NCUA Removes Disparate Impact from Fair Lending Materials

On Sept. 4, the National Credit Union Administration (NCUA) announced that it has removed all references to disparate impact liability from its Fair Lending Guide and other reference materials. In addition, the agency claims that its examination and supervision processes will no longer review for disparate impact.

For years, disparate impact has been one of three recognized forms of lending discrimination. It is defined as a practice in which a creditor applies a lending policy or practice uniformly to all credit applicants; however, that policy or practice disproportionately excludes, or burdens certain applicants based on a protected classification.

The NCUA’s actions were taken in response to President Trump’s April 23 Executive Order 14281: Restoring Equality of Opportunity and Meritocracy. The order directs the heads of federal agencies to eliminate the use of disparate impact liability in their regulations, policies, and practices.

While compliance risk associated with disparate impact may be waning in light of the President’s executive order, credit unions must remember that the legal risks associated with this theory of discrimination are very much alive and well. For example, in a case from 2015, the United States Supreme Court held that disparate impact claims are actionable under the Fair Housing Act.