disagreed with the proposed rule's preliminary determination that ECOA did not include effects-based language and that the absence of this language should lead to the conclusion that ECOA does not authorize disparate-impact liability. As discussed in more detail below, several commenters stated that ECOA includes effects-based language supporting disparate-impact liability and maintained that the Supreme Court has found that other antidiscrimination statutes with similar language authorize disparate-impact liability. Some commenters also stated that Supreme Court precedent does not preclude recognizing disparate-impact liability in statutes that lack specific wording.

Several commenters agreed with the Bureau's preliminary analysis of the text of section 701(a) of ECOA. Commenters supporting the proposal to amend Regulation B were generally in favor of deleting language in the existing regulation referring to an “effects test” concept and replacing it with new language clarifying that disparate-impact claims are not cognizable under ECOA. One industry commenter supported deleting the language in the existing rule referring to an “effects test” concept but did not support adding new language to Regulation B clarifying that disparate impact is not cognizable under ECOA. This commenter noted that simply removing the existing “effects test” language without replacing it respects the Supreme Court's instruction, in

Loper Bright Enterprises

Raimondo,

that courts—not agencies—are the ultimate arbiter of statutory meaning, particularly when it comes to the availability of a particular cause of action under a statute.

603 U.S. 369 (2024).

Some commenters agreed with the Bureau's statement in the proposed rule that the Supreme Court has not determined whether a disparate-impact claim is permitted under ECOA. A few commenters supporting the proposed rule stated that the Supreme Court, in

Texas Department of Housing & Community Affairs

Inclusive Communities Project, Inc.,

provided the proper instruction for determining whether an antidiscrimination statute such as ECOA gives rise to disparate-impact liability. Commenters explained that in

Inclusive Communities

the Court instructed that disparate-impact claims may be authorized under an antidiscrimination statute where the

statute's text refers to the consequences of actions and not just to the mindset of actors, and where that interpretation is consistent with statutory purpose.

576 U.S. 519 (2015).

Most commenters supporting the proposed rule generally agreed with the Bureau's preliminary determination that under the best reading of the Act, the text of section 701(a) of ECOA does not authorize disparate-impact liability. One industry commenter, agreeing with the Bureau's statement that the Supreme Court has not determined whether disparate-impact claims are cognizable under the ECOA, took no position and offered no comment on whether the Bureau's preliminary determination is legally correct. Some commenters agreeing with the Bureau's preliminary determination specifically cited the text of section 701(a) of ECOA, which makes it “unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction” “on the basis of” race, sex, or any other prohibited characteristic. A few commenters noted that section 701(a) makes it unlawful for a creditor to “discriminate”—language those commenters pointed out has been construed in other contexts as giving rise to disparate-treatment liability. Some commenters also noted section 701(a)'s use of “on the basis of,” which one industry commenter indicated directs attention to intentional conduct, not outcomes alone.

Numerous commenters noted the absence of any effects-based language in section 701(a), in contrast with language found in other statutes like title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act (ADEA) and the Fair Housing Act (FHA), which the Supreme Court has held all authorize disparate-impact liability. One industry commenter noted that in

Inclusive Communities

the Court deemed the presence of such language to be “of central importance” to its analysis. Some commenters agreed with the Bureau's preliminary analysis that interpreting ECOA to conclude that there is no disparate-impact liability under the Act is consistent with the purpose of ECOA. Other commenters supporting the proposed rule stated that because the statutory text of ECOA does not contain any “effects-based” language whatsoever there is no need to analyze whether the Bureau's proposed interpretation is consistent with ECOA's purpose.

Several consumer advocate commenters stated that the text of ECOA shows that Congress intended to authorize disparate-impact liability. Several consumer advocate commenters argued that by prohibiting discrimination “on the basis of” certain protected classes in 15 U.S.C. 1691(a)(1), ECOA allows disparate-impact claims. These commenters asserted that the term “on the basis of” refers to the consequences of actions and not just the mindset of actors. These commenters stated that Congress was aware of the Supreme Court's precedents concerning disparate-impact liability and used the term “on the basis of” because the Supreme Court had used that language to describe disparate-impact liability under title VII in

Griggs

Duke Power Co.

A consumer advocate commenter also stated that other antidiscrimination statutes also use “on the basis of” or similar language to characterize the scope of prohibited discrimination to include disparate-impact claims. The commenter noted that the Americans with Disabilities Act (ADA) and the Equal Pay Act (EPA) both use “on the basis of” language and that both of these statutes authorize disparate-impact claims.

A consumer advocate commenter also noted that in ECOA, Congress used “on the basis of” in section 701(a)(1) of ECOA but different language in section 701(a)(2) and (3), which prohibit discrimination “because” of certain characteristics or conduct. The commenter argued that the choice by Congress to use “on the basis of” in section 701(a)(1), but different language in section (a)(2) and (3), suggests Congress intended for section (a)(1) to reach broadly to include disparate-impact liability.

Another consumer advocate commenter stated that certain exceptions to “discrimination” support interpreting ECOA to authorize disparate-impact liability. That commenter noted that the exceptions in section 701(b)(1) and (2) provide that inquiries about an applicant's marital status, age, or income status can only be made for a specified purpose. The commenter argued that this provision forbids the collection of data for other purposes, including neutral purposes, and that the only reason an antidiscrimination provision would forbid data collection for neutral purposes is if such a neutral practice could lead to a discriminatory effect that could be actionable under a disparate-impact theory of liability.

However, a few commenters supporting the proposed rule expressed a different understanding of the interplay between section 701(a) and the exceptions in section 701(b). Those commenters noted that Congress carved out specific conduct from the reach of section 701(a) of ECOA and deemed such conduct not to constitute discrimination. One industry commenter, a trade association, noted that conduct deemed not to constitute discrimination under section 701(b) is conduct that, but for those carve outs, would constitute disparate treatment; the commenter stated that there are no exceptions for conduct that would otherwise constitute disparate impact. This commenter also noted that actions permissible under section 701(c) of ECOA include conduct that involves directly considering an applicant's prohibited basis status. The commenter contrasted these provisions with exceptions in the FHA that the

Inclusive Communities

majority had relied on in support of its holding, noting that those exceptions shielded covered persons from liability for conduct that would have otherwise resulted in disparate-impact liability.

Several consumer advocate commenters noted that ECOA provides that one factor considered by courts when imposing punitive damages is whether the violation was “intentional.” They argued that this provision assumes that some violations are not intentional, indicating that ECOA was intended to authorize disparate-impact claims. One consumer advocate commenter noted that in the debate over this language, some House members objected that limiting punitive damages to intentional violations would mean that punitive damages would not be available for disparate impact violations, indicating these House members believed that disparate-impact liability was authorized. The commenter stated that the Supreme Court has found that where a provision limits only the scope of disparate-impact claims, Congress must have assumed the existence of disparate-impact claims or the provision would be superfluous.

Several consumer advocate commenters stated that the Supreme Court has found that other antidiscrimination statutes authorize disparate-impact liability and has not held that the absence of effects-based language precludes a finding that a statute authorizes disparate-impact liability. Some commenters noted that in

Inclusive Communities,

the Supreme Court found that section 805(a) of the FHA authorizes disparate-impact liability even though that provision does not include effects-based language. Several commenters argued that the Supreme Court has made clear the importance of determining the purpose of the statute in determining whether it provides for disparate-impact liability.

Although several consumer advocate commenters stated that the text of ECOA supports disparate-impact liability,

some of these commenters noted that at the very least ECOA's language in 15 U.S.C. 1691(a)(1) that makes it unlawful for a creditor to “discriminate” against an applicant “on the basis of” certain prohibited characteristics is ambiguous as to whether it authorizes disparate-impact liability. These commenters stated that the Supreme Court has looked to other factors, including the statutory purpose and legislative history, to determine whether an ambiguous statute authorizes disparate-impact claims. These commenters maintained that these other factors, including the statutory purpose and the legislative history, support interpreting ECOA to authorize disparate-impact claims.

Several consumer advocate commenters stated that interpreting ECOA to permit disparate-impact claims is consistent with the statutory purpose. They noted that the Supreme Court considered the statutory purposes of title VII and the FHA to support finding that those statutes authorized disparate-impact liability. The commenters maintained that, similar to the broad remedial purposes of those other statutes, ECOA was intended to achieve the objective of addressing discrimination in obtaining credit. They stated that disparate-impact liability is similarly consistent with ECOA's goal of ensuring that creditors make credit available equally and impartially, without regard to protected classes. These commenters stated that interpreting ECOA to not permit disparate-impact liability would undermine the purpose of making credit equally available.

Commenters supporting the removal of the “effects test” language from Regulation B generally agreed with the Bureau that the evidence from the legislative history is insufficient to support an effects test concept under Regulation B given the statutory language and the absence of any effects-based language in section 701 or anywhere else in ECOA. Several commenters agreed with the Bureau's preliminary analysis that the Board, when it inserted the “effects test” language into Regulation B, relied solely on ECOA's legislative history. These commenters stated that the Board's—and later the Bureau's—reliance on ECOA's legislative history to the exclusion of ECOA's statutory text was flawed.

Some commenters noted that the Board's and the Bureau's reliance on legislative history in interpreting ECOA as authorizing disparate-impact liability conflicts with

Inclusive Communities'

instruction that statutory text controls when analyzing whether an antidiscrimination statute such as ECOA encompasses disparate impact. An industry commenter stated that

Inclusive Communities

instructs that the statutory text is paramount, with legislative history serving as a secondary consideration at most. Other commenters stated that resort to extrinsic materials like legislative history is generally inappropriate in the face of ECOA's authoritative text.

A few commenters also noted that the committee reports relied on by the Board postdated by two years the original enactment of the operative antidiscrimination language in ECOA. One industry commenter explained that the Board relied on committee reports tied to the 1976 Act, which among other things expanded the list of prohibited bases under ECOA. This commenter noted that although Congress in 1976 expanded the

scope

of ECOA's prohibition on discrimination, it did not speak to the

type

of conduct (

e.g.,

disparate treatment or disparate impact) Congress proscribed in 1974. One policy group commenter explained that the legislative history relied upon by the Board and later the Bureau is not sufficient support for disparate-impact liability because committee reports have not been passed by both houses of Congress and presented to the President for his signature. An industry commenter stated that even if legislative history should be consulted, there are other statements found in the legislative history that the commenter believed suggest Congress intended ECOA to reach only disparate treatment.

Several consumer advocate commenters stated that the legislative history of ECOA confirms that Congress intended to authorize disparate-impact liability. A consumer advocate commenter noted that during a hearing on legislation that eventually became the 1974 Act, a witness testified that revising the bill to define the term “discriminate” as “to make any invidious distinction”—as Congress was then considering—could narrow the scope of prohibited discrimination. The commenter noted that the witness pointed to the broad standard for discrimination under

Griggs

and, stating that the term “invidious” does not appear in the Civil Rights Act of 1964, raised the concern that using the term “invidious” could indicate that some degree of intent is required. The commenter stated that the subcommittee removed the proposed definition of “discriminate,” leaving in place language that was generally understood to include disparate-impact liability.

