Fair Housing Groups Sue Over Changes to Lending Rules

Fair housing organizations filed a lawsuit against a federal rule change on Wednesday. They claim the change would undermine decades of lending protections and increase discrimination against Black individuals, Latinos, and other minorities.

The lawsuit, submitted in Washington, D.C., targets a modification made by the Consumer Financial Protection Bureau (CFPB) earlier this year. This change to the Equal Credit Opportunity Act affects laws that prevent lenders from discriminating against credit applicants.

Key among the contested changes is the removal of the “disparate impact” consideration. This concept involves policies that seem neutral but result in adverse effects on specific groups. Plaintiffs argue that the revised rule would enable lenders to focus on marketing loans in predominantly white areas. This would leave minority communities dependent on lenders who provide risky, high-cost loans with excessive interest rates.

The deliberate dismantling of 50 years of legal jurisprudence, regulatory guidance, and bipartisan consensus that lending discrimination has no place in America,” Lisa Rice, CEO and president of the National Fair Housing Alliance, one of the plaintiffs, stated.

Rice also noted that this action by the CFPB follows a broader trend of this administration aiming to weaken fair housing and lending protections.

Paulina Gonzalez-Brito, the CEO of another plaintiff, Rise Economy, also criticized the CFPB. She stated the bureau overlooked “public comments, common sense, and decades of precedent.” Gonzalez-Brito warned about the potential harm of this final rule, emphasizing that it undermines efforts to provide all families and small businesses with a fair opportunity to pursue the American Dream.

The CFPB has not responded to requests for comment. The plaintiffs assert that the rule change is part of a larger campaign by the Trump administration to eliminate fair housing and lending regulations.

The National Fair Housing Alliance highlighted that the administration suggested removing the budget for the Fair Housing Initiatives Program. This program aids nonprofits in ensuring seniors, disabled veterans, families with children, and other groups have housing access. Additionally, it pointed out that the Department of Housing and Urban Development’s Office of Fair Housing and Equal Opportunity has undergone significant staffing cuts.

Recent settlements show housing discrimination continues to be a serious issue. In 2023, City National Bank in Los Angeles faced accusations from the Justice Department of discriminatory practices. The bank was required to pay over $31 million, marking the largest redlining settlement in the department’s history. Similarly, in 2016, the Justice Department and CFPB fined BancorpSouth $10.6 million for discriminatory lending practices.

The plaintiffs request the court to overturn the rule, arguing it is arbitrary, capricious, exceeds statutory authority, and was issued without following Congress-required procedures. They claim the Final Rule does not represent reasoned decision-making.

The Final Rule is a drastic turn, without justification, from the CFPB’s longstanding interpretation and enforcement of key ECOA provisions,” the plaintiffs contended.