The Consumer Financial Protection Bureau (CFPB or Bureau) has proposed an unprecedented, far‑reaching rewrite of Regulation B (Reg B) under the Equal Credit Opportunity Act (ECOA). If finalized, the proposed rule would eliminate disparate‑impact liability under ECOA, significantly narrow the scope of “discouragement” to focus on explicit statements directed at applicants or prospective applicants, and prohibit or tightly restrict the use of certain protected‑class criteria in Special Purpose Credit Programs (SPCPs) offered by for‑profit organizations. Existing SPCP‑originated credit would be grandfathered.

Comments are due 30 days after publication in the Federal Register, with a proposed effective date 90 days after publication.

The Bureau’s rationale and legal context

The CFPB grounds its ECOA interpretation in statutory text and recent U.S. Supreme Court jurisprudence, contrasting ECOA’s absence of “effects” language with Title VII and the Fair Housing Act (FHA), and citing concerns that effects‑based liability may drive outcome balancing by creditors that raises reverse discrimination and equal protection issues. The proposal references the President’s 2025 Executive Order ending illegal preferences and urging agencies to curb disparate‑impact liability while framing the discouragement revisions as aligning Reg B with ECOA’s applicant‑focused scope. For SPCPs, the Bureau points to changed market conditions since 1976 and constitutional constraints on preference‑based programs, concluding that for-profit organizations that offer SPCPs should not rely on an applicant’s race, color, national origin, or sex as a common characteristic in determining eligibility, and use of any remaining prohibited‑basis criteria under ECOA must be demonstrably necessary to address an applicant’s inability to obtain credit.

Disparate impact under ECOA

The proposal would remove the long‑standing “effects test” language from Reg B and its commentary and replace that language with new statements providing that ECOA does not authorize disparate‑impact liability. ECOA claims would pivot to disparate treatment — a form of intentional discrimination, including the use of facially neutral criteria as proxies for protected characteristics — rather than effects‑based theories. In connection with this proposal, the Bureau emphasizes that ECOA’s text lacks the kind of “effects‑based” language the Supreme Court has noted as being critical to supporting disparate-impact liability in decisions under statutes like Title VII and the Age Discrimination in Employment Act.

A key passage captures the agency’s concern with the potential for reverse discrimination: “Under a regime with disparate-impact liability, creditors may believe that they are required not only to consider the impact of facially neutral policies and procedures on protected classes, but to adjust those policies with the goal of achieving particular protected class outcomes, in order to avoid potential disparate-impact claims. This may even involve policy changes that disadvantage certain protected classes in an effort to reduce the disadvantages for others.” In the Bureau’s view, that dynamic risks promoting intentional protected‑class balancing and chilling innovation.

The “discouragement” standard

Currently, Reg B prohibits lenders from making oral or written statements to applicants or prospective applicants that would discourage a reasonable person from applying for credit. The proposal would narrow “statements” to spoken or written words or visual images (including advertising visuals), as opposed to broader “acts or practices” such as branch placement or advertisement targeting. Liability would attach only to statements “directed at” intended recipients and only where a creditor knows or should know the statement would cause a reasonable person to believe the creditor would deny, or offer worse terms on, a credit application because of a prohibited basis. Crucially, the Bureau seeks to protect targeted advertising from discouragement claims by specifically providing that encouraging messages directed at one audience would not be treated as discouraging to others who were not the intended recipients of such messages. The Bureau also illustrates non‑prohibited statements (e.g., support for local law enforcement, neighborhood due‑diligence advice, financial‑literacy encouragement) to distinguish controversial speech from statements that convey discriminatory exclusion.

SPCPs offered by for‑profit organizations

ECOA states that it does not constitute discrimination under the Act for a creditor “to refuse to extend credit offered pursuant to” “any special purpose credit program offered by a profit-making organization to meet special social needs which meets standards prescribed in regulations by the [Bureau].” Under the proposed rule, a for‑profit organization offering an SPCP would be prohibited from using race, color, national origin, or sex (or any combination thereof) as eligibility criteria. For any SPCP that still uses otherwise prohibited‑basis criteria (such as religion, marital status, age, or public‑assistance income), the creditor would face significant restrictions, including stringent documentation and evidence requirements.

It’s important to note that the CFPB is proposing these SPCP restrictions independently of and in addition to the prohibitions. That is, under the proposal, if the Bureau’s proposed prohibitions were to not be finalized or to otherwise become inoperative, the proposed restrictions would then be operative with respect to an SPCP offered or participated in by a for-profit organization that uses race, color, national origin, or sex as eligibility criteria, and would continue to be operative with respect to such an SPCP that uses religion, marital status, age, or income derived from a public assistance program as eligibility criteria.

An SPCP written plan must identify beneficiaries, set procedures, provide evidence of need, and explain why participants would not receive the credit absent the SPCP. If using prohibited‑basis criteria, the creditor would be required to justify why the specific characteristics considered by the SPCP are necessary and why the goals of the SPCP could not be achieved without using those characteristics. The eligibility standard would tighten from “customary” and “probably” to a showing that, under the creditor’s actual standards, participants would actually not receive the type and amount of credit without the SPCP. In addition, the “less favorable terms” pathway would be removed.

A notable consultation footnote

The proposed rule states the Bureau “offered to consult with the appropriate agencies” under CFPA section 1022(b)(2)(B) but suggests that no federal agencies took up the Bureau’s offer. This is striking given the number of prudential and non‑prudential regulators that have responsibility for enforcing ECOA and Reg B. We expect commenters to scrutinize interagency coordination and the implications for supervisory expectations.

Our take

If the proposed rule is finalized without any material changes, we expect that creditors’ compliance programs will reorient away from ECOA disparate‑impact testing and place a larger emphasis on disparate‑treatment and proxy‑discrimination analysis, while continuing to focus on FHA disparate impact and state analogs where applicable. The rule will also provide more flexibility with respect to marketing controls and branch and advertising strategies, provided communications avoid expressing discriminatory preferences or exclusions. Finally, SPCPs will face material redesign pressures. For example, many race‑ or sex‑based SPCPs offered by for‑profit organizations will be prohibited, while other SPCPs will require robust, plan‑level evidence and participant‑level documentation of necessity.

But these impacts are not yet certain. We expect the CFPB to finalize this rule sometime next year, and for consumer advocates to immediately contest it in litigation. The validity of these changes will therefore be subject to litigation, potentially over a period of years, before they become final. We will be watching and reporting on these events as they unfold over the coming years.