Several consumer advocate commenters also stated that the legislative history of the 1976 Act, which added race, color, national origin, religion and age as prohibited bases, similarly supports interpreting ECOA to authorize disparate-impact liability. These commenters maintained that House and Senate reports supported interpreting ECOA to permit disparate-impact claims. For example, one consumer advocate commenter pointed to a Senate report stating that courts or agencies could “look at the effects of a creditor's practices,” consistent with cases such as

Griggs

and

Albemarle.

As noted above, several commenters also stated that some House members also raised concerns that punitive damages would only be available for intentional discrimination and would not be allowed for disparate-impact claims, supporting the assumption that disparate-impact liability is authorized.

Several consumer advocate commenters maintained that later congressional activity also supports interpreting ECOA to permit disparate-impact claims. One consumer advocate noted that Congress rejected bills in 1995 and 1997 that would have restricted ECOA liability to intentional discrimination. That commenter stated that Congress amended ECOA in 1996 to provide incentives for creditors to engage in self-testing and self-correction. The commenter argued that by declining to amend ECOA to eliminate disparate-impact liability, Congress indicated an intent to maintain the statute's liability for disparate-impact claims.

Several commenters noted that courts have consistently found that ECOA authorizes disparate-impact liability. One commenter noted that the Ninth Circuit has explicitly held that ECOA allows disparate-impact claims while the D.C. and the Sixth Circuits have assumed without deciding that disparate-impact claims are permissible under ECOA. One consumer advocate commenter stated that no courts have diverged from a consensus view that ECOA permits disparate-impact claims. Another consumer advocate commenter noted that numerous courts have rejected the argument that the absence of effects-based language in ECOA precludes disparate-impact liability.

Several consumer advocate commenters also stated that Federal agencies interpreting ECOA have uniformly found that ECOA permits disparate-impact claims. One consumer advocate commenter noted that shortly after ECOA was enacted, the Board interpreted ECOA as authorizing disparate-impact liability. The

commenter argued that, under

Loper Bright,

such a contemporaneous interpretation should be accorded great weight. Several commenters stated that the Board, and later the Bureau, have consistently confirmed in subsequent regulatory interpretations that ECOA authorizes disparate-impact liability and these interpretations have pointed to the legislative history to support those conclusions. Commenters also stated that other Federal regulators and the DOJ also have uniformly interpreted ECOA to permit disparate-impact claims.

One commenter supportive of the proposed rule noted that by the time the Supreme Court decided

Inclusive Communities,

all Courts of Appeals to have addressed the issue had concluded that the FHA permitted disparate-impact claims. This commenter noted that when the Board inserted the “effects test” language into Regulation B, there was no such consensus among appellate courts. Moreover, a few commenters noted that even today only some appellate courts have concluded that ECOA authorizes disparate-impact liability, with most merely assuming but not actually deciding the issue. A few commenters stated that only one appellate court has squarely determined that ECOA authorizes disparate-impact liability, and that court's analysis—like the Board's—almost exclusively relied on the legislative history of ECOA to reach that determination.

A few commenters supporting the proposal directly addressed the topic of reliance interests. One industry commenter explained that any reliance interests in the existing interpretation of Regulation B are outweighed by the need to amend the regulation to bring it into harmony with the statutory text of ECOA. This commenter, a trade association representing credit unions, explained that although credit unions have developed policies, procedures, and training to ensure their compliance with the existing interpretation of ECOA, the association would appreciate the greater flexibility offered by the proposed rule.

Several commenters stated that the proposed rule did not adequately consider the reliance interests in the current rule's interpretation that ECOA authorizes disparate-impact liability. One consumer advocate noted that creditors have developed compliance systems designed to ensure compliance with disparate-impact risks and that interpreting ECOA not to permit disparate-impact liability would create confusion and potential conflicting standards because creditors would still have to ensure compliance with the FHA and State antidiscrimination laws that recognize disparate-impact liability. State Attorneys General commenters stated that the proposed rule failed to consider the reliance interests of State and local governments in a strong Federal enforcement mechanism to address discrimination in the credit market.

Some commenters agreed with the Bureau's preliminary determination that consumers will still be protected from discrimination if the proposed rule is finalized. These commenters believed ECOA's prohibition on disparate treatment provides appropriate protection for consumers against discrimination. An industry commenter stated that disparate impact is unnecessary to prevent discriminatory lending practices; this commenter explained that a creditor will remain liable based on disparate treatment where the creditor makes a lending decision or adopts a credit policy with discriminatory intent, even if the lender characterizes its actions as facially neutral. Another industry commenter noted that some aspects of a disparate-impact claim could have evidentiary value in a disparate-treatment case; this commenter described situations where a creditor uses or adopts a neutral policy for a discriminatory reason or applies it inconsistently on a prohibited basis. The commenter noted that creditors in these situations would remain liable for disparate treatment.

Several commenters supporting the proposed rule raised concerns about the application of disparate-impact liability under ECOA. Some commenters agreed with the Bureau's preliminary determination that imposition of disparate-impact liability in the credit context may undermine the purpose of ECOA. According to one industry commenter, ECOA's purpose is to ensure that all creditworthy applicants receive fair and equal access to credit without regard to protected characteristics.

Many commenters, including consumer advocate commenters, the State Attorneys General commenters, Members of Congress, and individual commenters, stated that the proposed rule did not adequately consider the importance of disparate-impact liability in addressing discriminatory practices. They provided evidence and examples that, in their view, showed that discrimination in credit markets remains a significant problem. They maintained that disparate-treatment liability is insufficient to address discrimination where intentional discrimination is difficult to prove. They stated that disparate-impact liability is particularly important in addressing discrimination in certain circumstances, including automated credit models (specifically AI-driven models), indirect auto lending, mortgage lending, and small business lending. Several commenters provided examples of discrimination cases that relied on disparate-impact liability theories and raised concerns that proving discrimination would be impossible without being able to advance disparate-impact claims.

A policy group commenter shared the Bureau's concern that application of disparate-impact liability could lead some creditors to consider prohibited basis characteristics in developing policies and procedures, contrary to ECOA's purpose, to minimize potential liability. One individual commenter stated that disparate-impact liability discourages responsible lending and incentivizes overly conservative credit policies, which reduces credit access and increases costs to consumers. This commenter stated that Regulation B currently discourages nuanced decision-making in favor of rigid compliance standards and that this disproportionately burdens female borrowers. An anonymous commenter noted that there is no clear empirical evidence that disparate impact improves credit access or outcomes for specific protected class groups; this commenter marshaled evidence and data that, in the commenter's opinion, demonstrates that the application of disparate-impact liability has the opposite effect. Other commenters indicated that disparate-impact liability reduces innovation in credit markets.

One policy group commenter stated that disparate impact is incompatible with the Equal Protection Clause of the U.S. Constitution. This commenter noted that the Supreme Court has condemned racial balancing as unconstitutional but the threat of disparate-impact liability, according to the commenter, requires creditors to engage in that very conduct. An industry commenter stated that the proposed rule is warranted because the existing regulation, in the commenter's view, drives outcome balancing—raising reverse discrimination and equal protection concerns. Another policy group commenter stated that application of disparate-impact liability threatens fundamental freedoms, such as free speech and free exercise of religion, potentially chilling the speech and religious practices of businesses.

Several commenters opposed to the proposed rule stated that interpreting ECOA to permit disparate-impact liability does not raise constitutional

concerns. They argued that although the Bureau had raised concerns that creditors might consider prohibited characteristics in developing policies and procedures in order to avoid potential disparate-impact liability, the proposed rule did not provide any examples of this occurring. Commenters noted that the Supreme Court has allowed disparate-impact liability in other statutory contexts and noted that, properly applied, disparate-impact liability does not raise constitutional concerns. Some commenters claimed that, unlike with college admissions or employment, credit applications are not zero-sum situations in which applicants are competing for a limited number of opportunities and stated that disparate-impact liability under ECOA does not disadvantage certain credit applicants compared to other applicants or require creditors to achieve specific outcomes.

A few commenters raised concerns that application of disparate-impact liability had led to abusive enforcement efforts and examiner overreach. An industry commenter stated that disparate impact is prone to abuse by government agencies and private plaintiffs, pointing to the Bureau's allegations against indirect auto lenders as one example. Another industry commenter stated that the Bureau used disparate impact to impose a de facto national Community Reinvestment Act (CRA) requirement on independent mortgage banks (IMBs), by pressuring IMBs to do more lending to certain protected classes and to take actions such as opening new branch locations; the commenter noted that ECOA does not authorize or contemplate these remedies. This commenter further noted that ECOA is an antidiscrimination statute and not a vehicle to force IMBs to take affirmative actions to increase loans to certain classes of borrowers. The commenter stated that ECOA should not be allowed to morph into a backdoor Federal CRA requirement for IMBs. A different industry commenter stated that disparate impact has been measured and determined inconsistently by financial services regulators and examiners, and credit unions have endured unpredictable and shifting application and examination findings.

Commenters generally noted that the proposed rule, if finalized, would address these concerns. One industry commenter explained that the proposed rule will help avoid arbitrary ECOA enforcement in the future, allowing creditors to focus on maintaining effective ECOA compliance programs.

A few commenters responded to the Bureau's request for comment on the potential benefits of the proposal. One industry commenter agreed with the Bureau's observation in the proposed rule that the impact of the amendments to Regulation B will be substantially limited by the ongoing need to comply with other State and Federal fair lending laws, such as the FHA. An anonymous commenter offered comments on the anticipated practical consequences for the fair lending compliance programs of banks. This commenter indicated that amending Regulation B is unlikely to have any material impact on the organization or structure of fair lending compliance programs maintained by banks; according to the commenter, covered banks will remain subject to disparate-impact claims that might be asserted in State enforcement actions or by private parties in litigation, and therefore bank compliance programs must continue to appropriately identify and mitigate those risks. One industry commenter stated that ending disparate-impact enforcement and returning ECOA to its statutory standard of intent-based discrimination will promote clarity, reduce unintended barriers to credit, and ultimately improve access to capital for consumers and small businesses. This commenter noted that removing disparate-impact enforcement will result in more product offerings, more flexible lending standards and new market entrants, ultimately expanding access to credit.

Some commenters supporting the proposed changes to Regulation B requested that the Bureau provide clarification on certain discrete issues. A few commenters requested that the Bureau clarify that creditors may still use proxy analysis to assess the demographic makeup of their applicant pool to evaluate compliance with ECOA. An industry commenter explained that because creditors will remain subject to other Federal and State laws imposing disparate-impact liability, creditors will still be obligated to consider the impact of their facially neutral policies and procedures and make appropriate adjustments based on that evaluation. Another industry commenter explained that creditors' obligations under the CRA and their business objectives may include expanding access to credit or serving underserved communities. Because creditors may wish to continue to evaluate the demographic impact of their policies and procedures—both to help inform business and community reinvestment strategies, and because of other laws imposing disparate-impact liability—commenters requested that the Bureau's final rule specifically acknowledge that creditors would retain the flexibility to utilize such practices.

