On July 14, the Office of the Comptroller of the Currency (OCC) issued Bulletin 2025-16, announcing the removal of references to disparate impact liability from the “Fair Lending” booklet of the Comptroller’s Handbook and instructing examiners to cease examining banks for disparate impact liability. This change aligns with Executive Order (EO) 14281, issued by President Trump (discussed here), which aims to eliminate the use of disparate impact liability in all contexts at both the federal and state level.
Understanding Disparate Impact
Disparate impact refers to discrimination that occurs when a facially neutral policy or practice has a disproportionate, adverse effect on a protected class — even when there is no intent to discriminate — unless the policy or practice meets a legitimate business need that cannot be reasonably met by a less discriminatory alternative. Historically, this concept has been used to identify and address indirect discrimination in various sectors, including lending. However, EO 14281 seeks to dismantle the use of disparate impact legal theory by government agencies, advocating for a merit-based system that focuses on equality of opportunity rather than equal outcomes.
Contextualizing the Executive Order
EO 14281, titled “Restoring Equality of Opportunity and Meritocracy,” emphasizes treating individuals based on their merits and efforts rather than immutable characteristics, such as race or sex. It criticizes disparate impact liability for presuming unlawful discrimination based on differences in outcomes among various groups (e.g., based on race, ethnicity or sex), even without any discriminatory intent. The order directs federal agencies to deprioritize enforcement of statutes and regulations to the extent they include disparate impact liability and mandates reviews of pending investigations, regulations, and other matters that rely on disparate impact liability.
Key Changes in OCC Bulletin 2025-16
The bulletin outlines several critical changes in the OCC’s supervisory processes, but also notes certain processes that will go unchanged:
- Removal of Disparate Impact References: The OCC has removed references to disparate impact liability from the “Fair Lending” booklet of the Comptroller’s Handbook and has begun removing such references from other issuances. This change applies to all national banks, federal savings associations, and OCC-supervised community banks.
- Examination Adjustments: Examiners are instructed not to request, review, conclude on, or follow up on matters related to disparate impact risk, internal analyses, or risk assessment processes.
- Continued Fair Lending Practices: Despite these changes, the OCC will continue to conduct fair lending risk assessments, analyze Home Mortgage Disclosure Act data for disparate treatment, conduct risk-based fair lending examinations, and take action if evidence of disparate treatment is found.
Implications for Banks
The OCC expects banks it supervises to continue providing fair access to financial services, treating customers equitably, and adhering to all applicable laws and regulations. The removal of disparate impact liability from the OCC’s fair lending examinations may reduce compliance burdens for OCC-supervised banks and lead to fewer supervisory issues and enforcement actions at the federal level, but so far there has been no indication that states plan to follow the federal government in shifting away from disparate impact reviews. Banks and other financial institutions should continue to monitor developments at both the federal and state level to ensure they are meeting the fair lending expectations of all applicable regulatory agencies.