Mortgage Trade Groups Back Cfpb Plan To Revise Ecoa. Consumer Groups Push Back

Mortgage trade groups are supporting limits on disparate-impact liability under the Equal Credit Opportunity Act (ECOA) and other proposed changes, according to comment letters submitted Monday to the Consumer Financial Protection Bureau (CFPB).

Consumer advocacy groups, however, are urging the CFPB to withdraw the proposal entirely, warning that it would significantly weaken fair lending protections and make credit more expensive and less accessible for women, Black and Latino borrowers, and older adults.

The CFPB’s proposal, published on Nov. 13 in the Federal Register, includes changes to disparate impact, discouragement of applicants or prospective applicants and Special Purpose Credit Programs (SCPC) under Regulation B, which implements ECOA. 

“The amendments would facilitate compliance with ECOA by clarifying the obligations imposed by the statute,” the CFPB wrote.  

The issue gained traction on social media as the deadline for comments came to a close. Mortgage industry veteran Faith Schwartz, founder and CEO of Housing Finance Strategies, shared a video by Nikitra Bailey, executive vice president of the National Fair Housing Alliance (NFHA), criticizing the proposal. The video was widely reshared, with commenters expressing concern over the potential impact of the rule.

Disparate impact

Disparate impact allows borrowers to challenge lending policies that disproportionately affect certain groups, even without evidence of intentional discrimination. Mortgage trade groups argue, however, that the theory has been enforced largely through agency interpretation rather than explicit statutory authority.

According to them, ECOA itself does not explicitly recognize disparate impact, nor does it include the “effects-based” language found in other laws, such as the Fair Housing Act. In addition, neither the Congress nor the Supreme Court has expressly extended disparate-impact theory to ECOA. Other government entities, like the Department of Justice and the Office of the Comptroller of the Currency, have already moved this year to rescind disparate-impact liability from their regulations.  

The Mortgage Bankers Association (MBA) said it supports deleting the provision in Regulation B, limiting “discrimination claims under ECOA only to acts where creditors treat borrowers differently on the basis of a protected characteristic,” Pete Mills, senior vice president of residential policy and strategic industry engagement at MBA, wrote in a letter to the CFPB.

Mills acknowledged that courts will ultimately determine the proper interpretation of ECOA, but said regulatory consistency remains important for the industry.

MBA also urged the CFPB to narrow ECOA’s discouragement provision — which bars lenders from discouraging a reasonable person from applying for credit — to cases in which a creditor “knows or should know” that discouragement is occurring. The group noted that the provision has been applied even when individuals had not yet expressed an intent to apply for credit.

NFHA, meanwhile, issued a public statement opposing the proposal when it was announced, saying it “vehemently opposes” the changes. NFHA President and CEO Lisa Rice called the proposed rule “unconscionable” and said it “must never come into effect.”

“The proposed rule changes are a death knell for lenders,” Rice wrote. “Disparate impact is a business-growth engine and any company that wants to remain viable and competitive will continue to use this critical tool. Disparate impact helps businesses grow and expand their products and services by revealing and removing unnecessary barriers that arbitrarily limit customer reach, suppress innovation, and constrain business opportunities.”

According to Rice, the proposal “ignore mounds of evidence revealing ongoing lending bias, are an assault on decades of settled fair lending law and would promote discrimination in our credit markets. They are a continuation of this administration’s attack on protections against redlining.”

Protected classes 

The Community Home Lenders of America (CHLA) echoed MBA’s concerns, arguing disparate impact has been used to pressure lenders — based on statistical outcomes alone— to increase lending to certain groups or open branches in specific communities, actions the group argues are neither authorized nor contemplated by ECOA.

The issue is particularly concerning for independent mortgage banks (IMBs), CHLA said, because they rely heavily on federal mortgage programs and have limited control over underwriting standards and loan pricing, which can drive loan denials or higher rates.

As alternatives, CHLA proposed several policy changes it believes would more effectively expand access to homeownership, including ending the Federal Housing Administration’s life-of-loan insurance, reducing state barriers to loan originator licensing, eliminating loan-level price adjustments (LLPAs) for entry-level loans such as manufactured housing and condominiums, and creating targeted exemptions from loan originator compensation rules.

SCPCs

On Special Purpose Credit Programs (SPCPs), which trade groups describe as an important tool for addressing persistent homeownership gaps, MBA urged the CFPB to continue allowing programs based on income or geography.

CHLA agreed, saying SPCPs focused on geography or income — particularly those aimed at rural or persistently underserved communities — can be effective without relying on race-based criteria. The group added that requiring lenders to prove, on a participant-by-participant basis, that an applicant would not otherwise receive credit due to a protected characteristic creates significant compliance complexity and legal risk.

“Given the compliance complexity and legal risk associated with such individualized determinations, CHLA believes that many lenders — particularly small and mid-sized IMBs — may find such programs difficult to administer in practice.”

Opposition to the proposed changes

Consumer advocacy groups said the CFPB proposal would weaken long-standing fair lending protections and disproportionately harm historically marginalized borrowers.

The National Consumer Law Center (NCLC) said that before ECOA was enacted in 1974, systemic discrimination in access to credit was widespread, with many women unable to obtain mortgages or other loans without a male co-signer.

Provisions such as disparate-impact liability, the group argued, provide “an effective legal framework for challenging credit policies that seem neutral on their face but unfairly exclude certain groups of people or communities from accessing fair and sustainable credit.”

“The administration’s proposed changes to the ECOA represent a radical departure from the law’s core mission to protect consumers from discrimination,” said Odette Williamson, director of racial justice advocacy at NCLC.

Jeremiah Battle, Jr., senior attorney at NCLC, added that the  proposed “rule would invite discrimination to persist in the credit market and create barriers to economic stability and advancement for individuals, families, and whole communities.”