An individual commenter urged the Bureau to clarify that while ECOA does not give rise to a standalone disparate-impact cause of action, the Bureau may still prohibit practices that are intentionally designed or applied as proxies for prohibited characteristics. An industry commenter urged the Bureau to prevent circumventions of the regulation by clarifying that statistical imbalances alone are not a sufficient basis for establishing disparate treatment under ECOA. Similarly, an industry commenter requested that the Bureau clarify that statistical evidence that a creditor lags behind peers in applications or originations does not, standing alone, support a disparate-treatment claim.

Final Rule

The Bureau is making changes to § 1002.6(a) and its accompanying commentary. It is the Bureau's responsibility to correctly interpret ECOA. The Supreme Court in

Loper Bright Enterprises

Raimondo

confirmed that “statutes . . . have a single, best meaning” that is “ `fixed at the time of enactment.' ”

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. As a result, the Bureau is deleting language in § 1002.6(a) and its accompanying commentary indicating that disparate-impact liability, which is referred to in the rule as the “effects test,” may be applicable under ECOA, and adding language stating that the Act does not recognize the “effects test.” The Bureau is also deleting the language in comment 2(p)-4 referring to the “effects test.”

603 U.S. 369, 400 (2024) (quoting

Wis. Cent. Ltd.

United States,

585 U.S. 274, 284 (2018)).

The Bureau has determined that the Board's—and later the Bureau's—conclusion that disparate-impact claims may be cognizable under ECOA is not the best interpretation of ECOA. In particular, the Board (and later the Bureau) relied solely on the legislative history of ECOA to support its conclusion and failed to consider whether ECOA's statutory language authorized disparate-impact liability. The Bureau has determined that ECOA's statutory language does not authorize disparate-impact liability and that the application of disparate-impact liability in the credit context may undermine ECOA's purposes.

The Board's regulations to implement the 1976 Act relied solely on the

legislative history to support its conclusion that Congress intended for ECOA to permit an “effects test concept” (

i.e.,

disparate-impact) proof of liability. Section 202.6(a), the precursor to § 1002.6(a), provided in a footnote that the legislative history of the Act indicates that the Congress intended an “effects test” concept, as outlined in the employment field by the Supreme Court in the cases of

Griggs,

401 U.S. 424, and

Albemarle Paper Co.,

422 U.S. 405, to be applicable to a creditor's determination of creditworthiness.

Further discussion of the effects test was later added to the commentary to what is now § 1002.6(a).

Although there have been minor revisions to what is now § 1002.6(a), that provision has continued to provide, based solely on legislative history, that disparate-impact liability may apply to ECOA.

42 FR 1242 at 1255 n.7. This footnote was later moved to the text of § 1002.6(a) when the Bureau republished Regulation B after responsibility for the rule was transferred from the Board to the Bureau.

See

76 FR 79442.

See

50 FR 48018.

Although

Griggs

is the foundational case for disparate-impact theory, the Bureau recognizes that

Griggs

itself has been subject to significant and extensive criticism. Justice Thomas has described

Griggs

as “poorly reasoned and vulnerable to the charge that it represented a significant leap away from the expectations of the enacting Congress,”

observing that the true “author of disparate-impact liability under Title VII was not Congress, but the Equal Employment Opportunity Commission (EEOC).”

Griggs

involved virtually no analysis of the actual text of title VII; rather,

Griggs

endorsed the EEOC's view mainly by deferring to the agency's view in light of title VII's purpose.

“But statutory provisions—not purposes—go through the process of bicameralism and presentment mandated by our Constitution.”

Indeed, members of the Court—including the author of the majority opinion in

Inclusive Communities

—have expressed reservations about allowing the logic of

Griggs

to extend into other areas of law.

Inclusive Communities,

576 U.S. at 550 n.3 (Thomas, J., dissenting) (internal quotation marks omitted).

Id.

at 547.

See id.

at 552-53;

see also id.

at 577-78 (Alito, J., dissenting) (“The only reference [in

Griggs

] to § 703(a)(2) of the 1964 Civil Rights Act appears in a single footnote that reproduces the statutory text but makes no effort to explain how it encompasses a disparate-impact claim.”).

Id.

at 553.

See id.

at 556.

Since

Griggs,

the Supreme Court has closely examined the relevant statutory language of other antidiscrimination laws to determine whether disparate-impact liability is authorized by those laws (but it has not decided the question under ECOA). In particular, the Supreme Court has examined whether the statute in question includes language focused on the effects of the action rather than the motivation of the actor. For example, in

Smith

City of Jackson,

the Supreme Court noted that section 4(a)(1) of the ADEA does not authorize disparate-impact liability.

Section 4(a)(1) of the ADEA, like section 701(a) of ECOA, is a straightforward prohibition on discrimination that does not include effects-based language.

However, a plurality of the Supreme Court found in

Smith

that section 4(a)(2) of the ADEA does authorize disparate-impact liability, emphasizing that section 4(a)(2) of the ADEA and section 703(a)(2) of title VII—which was found to authorize disparate-impact claims in

Griggs

—both contain language that “prohibit[s] such actions that deprive any individual of employment opportunities or

otherwise adversely affect

his status as an employee, because of such individual's race or age.”

Inclusive Communities,

the Supreme Court concluded that “

Griggs

holds and the plurality in

Smith

The Supreme Court held in

Inclusive Communities

that the language “otherwise make unavailable” in section 804(a) of the FHA refers to the consequences of an action rather than the actor's intent and therefore supports recognizing disparate-impact claims.

544 U.S. 228, 235 n.6, 249 (2005) (plurality and dissent agreeing that section 4(a)(1) of the ADEA does not authorize disparate-impact liability).

Section 4(a)(1) of the ADEA provides that it is unlawful to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual's age. 29 U.S.C. 623(a)(1).

544 U.S. 228, 235 (2005) (citation omitted).

576 U.S. 519, 533 (2015).

Id.

at 534. Section 804(a) provides that it shall be unlawful “[t]o refuse to sell or rent after the making of a bona fide offer, or to refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, familial status, or national origin.” 42 U.S.C. 3604(a).

Several commenters disagreed with the proposed rule's preliminary determination that ECOA does not include similar effects-based language supporting disparate-impact liability. As noted above, section 701(a)(1) of ECOA makes it unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract).

Several commenters argued that the phrase “on the basis of” is effects-based language and that Congress intended for section 701(a) of ECOA to authorize disparate-impact liability. They maintained that the “on the basis of” language was used in

Griggs

to describe disparate-impact liability under title VII and that Congress—acting just a short time after

Griggs

—used the same language to demonstrate its intent to authorize disparate-impact liability under ECOA. Some commenters also stated that other statutes such as the ADA and the EPA have used “on the basis of” language, and that these statutes have been found to authorize disparate-impact liability. One consumer advocate commenter also noted that section 701(a) makes it unlawful to discriminate “on the basis of” certain protected classes, while section 701(b) and (c) makes it unlawful for a creditor to discriminate “because” of certain characteristics or conduct, and this commenter argued that this difference in language is significant and indicates that Congress intended for section 701(a) to authorize disparate-impact liability. However, a number of commenters disagreed, stating that ECOA should not be interpreted to authorize disparate-impact liability because it does not include effects-based language.

15 U.S.C. 1691(a)(1).

The Bureau has determined that the best reading of the statute is that section 701(a) of ECOA does not include effects-based language. The Bureau concludes that “on the basis of” does not refer to the effects of an action and notes that ECOA does not contain any language like “otherwise make unavailable” or “otherwise adversely affect” that refers to the effects of actions and thereby suggests that disparate-impact claims are cognizable.

Some commenters pointed to other statutes like the ADA and the EPA that use “on the basis of” or similar language and claimed that they have been interpreted to authorize disparate-impact liability. However, as discussed in more detail below, those statutes have significant differences and therefore are of limited value in interpreting ECOA's language.

Several commenters maintained that the ADA has similar language to ECOA and has been interpreted to authorize disparate-impact liability, which they claimed supports construing ECOA to

authorize disparate-impact liability. Two commenters noted that both title I and title III of the ADA, which apply to employment and public accommodations, respectively, prohibit discrimination “on the basis of” a disability and have been interpreted to authorize disparate-impact liability. However, as those commenters acknowledged, both title I and title III include effects-based language. For example, title I provides that “discriminat[ing] against a qualified individual on the basis of disability” includes utilizing standards “that have the effect of discrimination on the basis of disability.”

Among other things, title III prohibits utilizing standards or criteria or methods of administration “that have the effect of discriminating on the basis of disability.”

By contrast, ECOA does not have any effects-based language.

See

42 U.S.C. 12112(b)(3)(A).

See

42 U.S.C. 12182(b)(1)(D).

Several commenters claimed that title II of the ADA, which covers public services, uses similar language to ECOA and has been interpreted to authorize disparate-impact liability. Title II provides that “no qualified individual with a disability shall, by reason of such disability, be excluded from participation in or be denied the benefits of the services, programs, or activities of a public entity, or be subjected to discrimination by any such entity.”

The commenters noted that title II specifies that the remedies, procedures, and rights set forth in the Rehabilitation Act of 1973 are the remedies, procedures, and rights for any person alleging discrimination “on the basis of disability” in violation of title II of the ADA.

The commenters claimed that the Rehabilitation Act has been interpreted to authorize disparate-impact liability and that title II therefore should also be construed to authorize disparate-impact liability. They maintain that, because title II, like ECOA, uses “on the basis of” language, ECOA should likewise be interpreted to authorize disparate-impact liability. However, this argument suffers from significant weaknesses. The Supreme Court has never held that the Rehabilitation Act authorizes disparate-impact liability. Rather, the Supreme Court “assume[d] without deciding” that the Rehabilitation Act “reaches at least some conduct that has an unjustifiable impact upon the handicapped.”

Later Supreme Court cases have raised serious doubts about whether the Rehabilitation Act does in fact authorize disparate-impact liability. The Rehabilitation Act was patterned after title VI of the Civil Rights Act of 1964, which prohibits exclusion from participation in, denial of benefits of, and discrimination under federally assisted programs “on ground of” race, color, or national origin.

Alexander

Sandoval,

the Supreme Court held that title VI does not authorize disparate-impact liability, which raises serious questions about whether the Rehabilitation Act—and title II of the ADA—should be construed to authorize disparate-impact liability.

Moreover, even if the Rehabilitation Act, and by extension, title II of the ADA, were construed to authorize disparate-impact liability, title II of the ADA specifically provides in its statutory text that its remedies, procedures, and rights are the same as those of the Rehabilitation Act.

By contrast, the statutory text of ECOA does not provide that it should be construed similarly to another statute (like title VII of the Civil Rights Act of 1964) that authorizes disparate-impact liability. Finally, as noted above, the ADA features multiple examples of effects-based language in other provisions, while ECOA does not have any such language.

