Fair Housing Organizations Challenge CFPB Rule Change

Fair housing groups have initiated a lawsuit against a federal rule change, arguing it could undo decades of lending protections and lead to discrimination against minorities, including Black and Latino communities. The legal challenge, filed in Washington, D.C., targets a recent amendment by the Consumer Financial Protection Bureau (CFPB) to the Equal Credit Opportunity Act. This Act prohibits lenders from discriminating against credit applicants.

The suit contests the removal of ‘disparate impact,’ a policy that seemingly neutral actions tend to harm specific groups disproportionately. It also claims the new rule may enable lenders to favor predominantly white neighborhoods, pushing minority areas to resort to expensive, predatory lenders with high interest rates.

“This dismantles 50 years of legal and regulatory progress, undermining the consensus that lending discrimination is unacceptable in America,” stated Lisa Rice, CEO of the National Fair Housing Alliance, a plaintiff in the lawsuit.

Paulina Gonzalez-Brito from Rise Economy criticized the CFPB for overlooking public opinion and established precedents. She called the agency’s decision a reversal of its mission to protect consumers and small businesses against financial abuses.

The plaintiffs assert that the rule change is a part of the Trump administration’s broader efforts to weaken fair housing and lending protections. They highlight proposals to cut the budget for the Fair Housing Initiatives Program and reduce staff in the Department of Housing and Urban Development’s Office of Fair Housing and Equal Opportunity.

Recent settlements highlight ongoing discrimination issues. In 2023, City National Bank in Los Angeles settled for over $31 million in a redlining case. Similarly, in 2016, BancorpSouth faced fines for alleged discriminatory lending.

The plaintiffs are seeking to nullify the rule, labeling it arbitrary and beyond legal authority. They argue that it fails to reflect necessary decision-making and strays from prior interpretations of the Equal Credit Opportunity Act.