On April 23, the White House issued an Executive Order entitled Restoring Equality of Opportunity and Meritocracy, directing federal agencies to “eliminate the use of disparate-impact liability in all contexts to the maximum degree possible.” The Executive Order marks a potential shift in how federal fair lending laws will be enforced across the financial services sector.
Federal agencies have historically used disparate-impact liability to evaluate facially neutral policies that may result in unequal outcomes for protected classes. The Executive Order now instructs agencies to reassess their enforcement strategies and deprioritize claims rooted in disparate impact, including under the Equal Credit Opportunity Act, the Fair Housing Act, and other fair lending statutes.
Specifically, the Executive Order directs the Attorney General to identify and initiate repeal or amendment of regulations, guidance, or rules that impose disparate-impact liability. It also calls on federal agencies, including the CFPB, to review all pending investigations, litigation, and consent orders based on disparate-impact claims. Additionally, the Attorney General must evaluate whether federal law preempts state-level disparate-impact regimes and recommend further action where such state laws may conflict with federal policy.
Putting It Into Practice: The Executive Order reflects a broader policy shift on how discriminatory conduct is litigated. (previously discussed here). The Executive Order will certainly impact federal fair lending and anti-discrimination oversight, particularly in areas where enforcement has traditionally relied on statistical disparities rather than explicit intent. Market participants should also prepare for potential divergence between federal and state priorities in some jurisdictions.