42 U.S.C. 12132.

42 U.S.C. 12133.

Alexander

Choate,

469 U.S. 287, 299 (1985).

42 U.S.C. 2000d.

532 U.S. 275, 280-81 (2001). Lower courts have reached different conclusions about what

Sandoval

means for disparate-impact liability under the Rehabilitation Act and title II of the ADA.

Compare Doe

BlueCross BlueShield of Tenn., Inc.,

926 F.3d 235, 241-242 (6th Cir. 2019) (holding that section 504 of Rehabilitation Act does not authorize disparate-impact liability),

with Payan

L.A. Cmty. Coll. Dist.,

11 F.4th 729, 738 (9th Cir. 2021) (holding that title II of the ADA authorizes disparate-impact liability).

See

42 U.S.C. 12133.

Claims that the EPA supports finding that ECOA authorizes disparate-impact liability are similarly unpersuasive. The EPA has a very different statutory structure from ECOA. The EPA specifies precisely what it means under the statute to discriminate “on the basis of sex,”

i.e.,

paying wages at a rate less than those paid to employees of the opposite sex for equal work on jobs which require equal skill, effort and responsibility, and which are performed under similar working conditions, unless one of the specific exceptions applies.

See

29 U.S.C. 206(d)(1).

The Bureau also concludes that the difference in language between section 701(a)(1) and 701(a)(2) and (3) (“on the basis of” compared to “because”) does not support interpreting section 701(a) to authorize disparate-impact liability. While differences in statutory language may suggest congressional intent that those provisions have different meanings, the use of “on the basis of” as opposed to “because” in section 701 appears more likely to be based on grammatical reasons rather than an intent to convey different meanings about the scope of liability under ECOA.

Moreover, in

Griggs,

which preceded ECOA's drafting, the Supreme Court found that language prohibiting discrimination “because of” certain characteristics authorized disparate impact, using the phrases “on the basis of” and “because of” without apparent distinction. Thus, the argument that section 701(a)(1) of ECOA should be interpreted to authorize disparate-impact liability because it uses “on the basis of” rather than “because” (as in section 701(a)(2) and (3)) is not persuasive. As discussed above, the Bureau concludes that the key consideration, emphasized by the Supreme Court, is whether the statute includes effects-based language. The Bureau concludes that, in the absence of effects-based language, ECOA's prohibition on discrimination on the basis of protected classes does not authorize disparate-impact liability.

In particular, it would be awkward grammatically to use “on the basis of” in section 701(a)(2) and (a)(3) to describe discrimination arising because the applicant's income derives from any public assistance program or because the applicant has in good faith exercised rights under ECOA.

Some commenters stated that the absence of effects-based language in section 701(a) is not dispositive and maintained that ECOA should be interpreted to reach disparate impact. Conversely, one industry commenter noted that certain statutes containing language like that found in section 701(a) have been construed by courts as reaching only disparate treatment.

As the Bureau recognized in the proposed rule, the Supreme Court in

Inclusive Communities

held that, like section 804(a), section 805(a) of the FHA also authorizes disparate-impact claims, even though section 805(a) itself does not include any effects-based language.

In the proposed rule, the Bureau noted that the Supreme Court provided limited explanation for concluding that section 805(a) authorizes disparate-impact claims, noting only that it has construed statutory language like section 805(a) to include disparate-impact liability, citing

Board of Education of City School District of New York

Harris,

444 U.S. 130 (1979). The Bureau explained that because the Court provided no meaningful analysis of the statutory language of section 805(a) in

Inclusive Communities,

the case provides little insight into how that holding should apply to ECOA, if at all. The Bureau therefore determined that in the absence of such guidance it was necessary to rely on the analysis in

Harris

to inform the Bureau's interpretation of ECOA, consistent with the Court's approach in

Inclusive Communities.

Section 805(a) provides that it is unlawful “for any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.” 42 U.S.C. 3605(a).

The statute in

Harris,

section 706(d)(1) of the Emergency School Aid Act (ESAA), made an agency ineligible for assistance if it “had in effect any practice, policy or procedure which results in the disproportionate demotion or dismissal of instructional or other personnel from minority groups in conjunction with desegregation . . . or otherwise engaged in discrimination based upon race, color, or national origin in the hiring, promotion, or assignment of employees.”

The Supreme Court noted that the first portion of the statute “clearly speaks in term of effect or impact” but that the second portion (otherwise engaged in discrimination) “might be said to possess an overtone of intent.”

The Court noted, however, that the use of the word “otherwise” in the second portion suggests that the disparate-impact standard should also apply to that provision. The Court noted that absent a good reason, “one would expect that for such closely connected statutory phrases, a similar standard” would apply. The Supreme Court noted that ESAA's language “suffers from imprecision of expression and less than careful draftsmanship” and therefore found it necessary to consider other factors to interpret the statutory language.

The Court looked to the structure, context, and legislative history of the statute to conclude that disparate-impact liability also applied to the second portion of the provision.

Emergency School Aid Act, Pub. L. 89-10, sec. 706(d)(1)(B), 86 Stat. 354, 358 (1972) (emphasis added) (original version at 20 U.S.C. 1606(d)(1)(B) (1976)),

repealed by and reenacted

by Pub. L. 95-561, tit. VI, sec. 601(b)(2), Nov. 1, 1978, 92 Stat. 2268 (1978);

see also Bd. of Educ. of City Sch. Dist. of New York

Harris,

444 U.S. 130, 130 (1979).

Harris, 444 U.S. at 138-39.

Id.

at 138.

As the Bureau explained in the proposed rule, in contrast to the statute at issue in

Harris,

section 701(a) of ECOA does not suffer from ESAA's less than careful draftsmanship that would render it similarly ambiguous and therefore require additional consideration of the Act's structure, history, and purpose to interpret its meaning. ECOA does not include any effects-based language supporting disparate-impact liability, nor any “otherwise” language, as in ESAA, that may cloud the directness of its prohibition. ECOA section 701(a) is a straightforward, plainly stated prohibition against discrimination based on certain characteristics. As a result, the Bureau has determined that section 701(a) does not authorize disparate-impact claims.

The Bureau explained in the proposed rule that even if it were necessary to resort to other considerations to interpret section 701(a), the wording (discussed above), structure, and context all differ from the statutory provisions at issue in

Harris

and

Inclusive Communities

in ways that counsel reaching a different conclusion. (As discussed below, the Bureau does not find the legislative history to be a sufficient basis to override the conclusions drawn from the other factors.) After balancing these factors, giving the most weight to the language of the statute, the Bureau preliminarily determined that the best interpretation of ECOA is that section 701(a) does not authorize disparate-impact claims. In terms of its structure, ECOA differs from both ESAA and FHA. As noted above, the Supreme Court in

Inclusive Communities

carefully analyzed the statutory language of section 804(a), along with other factors, to determine that section 804(a) authorized disparate-impact liability; however, the Supreme Court provided no meaningful analysis of the statutory language of section 805(a) and cited to

Harris

to support the principle that the Court had found similar language to support disparate-impact liability. The Bureau preliminarily determined that when read together,

Harris

and

Inclusive Communities

A policy group commenter opposed to the proposed rule stated that the Bureau's preliminary conclusion rests on a misreading of

Harris

and that the case is inapposite for interpreting ECOA. The Bureau does not agree with this commenter for the reasons explained above, and more generally does not agree with commenters who argued that because the Court in

Inclusive Communities

held that FHA section 805(a) gives rise to disparate-impact claims, it follows that ECOA section 701(a) must as well. The Supreme Court has carefully evaluated whether antidiscrimination laws encompass disparate-impact liability on a case-by-case basis; the Court has never pronounced that every antidiscrimination statute containing certain terminology authorizes disparate-impact liability. While some commenters asserted that section 701(a) of ECOA and section 805(a) of the FHA feature similar language, the Court in

Inclusive Communities

noted only that it has previously construed (in

Harris

) statutory language like that found in section 805(a) to include disparate-impact liability. The Court in

Harris,

of course, did not analyze ESAA in a vacuum; after finding the language ambiguous, it evaluated additional factors such as structure and context to inform its analysis of the pertinent language. And the Bureau has determined that section 805, like ESAA, also contains closely connected language suggesting disparate-impact liability lies under that section—and this type of language is wholly absent from ECOA.

When analyzing the relevance of exemptions to liability under the FHA, the Court in

Inclusive Communities

noted a specific exemption for real-estate appraisers—section 805(c) of the FHA. Earlier, in

Smith

City of Jackson,

a plurality of the Supreme Court had determined that section 4(a)(2) of the ADEA

also authorized disparate-impact claims based in part on the presence of the ADEA's reasonable-factor-other-than-age (RFOA) provision—section 4(f)(1) of the ADEA—which the plurality explained “plays its principal role by precluding liability if the adverse impact was attributable to a nonage factor that was `reasonable.' ”

Inclusive Communities

noted that in

Smith

“the RFOA provision would be simply unnecessary to avoid liability under the ADEA if liability were limited to disparate-treatment claims,”

and explained that “[a] similar logic applies [to section 805]. If a real-estate appraiser took into account a neighborhood's schools, one could not say the appraiser acted because of race. And by embedding [805](c)'s exemption in the statutory text, Congress ensured that disparate-impact liability would not be allowed either.”

As the Court explained, “the exemption from liability for real-estate appraisers is

in the same section

§ 805(a)'s prohibition of discriminatory practices in real-estate transactions, thus indicating Congress' recognition that disparate-impact liability arose

under § 805(a).

”

29 U.S.C. 623(a)(2).

544 U.S. 228, 239 (2005).

576 U.S. 519, 539 (2015) (internal quotation marks omitted).

Id.

Id. at 538 (emphases added).

As explained above and as several commenters noted, section 701(a) of ECOA lacks any effects-based language. In

Inclusive Communities

the Court explained that the presence of this kind of language in the FHA was of “central importance” to its analysis of that statute.

Although section 805(a) of the FHA lacks such effects-based language, the Court determined that both

Harris

and the presence of section 805(c) suggested that disparate impact should nevertheless apply under section 805(a). Unlike the FHA, ECOA does not contain any effects-based language nor any exemptions from liability for conduct that would otherwise constitute disparate impact. Absent effects-based language or any textual signal in section 701 suggesting that Congress contemplated disparate-impact liability under ECOA, the Bureau has determined that the reasons for the Court's construction of section 805(a) of the FHA as authorizing disparate-impact liability are wholly absent here.

Id.

at 534.

To be sure, section 701 contains several exemptions from liability. But none of these exemptions, unlike the exemption in section 805 of the FHA, support interpreting ECOA to authorize disparate-impact liability. Section 701(b)'s exemptions protect a creditor from liability for conduct that would otherwise constitute disparate treatment (or, at most, possible evidence of disparate treatment). And section 701(c)'s exemptions have been interpreted by the relevant agencies in a manner consistent with a construction of ECOA that prohibits only disparate treatment.

Section 701(b) of ECOA provides that it “shall not constitute discrimination” for a creditor to engage in certain specified acts. Section 701(b)(3), for instance, permits creditors “to use any empirically derived credit system which considers age if such system is demonstrably and statistically sound . . . .”

