On August 29, the Federal Deposit Insurance Corporation (FDIC) announced updates to its Consumer Compliance Examination Manual, marking a pivotal shift in how potential discrimination under the Equal Credit Opportunity Act and Fair Housing Act will be evaluated. The FDIC will now focus solely on evidence of disparate treatment, removing all references to disparate impact analysis from its examination procedures. This action follows on the heels of the OCC’s announcement on July 14 that it had removed all references to disparate impact analysis from the Fair Lending booklet of the Comptroller’s Handbook and directed examiners to cease examining banks for disparate impact liability, discussed here.
Key Updates
- Fair Lending Laws and Regulations: Sections 1.1, 2.1, and 4.1 have been revised to exclude disparate impact considerations, aligning with the FDIC’s new approach.
- Unfair, Deceptive, and Abusive Practices: Section VII-1.1 has been updated to remove disparate impact references.
These updates are in direct response to President Trump’s Executive Order titled “Restoring Equality of Opportunity and Meritocracy,” issued on April 24, 2025 (discussed here). The order aims to eliminate disparate impact liability across all federal and state contexts, advocating for a merit-based, color-blind approach to regulation.
Disparate impact liability has historically been used to identify indirect discrimination, where neutral policies disproportionately affect members of protected class groups. However, the executive order criticizes this approach for presuming discrimination based on outcome differences without intent, urging federal agencies to prioritize equality of opportunity over equal outcomes.
Implications for Banks
The FDIC’s examination manual update is expected to reduce compliance burdens for FDIC-supervised institutions, aligning with broader federal government efforts to shift away from disparate impact analysis. While this change may lead to fewer supervisory issues and enforcement actions at the federal level, financial institutions should remain vigilant in monitoring state-level developments, as states may not follow the federal government’s lead in this regulatory shift.
