It may not feel as iconic as the passing and legacy of Giorgio Armani and what he built in fashion but the NCUA’s recent removal of disparate impact from its Fair Lending Guide represents a significant structural shift that credit unions should not overlook.
Quick Refresher: What Is Disparate Impact?
It’s the idea that even if a policy looks neutral on its face, it can still be discriminatory if it disproportionately harms a protected group. The Supreme Court affirmed its role in fair housing law in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (2015). For years, federal regulators used it as a cornerstone of fair lending oversight.
So, What Happened?
The NCUA’s September 4 announcement follows Executive Order 14281, “Restoring Equality of Opportunity and Meritocracy”, which earlier this year directed federal agencies to step back from disparate impact enforcement. Since then:
- CFPB announced through an internal memorandum in April that it will no longer pursue disparate impact cases, instead focusing on intentional discrimination.
- OCC removed disparate impact from its Comptroller’s Handbook in July
- FDIC followed suit with its Consumer Compliance Examination Manual in August.
Now the NCUA has joined them, stating it will no longer review credit unions’ policies, data, or risk assessments for disparate impact.
What This Means For Credit Unions
The immediate relief:
- Examiners won’t request disparate impact risk analyses.
- NCUA documentation requirements for disparate impact may ease, but robust documentation remains essential for defending against private litigation and state enforcement actions.
- Risk management frameworks can be designed without this specific overlay.
The reality check:
- Disparate impact claims are still alive under federal law. Private litigants and the DOJ can bring them.
- New York continues to recognize disparate impact under both the New York State Human Rights Law and the New York City Human Rights Law.
- Reputational risk remains real. Members and communities expect equitable access to credit, regardless of what’s in an examiner’s checklist.
How To Navigate The New Landscape
- Don’t toss the data. Monitoring for disparities is still smart risk management.
- Document business reasons. If a policy has uneven effects, be ready to show why.
- Watch state rules. States like New York are likely to fill the void left by the federal regulatory shift.
- Consult with qualified legal counsel to understand your specific compliance obligations under the changed regulatory environment.
- Stay connected to your mission. Equity and inclusion aren’t just regulatory issues. They’re at the heart of the credit union difference.
The Bottom Line
The NCUA (as well as the CFPB and other prudential regulators) may have stepped back, but credit unions can’t afford to. The law—the Equal Credit Opportunity Act and the Fair Housing Act—is still the law and courts have consistently recognized disparate impact claims.
And remember, regulatory winds can shift quickly. A different administration could put disparate impact enforcement right back on the table.
So, even as examiners change their checklists, credit unions need to stay vigilant. Because when it comes to lending fairly, credit unions will do the right thing.
Let’s Make This Useful
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Until Next Time
From the big picture to the fine print, we’ve got you covered. Thanks for reading, and CU in the next post.