Age is a prohibited basis under ECOA, so if a creditor refuses to extend credit based on an applicant's age, then there is disparate-treatment liability (provided the applicant has the capacity to contract). Other provisions permit creditors to make certain inquiries about an applicant's prohibited basis characteristics without running afoul of ECOA. For instance, section 701(b)(1) allows a creditor “to make an inquiry of marital status if such inquiry is for the purpose of ascertaining the creditor's rights and remedies applicable to the particular extension of credit and not to discriminate in a determination of credit-worthiness.”

Marital status is also a prohibited basis under ECOA, so if a creditor discriminates against an applicant based on the applicant's marital status then there is disparate-treatment liability.

15 U.S.C. 1691(b)(3).

15 U.S.C. 1691(b)(1).

The exceptions in section 701(b) of ECOA shield creditors from liability for intentional discrimination. Section 701(b) of ECOA is thus unlike section 805(c) of the FHA, which provides that it is not a violation of the FHA if a person engaged in the business of furnishing appraisals of real property takes into consideration factors

other than

race, color, religion, national origin, sex, handicap, or familial status. If such a person were to take into consideration anything other than a prohibited basis under the FHA, that could lead to liability only if the statute allowed disparate-impact claims in the first place.

Thus, section 805(c) shields persons from liability for conduct that could otherwise give rise to disparate-impact liability under the FHA. If disparate-impact claims were not cognizable under the FHA, section 805(c) would be meaningless. Section 701(b) of ECOA is different. Section 701(b) provides, essentially, that a creditor may consider or inquire about a prohibited basis under limited circumstances. Without section 701(b), such conduct could give rise to disparate-treatment liability only—not disparate impact. Even under an interpretation of section 701(a) that provides for disparate-treatment liability only, section 701(b) still plays a meaningful role.

To be sure, the exemption was added well after Congress originally enacted section 805.

One policy group commenter argued that section 701(b)(1) and (2) of ECOA are only consistent with an interpretation of section 701(a) that allows for cognizability of both disparate-treatment and disparate-impact claims. The commenter noted these provisions allow a creditor to inquire about an applicant's marital status, age, or income, but only for a specified purpose, without violating section 701(a). This commenter stated that the provision forbids collecting this information for any non-specified but “neutral purposes” and that the only reason section 701(b) forbids such an inquiry is because it may result in a discriminatory effect. This argument appears to rest on a misunderstanding of how the exemptions in section 701(b) relate to evidence of disparate treatment and evidence of disparate impact. A policy or practice is considered facially neutral for purposes of disparate-impact analysis because it does

not

involve treating applicants differently on a prohibited basis—

e.g.,

age—but it nevertheless results in a disproportionately adverse impact on a prohibited basis group (like the elderly). But if a creditor makes an inquiry about an applicant's marital status, age, or income—even for a non-specified purpose—then that is direct evidence the creditor may have considered a prohibited basis.

Typically, direct consideration of a prohibited basis as part of evaluating a credit application would violate section 701(a) as disparate treatment. Inquiring about and considering marital status, age, or the receipt of public assistance income is not facially neutral as to prohibited bases. But as section 701(b)(1) and (2) makes clear, there may be legitimate, non-discriminatory reasons for creditors to collect and consider such information. Thus, in order to ensure that creditors remain able to gather and use certain information that directly implicates prohibited bases, section 701(b)(1) and (2) expressly shields creditors from disparate-treatment liability for doing so.

Cf. Venters

City of Delphi

, 123 F.3d 956, 973 (7th Cir. 1997) (“[R]emarks and other evidence that reflect a propensity by the decisionmaker to evaluate employees based on illegal criteria will suffice as direct evidence of discrimination even if the evidence stops short of a virtual admission of illegality. Proof of this nature supports the inference that a statutorily proscribed factor—race, sex, age, or in this case, religion—was at least a motivating factor in the adverse employment action at issue.”) (citations omitted).

Section 701(c) provides that a creditor does not violate ECOA by refusing to extend credit pursuant to certain kinds of credit programs. For instance, section 701(c)(1) provides that “[i]t is not a violation of [section 701] for a creditor to refuse to extend credit offered pursuant to” “any credit assistance program expressly authorized by law for an economically disadvantaged class of persons.”

Section 701(c)(2) provides that “[i]t is not a violation of [section 701] for a creditor to refuse to extend credit offered pursuant to” “any credit assistance program administered by a nonprofit organization for its members or an economically disadvantaged class of persons.”

And section 701(c)(3) provides that “[i]t is not a violation of [section 701] for a creditor to refuse to

extend credit offered pursuant to” “any special purpose credit program offered by a profit-making organization to meet special social needs . . . .”

15 U.S.C. 1691(c)(1).

15 U.S.C. 1691(c)(2).

15 U.S.C. 1691(c)(3). The Bureau is finalizing as proposed changes to the Regulation B provisions implementing section 701(c)(3).

See

part III.D.

While the provisions in section 701(c) do not use prohibited basis language themselves, both the Board and the Bureau have interpreted this language in a manner consistent with disparate treatment. From the start, the Board interpreted section 701(c) as “allow[ing] a creditor offering certain special credit assistance programs to refuse to extend credit

on a prohibited basis

without violating” ECOA.

Refusing to extend credit on a prohibited basis would, absent section 701(c), be disparate treatment. The Bureau's rules under Regulation B have long reflected this, expressly stating that “program participants may be required to share one or more common characteristics” that are otherwise prohibited bases under 701(a).

Programs along those lines would, absent an exemption, result in disparate-treatment liability. Accordingly, section 701(c) is entirely consistent with interpreting ECOA as authorizing only disparate-treatment claims and not disparate-impact claims.

41 FR 29870, 29875 (July 20, 1976) (emphasis added).

12 CFR 1002.8(b)(2).

None of the exceptions in section 701(b) or (c) play any role in shielding creditors from disparate-impact liability, so they do not suggest that ECOA authorizes such liability in the first place. Given that none of the exemptions in section 701 signal that disparate impact should be available under the Act, the Bureau has determined that

Inclusive Communities

and

Harris

do not suggest that ECOA must be interpreted to reach disparate impact.

One commenter noted that section 701(a) of ECOA makes it unlawful for a creditor to discriminate against any applicant on a prohibited basis; this commenter stated that because similar language has been found by the Supreme Court to give rise to disparate-impact liability, the Bureau must conclude section 701(a) does as well. A policy group commenter stated that the term “discriminate” is broad enough to be understood as being compatible with both disparate treatment as well as disparate impact. If the mere presence of the term “discriminate” in an antidiscrimination statute, without more, suffices to authorize disparate-impact claims, then virtually every antidiscrimination statute would authorize disparate-impact liability and would not require individualized review by the courts to determine whether disparate impact is cognizable under a particular antidiscrimination law. This would transform the legal landscape from one where Congress deliberately and cautiously—using specific language—authorizes disparate-impact liability under certain statutory regimes, to one where disparate impact lies under virtually all antidiscrimination statutes.

Inclusive Communities

demonstrates that, at least in some contexts, an antidiscrimination statute lacking effects-based language may be susceptible to a more capacious interpretation, such as where either textual signals or closely related effects-based language indicates the provision should be construed in such a fashion, and where that construction is consistent with statutory purpose. But the Bureau has determined that with respect to ECOA—which lacks any such signals or closely related language—the best reading is that the Act does not permit a disparate-impact claim. This interpretation, as explained below, is also consistent with ECOA's purpose.

Some commenters noted that section 706(b) of ECOA specifically provides that one factor in calculating punitive damages under the Act is “the extent to which the creditor's failure of compliance was intentional.”

Commenters stated that this language could be read as contemplating scenarios in which a creditor's noncompliance with ECOA is unintentional. One commenter stated that if ECOA is interpreted as reaching only disparate treatment then section 706(b) would be superfluous. The Bureau does not agree with the commenters who stated that section 706(b) requires interpreting ECOA to permit disparate-impact liability. This language is entirely consistent with an interpretation of ECOA that encompasses only a disparate-treatment cause of action. The “extent to which the creditor's failure of compliance was intentional” might simply cover varying degrees of intentional conduct (

e.g.,

purposeful, knowing). Indeed, courts have interpreted section 706(b) as allowing for punitive damages “if the creditor's conduct is adjudged wanton, malicious or oppressive, or if it is deemed to have acted in reckless disregard of the applicable law.”

But even reckless disregard for the law is a form of intentional behavior.

The Bureau has determined that the best interpretation of ECOA is that it does not authorize disparate-impact claims, and the Bureau now determines that this interpretation is entirely consonant with the Act's punitive damages provision.

15 U.S.C. 1691e(b).

Fischl

Gen. Motors Acceptance Corp.

, 708 F.2d 143, 148 (5th Cir. 1983).

Disregard,

Black's Law Dictionary

(9th ed. 2009) (“Conscious indifference to the consequences of an act.”).

As noted above, several commenters stated that even if ECOA does not contain effects-based language, other factors, including the statutory purpose, the legislative history, and longstanding judicial and agency interpretations all support the conclusion that ECOA authorizes disparate-impact liability. Some commenters maintained that the Supreme Court has never held that effects-based language is necessary to authorize disparate-impact liability and that the Supreme Court has considered other factors, including the statutory purpose and legislative history, to determine that antidiscrimination statutes authorize disparate-impact liability. Other commenters, however, argued that the Bureau need not consider the statutory purpose or legislative history because ECOA does not contain effects-based language and therefore does not authorize disparate-impact liability.

The Bureau concludes that the text is crucial for interpreting the statute and, in the absence of effects-based language or other textual signals indicating that disparate-impact liability is cognizable, the Bureau determines that the best reading is that ECOA does not authorize disparate-impact liability. As the Supreme Court found in

Inclusive Communities,

effects-based language like “otherwise make available” in the FHA, is of “central importance” in analyzing whether disparate-impact liability is authorized under a particular antidiscrimination statute.

ECOA does not contain any such language.

576 U.S. at 534.

Although the Bureau has determined that, in light of the statutory language, it is not necessary to consider other factors, including the statutory purpose of ECOA, the Bureau also concludes that interpreting ECOA as not authorizing disparate-impact claims is consistent with the statutory purposes of ECOA. As noted above in part II.A, ECOA was adopted to ensure that various financial institutions and other firms engaged in the extension of credit exercise their responsibility to make credit available with fairness, impartiality, and without discrimination on the basis of prohibited characteristics. One

commenter stated that this language indicates that Congress was concerned with the effects of creditors' actions. Several commenters maintained that the Supreme Court relied in part on the broad remedial purposes of title VII and the FHA to find that those statutes authorized disparate-impact liability, and they argued that ECOA has a similarly broad remedial purpose that supports the conclusion that ECOA authorizes disparate-impact liability. Other commenters, however, argued that disparate-impact liability is not consistent with the purposes of ECOA, maintaining that disparate-impact liability incentivizes overly conservative credit policies and may cause some creditors to consider prohibited basis characteristics in developing policies and procedures in order to avoid potential disparate-impact liability. The Bureau, in exercising its expertise, is concerned that disparate-impact liability may lead some creditors to consider how potential policies and procedures could affect protected classes and avoid adopting certain policies and procedures, even if they may generally expand access to credit because of prohibited characteristics, because of concerns about potential disparate-impact liability. Indeed, several commenters indicated that Regulation B's current framework, which based on legislative history concludes that ECOA authorizes disparate-impact liability, may deter creditors from developing innovative policies because of concerns about how those policies may affect protected classes.

