OCC Pulls Back on Fair Lending: Why This “Regulatory Win” Could Backfire

The Office of the Comptroller of the Currency (OCC), along with at least one other federal regulator, will no longer use the “disparate impact” test in fair lending reviews, focusing only on outright “disparate treatment.”

In simple terms, if underwriting is not explicitly biased, federal regulators are unlikely to ask further questions.

Fair lending has historically been enforced under two tests:

• Disparate Treatment: Obvious discrimination, such as directly factoring race, age, or gender into credit decisions.
  
  

• Disparate Impact: Subtle discrimination, where neutral-seeming policies — such as using ZIP codes, education history, or mobile carriers — disproportionately harm protected groups without legitimate business justification or less discriminatory alternatives.
  
  

By dropping disparate impact, the OCC is effectively signaling that lenders are safe as long as they are not overtly discriminatory. But this perceived win could create long-term risks.

Compliance Whiplash: The Risks Banks Should Not Ignore

1. The Law Has Not Changed: The Equal Credit Opportunity Act (ECOA) still allows for disparate impact claims. State attorneys general and private litigants can sue regardless of the OCC’s current enforcement stance.
   
   

2. Regulatory Snapback Is Possible: A future administration could reinstate disparate impact reviews overnight, forcing lenders to justify years of past underwriting practices retroactively.
   
   

3. Algorithmic Decision-Making Under Fire: AI-driven credit models and personalized offers are already attracting regulatory scrutiny. What seems like smart data-driven segmentation today could be deemed discriminatory in court tomorrow.
   
   
   

Why Marketers Should Care About This Shift

Fair lending is no longer just a compliance issue; it is also a brand and acquisition risk. Credit products and marketing campaigns that unintentionally target or exclude certain demographics could lead to lawsuits, reputational damage, and negative media coverage.

Expect increased focus on algorithmic bias in ad targeting, especially as regulators and journalists scrutinize AI-driven personalization.

Steps Marketing and Compliance Teams Should Take

• Audit Data Models: Work closely with compliance to test credit models and ad targeting for unintentional bias.
  
  

• Document Justifications: Maintain detailed records explaining why specific targeting or segmentation choices were made.
  
  

• Collaborate Early: Marketers should bring compliance into campaign planning early to avoid future legal and reputational risks.
  
  
  

The Bigger Picture

The OCC may have stepped back from disparate impact enforcement, but that does not mean lenders are shielded from risk. Consumer advocates, state regulators, and private litigants will continue to pursue claims under ECOA.

Banks and fintechs that view this as a regulatory loophole may be setting themselves up for future litigation and reputational damage. The smartest institutions will act as though disparate impact enforcement still exists because, in many ways, it does.