New England Biz Law Update
The Consumer Financial Protection Bureau (CFPB) has proposed a rule that would significantly narrow the application of anti-discrimination protections under the Equal Credit Opportunity Act (ECOA).
The rule would limit the use of “disparate impact” liability, when a neutral policy may still be considered discriminatory if it disproportionately harms certain groups.
The proposed rule would also scale back restrictions on marketing practices regulators previously considered as discouraging to protected classes.
Supporters argue that the changes would modernize credit evaluation and reduce compliance burdens for lenders designing new credit models.
However, civil rights groups contend that eliminating disparate impact standards would make discriminatory lending harder to detect and could undermine decades of fair-lending enforcement.
Although the proposal is directed toward lenders and consumer-finance companies, changes to how discrimination is assessed in lending may also influence expectations for employer-provided credit programs and AI-based hiring and screening tools. The proposal fits into a broader federal conversation about how automated decision systems can produce disparate outcomes, even without explicit reliance on protected traits.
The proposal is open for public comment, and litigation or congressional review is possible if the rule moves forward.
With this proposal on the radar, employers are advised to:
- Review any in-house credit or financial wellness programs for potential ECOA coverage.
- Evaluate automated decision-making tools given the risk of unintended disparate outcomes.
- Monitor final rulemaking and coordinate policy or vendor changes as needed.