As noted above, several commenters stated that the legislative history of ECOA provides strong evidence that Congress intended ECOA to authorize disparate-impact liability. The Board, when initially promulgating Regulation B, solely relied on the legislative history of ECOA for evidence of congressional intent that disparate-impact claims may be cognizable under ECOA. As the Bureau noted in the proposed rule, if ECOA contained effects-based language or if the statutory language were ambiguous—as with the FHA and the since-repealed ESAA—then the legislative history would provide stronger evidence to support an interpretation that disparate-impact liability is permitted under ECOA. However, consistent with Supreme Court precedent, the most important consideration is the statutory language.

The Bureau determines, therefore, that the evidence from the legislative history is insufficient to support interpreting ECOA to authorize disparate-impact liability, given the statutory language and the absence of effects-based language in section 701 or anywhere else in ECOA.

See Bostock

Clayton Cnty., Georgia,

590 U.S. 644, 673-74 (2020) (“This Court has explained many times over many years that, when the meaning of the statute's terms is plain, our job is at an end. The people are entitled to rely on the law as written, without fearing that courts might disregard its plain terms based on some extratextual consideration.”). Some are critical of using legislative history to interpret statutory language. “The greatest defect of legislative history is its illegitimacy. We are governed by laws, not by the intentions of legislators. As the Court said in 1844: `The law as it passed is the will of the majority of both houses, and the only mode in which that will is spoken is in the act itself.' ”

Conroy

Aniskoff,

507 U.S. 511, 519 (1993) (Scalia, J., concurring) (quoting

Aldridge

Williams,

44 U.S. (3 How.) 9, 24 (1844));

see also

Frank H. Easterbrook,

Text, History, and Structure in Statutory Interpretation,

17 Harv. J. L. & Pub. Pol'y 61, 68 (1994) (“Intent is elusive for a natural person, fictive for a collective body.”).

Several commenters also stated that the Board, the Bureau, other Federal agencies, and lower Federal courts have long interpreted ECOA to authorize disparate-impact liability and that these longstanding interpretations support construing ECOA as authorizing disparate-impact claims. As noted above, the interpretations of the agencies with primary authority to administer ECOA are based solely on the legislative history of ECOA. The Supreme Court has never determined that an anti-discrimination statute authorizes disparate-impact liability based solely on the legislative history. Two Courts of Appeals have assumed without deciding that ECOA authorizes disparate-impact liability;

100

two others have found that ECOA authorizes disparate-impact liability, but the decisions provide only limited discussion and do not analyze the statutory text.

101

To the extent they include any analysis, the district court decisions finding that ECOA authorizes disparate-impact liability do not closely analyze the text of the statute and do not fully consider Supreme Court decisions emphasizing the importance of the presence or absence in the statute of effects-based language or other textual signals indicating that disparate-impact liability is authorized.

102

In light of the statutory language of ECOA, the Bureau concludes that these interpretations are not sufficient to support construing ECOA as authorizing disparate-impact liability, given the statutory language and the absence of effects-based language in ECOA or other textual signals indicating that ECOA authorizes disparate-impact liability.

100

See Garcia

Johanns,

444 F.3d 625, 633 n.9 (D.C. Cir. 2006);

Midkiff

Adams Cnty. Reg'l Water Dist.,

409 F.3d 758, 771-72 (6th Cir. 2005). Notably, the D.C. Circuit underscored the absence of effects-based language in ECOA.

See Garcia,

444 F.3d at 633 n.9. The Sixth Circuit noted that it was not attempting to “resolve complex statutory questions” presented by construing whether ECOA authorized disparate-impact liability.

See Midkiff,

409 F.3d at 772.

101

See Bhandari

First Nat'l Bank of Com.,

808 F.2d 1082, 1101 (5th Cir. 1987),

vacated and remanded on other grounds,

492 U.S. 901 (1989);

Miller

Am. Express Co.,

688 F.2d 1235, 1239-40 (9th Cir. 1982).

102

See, e.g., Ramirez

GreenPoint Mortg. Funding, Inc.,

633 F.Supp.2d 922, 926-27 (N.D. Cal. 2008) (finding that

Smith

does not itself bar disparate impact claims under ECOA).

Several commenters also claimed that Congress was aware of judicial interpretations that ECOA authorized disparate-impact liability when it later amended ECOA and that, by electing not to amend ECOA to alter that understanding, Congress effectively ratified judicial interpretations that ECOA authorizes disparate-impact liability. In

Inclusive Communities,

the Supreme Court noted that the existence of disparate-impact liability under the FHA is supported by the fact that, at the time the FHA was amended, all nine Courts of Appeals to have addressed the question had concluded that the FHA authorized disparate-impact liability.

103

However, as noted above, with respect to ECOA, fewer Courts of Appeals have addressed the issue and those that have either assumed without deciding that ECOA authorized disparate-impact liability or provided only limited analysis. Moreover, subsequent amendments to ECOA provide little, if any, evidence that Congress's failure to amend ECOA to include a provision specifically stating that it does not authorize disparate-impact liability means that Congress approves of lower courts' statutory interpretation.

104

The Bureau concludes that the statutory language should be the primary basis for interpreting the statute. Arguments about how a later Congress may have viewed the statutory meaning in light of lower court decisions are insufficient to overcome the best reading of the statutory language.

103

576 U.S. at 536-37.

104

See AMG Cap. Mgmt.

Fed. Trade Comm'n,

593 U.S. 67, 81 (2021) (noting that “when Congress has not comprehensively revised a statutory scheme but has made only isolated amendments, it is impossible to assert with any degree of assurance that congressional failure to act represents affirmative congressional approval of a court's statutory interpretation”) (citation and internal quotation marks omitted).

The Bureau concludes that any reliance interests in the existing regulatory interpretation permitting disparate-impact liability do not outweigh revising Regulation B to bring it into alignment with the statutory text. Several commenters argued that the

Bureau did not adequately consider the reliance interests in Regulation B's current interpretation authorizing disparate-impact claims. They maintained that consumers have reliance interests in a regime that deters facially neutral policies that have disparate effects and that creditors have reliance interests in their compliance systems and policies and procedures, which have been adopted consistent with longstanding regulatory interpretations. State Attorneys General commenters also stated that State and local governments have reliance interests in a strong Federal enforcement mechanism to address discrimination in credit markets. Another commenter, however, stated that any reliance interests in the existing interpretation of Regulation B are outweighed by the need to revise the rule to make it consistent with the statutory text of ECOA. The Bureau concludes that the need to align Regulation B with ECOA's statutory language is paramount and that any reliance interests in the Regulation B interpretation of ECOA—-impact claims are insufficient compared with the importance of conforming Regulation B to the statutory language. Consumers will remain protected under ECOA from disparate treatment, including facially neutral policies and procedures that creditors adopt as proxies for intentional discrimination. State and local governments will continue to be able to rely on ECOA's disparate treatment protections and other antidiscrimination protections. Although creditors may have to revise their policies and procedures, they will have greater flexibility to adopt facially neutral policies and procedures.

Several commenters maintained that disparate-impact liability under ECOA is crucial for addressing discrimination in the credit markets. They stated that disparate-impact is particularly important in addressing discrimination in certain circumstances where establishing intentional discrimination is especially challenging, including for automated credit models (specifically AI-driven models), indirect auto lending, and mortgage lending. The Bureau notes that ECOA will continue to provide important protections against discrimination in the credit markets and that, under disparate-treatment claims, facially neutral policies may still violate the law if they are proxies or pretexts for discrimination on a prohibited basis. In addition, the Bureau notes that disparate-impact liability may have the effect of increasing the burdens on AI developers and users, which could impair the use of AI-driven models to expand credit access. Nevertheless, to the extent that the best reading of the statutory language means that ECOA does not authorize disparate-impact liability, the fact that neutral policies and procedures resulting in a disparate impact on a prohibited basis will not give rise to liability under the Act is a choice of Congress and a necessary result of aligning Regulation B with the language of the statute.

In the proposed rule, the Bureau noted concerns about the constitutionality of disparate-impact liability as to certain ECOA-protected classes. Several consumer advocate commenters and State Attorneys General commenters stated that interpreting ECOA to authorize disparate-impact liability does not raise constitutional concerns. These commenters noted that the Supreme Court has found that several antidiscrimination statutes authorize disparate-impact liability and do not present constitutional issues. Some of these commenters noted that the case cited by the Bureau,

Students for Fair Admissions, Inc.

President & Fellows of Harvard College,

600 U.S. 181 (2023), involves race-based university admissions and does not address disparate-impact liability. Some of these commenters stated that credit application is not a zero-sum situation and that disparate-impact liability does not require creditors to prefer certain members of protected classes over other applicants. However, other commenters, including some policy group and industry commenters, maintained that disparate-impact liability pressures creditors to consider race and other factors in their decision-making. They maintained that concerns about disparate-impact liability incentivize creditors to engage in balancing of race and other factors to minimize disparities, raising equal protection concerns.

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. As a general matter, members of the Supreme Court, as well as other commentators, have identified serious infirmities in the very assumptions upon which disparate-impact theory rests.

105

The Supreme Court recently emphasized that “the Equal Protection Clause . . . applies without regard to any differences of race, of color, or of nationality—it is universal in its application” and the “guarantee of equal protection cannot mean one thing when applied to one individual and something else when applied to [another].”

106

But where a facially neutral, even-handedly applied policy “would have a disparate impact, a decision-maker is often compelled to act intentionally on the basis of [protected class status] to avoid the disparate impact, thus disparate impact regulations require decision makers `to evaluate the [ ] outcomes of their policies, and to make decisions based on (because of) those [ ] outcomes.' ”

107

With respect to ECOA, creditors looking to avoid the risk of disparate-impact liability are compelled to conduct fair lending analyses with respect to their policies, underwriting, pricing, and marketing to consider an applicant's protected class status and potentially change unintended disparate outcomes. 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.

108

The Bureau's finding that the statutory language of ECOA does not encompass disparate-impact liability appropriately avoids such constitutional concerns.

105

E.g., Ricci

DeStefano,

557 U.S. 557, 594-96 (2009) (Scalia, J., concurring) (“Title VII's disparate-impact provisions place a racial thumb on the scales, often requiring employers to evaluate the racial outcomes of their policies, and to make decisions based on (because of) those racial outcomes.”);

Inclusive Communities,

576 U.S. at 554 (Thomas, J., dissenting) (“We should not automatically presume that any institution with a neutral practice that happens to produce a racial disparity is guilty of discrimination until proved innocent.”); Alison Somin,

Disparate Impact as a Non-Delegation Violation and Major Question,

2024 Harvard J. Pub. Pol'y Per Curium 18.

106

Students for Fair Admissions, Inc.,

600 U.S. at 206 (internal quotation marks omitted) (first quoting

Yick Wo

Hopkins,

118 U.S. 356, 369 (1886); and then quoting

Regents of the Univ. of Cal.

Bakke,

438 U.S. 265, 289-90 (1978) (Powell, J.)).

107

Louisiana

EPA,

712 F. Supp. 3d 820, 843 (W.D. La. 2024) (quoting

Ricci,

557 U.S. at 595-96 (Scalia, J., concurring)) (citation omitted).

108

Students for Fair Admissions, Inc.,

600 U.S. at 206.

The Bureau is finalizing as proposed changes to Regulation B reflecting its determination that, pursuant to the best reading of section 701(a) of ECOA, disparate-impact claims are not cognizable under the Act. Several commenters supported the proposed rule but requested that the Bureau provide clarification on certain issues. A few commenters requested that the Bureau, if it finalized the proposed

rule's changes to Regulation B regarding disparate impact, also clarify that creditors may continue to use proxy analysis to assess the demographic makeup of their applicant pool to evaluate their compliance with ECOA. Other commenters requested that the Bureau, if it finalized the proposed rule, clarify that creditors will retain flexibility to evaluate the demographic impact of their policies and procedures, both to help inform business and community reinvestment strategies and because of other Federal and State laws that impose disparate-impact liability.

The Bureau has determined that the commenters' requests for clarification do not warrant making modifications to the proposed rule's amendments to Regulation B. First, several of the requests for clarification speak to creditors' processes and procedures for ensuring compliance with either ECOA or other Federal and State laws imposing disparate-impact liability. The Bureau has determined that, with respect to addressing concerns related to ECOA compliance, 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. In any event, the Bureau has primary authority for administering ECOA, but not other Federal or State laws that include a disparate-impact component. Thus, the Bureau has neither the authority nor expertise to instruct regulated entities on how to comply with those other laws.

An industry commenter urged the Bureau, if it finalized the proposed rule, to prevent circumventions of the regulation by clarifying that statistical imbalances alone are not a sufficient basis for establishing disparate treatment under ECOA. Similarly, an industry commenter requested that the Bureau, if it finalized the proposed rule, clarify that statistical evidence that a creditor lags peers in applications or originations does not, standing alone, support a disparate-treatment claim. Finally, an individual commenter urged the Bureau, if it finalized the proposed rule, to clarify that while ECOA does not give rise to a standalone disparate-impact cause of action, the Bureau may still prohibit practices that are intentionally designed or applied as proxies for prohibited characteristics.

With respect to these commenters' requests, the Bureau has determined that it is not necessary to modify the proposed rule's amendments to Regulation B. These commenters are essentially requesting that the Bureau opine on the legal sufficiency of a prima facie case of discrimination under ECOA. Courts are best positioned to render an opinion on whether certain evidence suffices to establish a prima facie case of discrimination. Finally, changes to the commentary that the Bureau is finalizing will make clear that practices that are intentionally designed or applied as proxies for prohibited characteristics will remain subject to disparate-treatment liability. The Bureau has determined that the commenters' various requests for clarification do not require modifying the proposed amendments to Regulation B, which the Bureau is now finalizing in this rule.

Finally, one commenter that supported deleting the “effects test” language from the existing regulation argued that the Bureau should not replace it with new text clarifying that section 701(a) does not support an interpretation of ECOA allowing for disparate-impact liability. The Bureau disagrees with this commenter with respect to the need to add new text to Regulation B clarifying that ECOA does not permit recovery under a disparate-impact theory. While courts are the ultimate arbiters of statutory interpretation, particularly as to whether a statute like ECOA authorizes disparate-impact claims, the Bureau has been charged by Congress with responsibility for prescribing regulations to carry out the purposes of the Act. Moreover, because Regulation B contained a contrary interpretation, the Bureau believes that it is necessary and appropriate to now clarify in Regulation B that under the best reading of ECOA disparate-impact claims are not available.

The specific changes to the rule with respect to disparate-impact liability are discussed below.

Section 1002.6(a)—General Rule Concerning Use of Information

Current § 1002.6(a) provides in the first sentence that, except as otherwise provided in the Act and this part, a creditor may consider any information obtained, so long as the information is not used to discriminate against an applicant on a prohibited basis. The second sentence provides that the legislative history of the Act indicates that the Congress intended an “effects test” (disparate impact) to apply to a creditor's determination of creditworthiness. For the reasons explained above, the Bureau is deleting the second sentence and adding a new sentence stating that the Act does not provide that the “effects test” applies for determining whether there is discrimination in violation of the Act.

Current comment 6(a)-2 explains the effects test and states that the Act and regulation may prohibit a creditor practice that is discriminatory in effect because it has a disproportionately negative impact on a prohibited basis, even though the creditor has no intent to discriminate and the practice appears neutral on its face, unless the creditor practice meets a legitimate business need that cannot reasonably be achieved as well by means that are less disparate in their impact. The comment also provides an example. The Bureau is deleting the current text of comment 6(a)-2 for the reasons explained above and adding a new title “Disparate treatment” and new language providing as follows: The Act prohibits practices that discriminate on a prohibited basis regarding any aspect of a credit transaction. 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.

Section 1002.2(p)—Definition of Empirically Derived and Other Credit Scoring Systems

Current comment 2(p)-4 to the definition of empirically derived and other credit scoring system is entitled “Effects test and disparate treatment.” The comment states that neutral factors used in credit scoring systems could nonetheless be subject to challenge under the effects test and refers to comment 6(a)-2 for a discussion of the effects test. For the reasons discussed above, the Bureau is deleting “effects test” from the title and deleting the sentence discussing the effects test and the reference to comment 6(a)-2.

C. Discouragement

Proposed Rule

The Bureau proposed changes to § 1002.4(b) and its accompanying commentary. These Regulation B provisions proposed to prohibit creditors from making oral or written statements to applicants or prospective applicants that would discourage a reasonable person from applying for credit. As noted in part II, the Board first adopted a precursor to current § 1002.4(b) in its 1975 final rule implementing ECOA, as an exercise of its adjustment authority under ECOA section 703(a).

In its 1975 final rule, the Board determined that prohibiting discouragement was “necessary to

protect applicants against discriminatory acts occurring before an application is initiated.”

109

Indeed, ECOA section 701(a) prohibits creditors from discriminating on a prohibited basis against applicants for credit,

110

a term the statute defines as a “person who

applies

to a creditor” for credit.

111

In the absence of a discouragement provision, creditors could sidestep this prohibition entirely by discouraging prospective applicants from applying for credit in the first place. For example, in the absence of a discouragement provision, a creditor could post a sign outside its office stating, “Credit available only to applicants under age 65,” arguably without violating ECOA as to individuals who choose not to apply for credit because of the sign. A well-tailored discouragement provision that prohibits such practices protects ECOA's purpose of making credit available on a non-discriminatory basis.

109

40 FR 49298 at 49299.

110

15 U.S.C. 1691(a).

111

15 U.S.C. 1691a(b) (emphasis added).

However, as explained in the proposal, the Bureau preliminarily determined in its expertise that, in the years since the Board first adopted the discouragement provision, the provision has been interpreted to prohibit conduct that is not necessary or proper to prohibit in order to prevent the circumvention or evasion of ECOA's purposes. The Bureau is concerned that this, in turn, has had an unnecessarily chilling effect on creditors' business practices and exercise of their rights to speak about matters of public interest. Pursuant to its authority under ECOA section 703(a), and in consideration of what it finds is necessary and proper given the purposes of ECOA and facilitating compliance therewith, the Bureau proposed to revise § 1002.4(b) and its commentary as described below.

112

In addition to the revisions discussed below, the Bureau proposed to make two non-substantive changes to comment 4(b)-1. The Bureau proposed to revise the heading of comment 4(b)-1 from “prospective applicants” to “discouragement” to conform with the current heading of § 1002.4(b) and to reflect the fact that the text of current comment 4(b)-1 refers to both applicants and prospective applicants. Similarly, the Bureau proposed to revise the introductory text of comment 4(b)-1 to provide that prohibited discouraging statements are those that “would” discourage (rather than “could” discourage) a reasonable person, on a prohibited basis, from applying for credit. Again, this change would conform commentary text to current text of § 1002.4(b).

Furthermore, and independent of the above, the Bureau was concerned that the overbroad coverage of the regulation and its potential interpretations may constrain free speech and commercial activity in ways that are unwarranted. The Bureau also preliminarily determined that, given this potential impact, and in consideration of its expertise as a regulator in the marketplace, the revisions would continue to prohibit illegal discouragement of potential applicants without exceeding that purpose in ways that would impose unnecessary constraints in the marketplace.

The Bureau's proposal addressed several different aspects of § 1002.4(b): (1) what constitutes an oral or written statement, (2) what constitutes a statement to an applicant or prospective applicant, and (3) the standard for showing prohibited discouragement. The Bureau requested comment on the merits of an alternative approach, such as revising only one or two of these three aspects of § 1002.4(b).

Oral or Written Statement

Section 1002.4(b) prohibits creditors from making “any oral or written statement” to applicants or prospective applicants that would discourage a reasonable person from making or pursuing an application for credit. The regulation text itself does not define “oral or written statement.” Current comment 4(b)-1, the substance of which the Board added to Regulation B in 1985 as comment 5(a)-1 without substantive explanation,

113

states, in part, that the discouragement prohibition covers “acts or practices” by creditors that could discourage on a prohibited basis a reasonable person from applying for credit.

113

50 FR 48018 at 48050.

The Bureau proposed to clarify, in § 1002.4(b), that “oral or written statement” means spoken or written words, or visual images such as symbols, photographs, or videos. That would include any visual images used in advertising or marketing campaigns. The Bureau also proposed to align the text of comment 4(b)-1 with the text of current § 1002.4(b) by replacing current references in the comment to “acts or practices” or “practices” with references to “oral or written statements” or “statements,” respectively. As a result, certain business practices, such as business decisions about where to locate branch offices, where to advertise, or where to engage with the community through open houses or similar events, would not constitute prohibited discouragement even if they had some communicative effect that some consumers could arguably find discouraging. The Bureau requested comment on the proposed revisions.

Statement to Applicants or Prospective Applicants

Section 1002.4(b) currently prohibits creditors from making any oral or written statement to applicants or prospective applicants that would discourage a reasonable person from making or pursuing an application for credit. Section 1002.4(b) 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.

The Bureau proposed to revise § 1002.4(b) to provide that prohibited discouragement occurs when a creditor makes any oral or written statement “directed at” applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from applying for credit. The Bureau proposed to revise comment 4(b)-1 to provide that encouraging statements directed at one group of consumers cannot discourage applicants or prospective applicants who were not the intended recipients of the statements. In addition, the example in current comment 4(b)-1.ii (which the Bureau proposed to redesignate as comment 4(b)-1.i.B)

114

would be narrowed to provide an example of a statement that would constitute prohibited discouragement under the limitation. As proposed, the revised example provided that prohibited discouragement includes statements directed at the public that express a discriminatory preference or policy of exclusion against consumers based on one or more prohibited basis characteristics.

114

The Bureau also proposed to redesignate the other two examples in current comment 4(b)-1 as comments 4(b)-1.i.A and 4(b)-1.i.C, without substantive change.

The Bureau also proposed to add new comment 4(b)-1.ii.A to provide an example of a statement that would

not

constitute prohibited discouragement. The proposed example provided that statements directed at a particular group of consumers, encouraging that group of consumers to apply for credit, do not constitute prohibited discouragement.

Standard for Discouragement

The prohibition against discouragement was adopted to prevent creditors from circumventing ECOA's prohibition against discrimination by deterring prospective applicants from even applying for credit. While this is an appropriate goal, the Bureau preliminarily determined in the proposal that § 1002.4(b) had been

interpreted to apply to scenarios that should not be characterized as prohibited discouragement under ECOA. These were scenarios that—though they may involve potentially controversial statements by creditors—do not involve statements that an objective creditor would know, or should know, would cause a reasonable person to believe that the creditor would deny them credit or offer them credit on less favorable terms than other borrowers. The Bureau drew a distinction between a statement by a creditor that an applicant or potential applicant may not like or may disagree with, and a statement that would cause a reasonable person to be discouraged from applying for credit with that creditor.

The Bureau proposed to revise § 1002.4(b) and its accompanying commentary to provide that a statement is prohibited discouragement only if a creditor “knows or should know” that the statement would cause a reasonable person to be discouraged.

The Bureau also proposed to revise § 1002.4(b) and its accompanying commentary to clarify that the standard is not whether a creditor's statement “would discourage on a prohibited basis a reasonable person,” as provided in existing § 1002.4(b), but rather that discouragement occurs only if the creditor's statement “would cause a reasonable person to believe that the creditor would deny, or would grant on less favorable terms, a credit application by the applicant or prospective applicant because of the applicant or prospective applicant's prohibited basis characteristic(s).” Under this proposed revision, prohibited discouragement would occur only when the creditor's statement was the proximate cause of the applicant's or prospective applicant's belief about their ability to obtain credit on non-discriminatory terms. The proposed revision thus would narrow the prohibition to cover only statements that

themselves

would cause a reasonable person to believe that the creditor would make a different decision about credit terms or availability based on the applicant or prospective applicant's prohibited basis characteristic(s).

Consistent with that proposed revision, the Bureau also proposed to narrow current comment 4(b)-1.ii (proposed comment 4(b)-1.i.B)

115

to refer only to statements that express a discriminatory preference or policy of exclusion.

116

115

The Bureau mistakenly referred to this as proposed comment 4(b)-1.i.A in the proposal.

See

90 FR 50901 at 50908.

116

The Bureau discusses other proposed changes to the text of current comment 4(b)-1.ii above in part III.C,

Statement to applicants or prospective applicants.

To facilitate compliance, the Bureau also proposed to add three examples to the commentary, in new comments 4(b)-1.ii.B through D, of the types of statements that a creditor would not (or should not) know would cause a reasonable person to believe that the creditor would deny (or would grant on less favorable terms) credit to an applicant or prospective applicant based on their prohibited basis characteristic(s). These were illustrative examples of non-prohibited statements that a creditor may make, directed at an applicant or prospective applicant: (1) in support of local law enforcement; (2) recommending that, before buying a home in a particular neighborhood, consumers investigate, for example, the neighborhood's schools, its proximity to grocery stores, and its crime statistics; and (3) encouraging consumers to seek out resources to develop their financial literacy. The Bureau requested comment on the revisions, including on whether additional or different examples would be helpful in clarifying the types of statements that would be permissible under the final rule.

Comment 4(b)-2

Comment 4(b)-2 provides that creditors 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 Bureau proposed to strike this comment as unnecessary; no substantive change was intended. The Bureau requested comment on the revision.

Technical Revision Related to Prospective Applicants

Consistent with ECOA section 704A, § 1002.15 sets forth incentives for creditors to self-test for compliance with ECOA and Regulation B and to correct any issues found.

117

Section 1002.15(d)(1)(ii) currently states that the report or results of a privileged self-test may not be obtained or used “[b]y a government agency or an applicant (including a prospective applicant who alleges a violation of § 1002.4(b)) in any proceeding or civil action in which a violation of the Act or this part is alleged.” The Bureau proposed to strike from § 1002.15(d)(1)(ii) the previous reference to prospective applicants. This proposed revision would conform the language of § 1002.15(d)(1)(ii) with the statutory language of ECOA sections 704A(a)(2) and 706.

118

No substantive change was intended. The Bureau requested comment on the revision.

117

15 U.S.C. 1691c-1 (Incentives for self-testing and self-correction).

118

15 U.S.C. 1691c-1(a)(2), 1691e.

Comments Received

Generally.

Many comments that addressed the proposed revisions to the definition of discouragement in § 1002.4(b) and its accompanying commentary, particularly from consumer advocates and Members of Congress, stated that the proposed revisions would permit discriminatory lender conduct. Commenters identified populations that may be most impacted by the amendments to the definition of discouragement, including minorities, low-income consumers, women, consumers with disabilities, small business owners, rural consumers, older adults, and so-called justice-involved individuals. Some commenters noted that the amendments will cause individuals to self-select out of applying for credit. Many comments raised concerns that the proposed revisions will remove tools to prevent and redress discrimination in particular industries, including mortgage lending, small business lending, credit cards, small dollar loans, and other forms of small dollar lending.

One commenter noted an interaction between the discouragement prohibition and the Home Mortgage Disclosure Act of 1975 (HMDA),

119

explaining that creditors who want to discriminate illegally will be incentivized to keep certain types of consumers from applying for credit because under HMDA, if individuals never apply for credit, the creditor is not required to report the individual as being denied credit. State Attorneys General commenters also asserted that the proposed changes would limit the power of States, which, under the Dodd-Frank Act, have authority to enforce ECOA and Regulation B.

119

Public Law 94-200, tit. III, 89 Stat. 1125 (12 U.S.C. 2801

et seq.

As discussed in the proposal, the Bureau preliminarily determined in its expertise that, in the years since the Board first adopted the discouragement prohibition, the prohibition has been interpreted to prohibit conduct that it is not necessary or proper to prohibit in order to prevent the circumvention or evasion of ECOA's purposes.

120

The Bureau expressed concern that this, in turn, has had an unnecessarily chilling effect on creditors' business practices and exercise of their rights to speak

about matters of public interest.

121

The Bureau was also concerned that the overbroad coverage of the regulation and its potential interpretations may constrain free speech and commercial activity in ways that are unwarranted.

122

120

90 FR 50901 at 50907.

121

Id.

122

Id.

Industry commenters agreed that the existing discouragement regulations are overbroad and have had a chilling effect on lawful expression by creditors. The comments supported the proposed revisions, stating that the amendments will achieve the statutory purposes without prohibiting lawful, non-discriminatory conduct. One commenter noted that the Bureau's proposed amendments substantially reduce the potential for the rule to violate creditors' First Amendment rights.

Consumer advocate and State Attorneys General commenters disagreed, stating that the Bureau's concern that the overly broad and improper application of the discouragement provision has had a chilling effect on creditors and may constrain free speech and commercial activity is unjustified.

Consumer advocate and State Attorneys General commenters stated that the proposed changes to the discouragement regulations are inconsistent with the text and purposes of ECOA, and contrary to congressional intent. One commenter stated that if creditors could discourage prospective applicants from applying, they could frustrate the statutory purpose of requiring that financial institutions and other firms engaged in the extension of credit make that credit equally available to all creditworthy consumers without regard to prohibited characteristics. Some commenters pointed to the 1991 amendment of ECOA and its legislative history as evidence that Congress intended to prohibit the discouragement of applicants on a prohibited basis and advertising which implies a discriminatory preference.

123

The 1991 amendment requires agencies to refer matters to the Attorney General whenever the agencies have reason to believe that one or more creditors has engaged in a pattern or practice of discouraging or denying applications for credit in violation of 15 U.S.C. 1691(a).

124

123

S. Rep. No. 102-167, at 86 (1991).

124

FDIC Improvement Act of 1991, Public Law 102-242, sec.223, 105 Stat. 2236, 2306 (1991) (codified at 15 U.S.C. 1691e(g)).

Individuals and consumer advocate commenters also asserted that the proposed revisions to § 1002.4(b) would not facilitate compliance with ECOA. Commenters stated that the changes would render ECOA unworkable and make it unreasonably difficult for anyone to pursue a claim of discouragement. Consumer advocate and State Attorneys General commenters claimed that the Bureau did not provide a reasoned analysis to justify the changes. They stated that the Bureau's preliminary determination in the proposal that the discouragement provision has been interpreted to prohibit conduct that it is not necessary or proper to prohibit is not supported by data, case law, statutory text, or other legal or factual evidence. One consumer advocate commenter claimed that the Bureau's use of rulemaking authority limited consumer rights under ECOA, exceeding the Bureau's statutory rulemaking authority. Some commenters claimed that the proposed rule was inconsistent with the Bureau's consumer protection mandate.

Consumer advocate and State Attorneys General commenters also stated that the proposed changes to the discouragement regulations are inconsistent with decades of precedent and enforcement history and cited to cases that found discouragement. Most discussed was the 2024 decision from the U.S. Court of Appeals for the Seventh Circuit in which the court held that Regulation B's prohibition against discouragement is consistent with the plain text of the ECOA.

125

One commenter referenced dozens of court-approved settlements to resolve allegations of redlining that relied in part on Regulation B's definition of discouragement. Some commenters claimed that the proposed changes to the discouragement provision would explicitly permit statements similar to those that were at issue in that case.

125

Consumer Fin. Prot. Bureau

Townstone Fin., Inc.,

107 F.4th 768, 774, 777 (7th Cir. 2024).

An individual commenter asked the Bureau to define “prospective applicant” and suggested the term should mean either a person who has made a substantive pre-application inquiry to the creditor or a person who is an intended recipient of a targeted communication based on the creditor's distribution or targeting settings.

Oral or written statements.

Several industry commenters supported the Bureau's proposal to clarify that certain acts or practices do not reflect the circumvention or evasion of ECOA's prohibition against discrimination. Industry commenters agreed that the proposal would tailor an overbroad reading of the statute. An industry trade commenter stated that banks have existing obligations under the CRA, and ECOA was not intended to impose similar obligations.

Many commenters, including consumer advocate and State Attorneys General commenters, stated that the Bureau failed to provide sufficient legal or factual data to support the proposed elimination of references to “acts or practices” in comment 4(b)-1. A few commenters stated that the proposal did not provide evidence that clarifying the Bureau's interpretation of discouragement would alleviate any purported chilling effect on creditors. Commenters also stated that the change is inconsistent with ECOA's remedial purpose and congressional intent to prevent discrimination before it occurs. In addition, many commenters stated that the proposed narrow definition of discouragement would create enforcement gaps.

Several consumer advocate commenters as

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