While fair lending has not been a primary focus of federal enforcement actions in 2025, fair lending risks haven’t disappeared.
Financial institutions (FIs) remain susceptible to many types of fair lending risk, from underwriting and steering risk to evolving technology risks that add a new layer of complexity to lending services. Let’s explore the top fair lending risks in detail to help your organization stay resilient and protected now and in the years to come.
Related: Fair Lending Risk Assessments: Everything You Need to Know
What is fair lending risk?
Fair lending risk refers to a financial institution’s risk exposure when its lending practices exclude protected populations from participating in credit and banking activities or when practices negatively impact borrowers with one or more protected characteristics, such as race, ethnicity, gender, national origin, age, marital status, or income source.
A failure to mitigate fair lending risk can lead to legal, regulatory, financial, and reputational consequences, including consent orders or enforcement actions.
Related: What is Fair Lending? Program Essentials, Rules, and More
Does fair lending still matter in 2025?
While enforcement actions for fair lending violations have dropped under the Trump administration, the states are stepping up. In July, the Massachusetts Attorney General announced a $2.5 million settlement with a student and personal loan lender for violations of fair lending, AI-driven underwriting, and consumer disclosure requirements. The move is part of a larger trend of states ramping up regulation across many areas, including fair lending, data privacy, and cybersecurity.
It’s also crucial to remember that even if fair lending enforcement actions aren’t a priority for federal regulators now, the laws governing fair lending — including the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA) — remain firmly in place. Failing to adhere to laws and regulations now could lead to major fines, lawsuits, and consent orders down the road under a new administration.
Related: 8 Red Flags Indicating Potential Fair Lending Risk
What are the top fair lending risk areas?
| Fair Lending Risk Type | Definition | Common Indicators |
| Redlining Risk | Avoiding lending or offering less favorable terms in areas with predominantly minority or underserved populations | Unfavorable lending patterns in minority areas, limited branch presence, and restrictive underwriting criteria |
| Marketing and Outreach Risk | Risks associated with excluding diverse populations from marketing efforts | Lack of targeted advertising in minority communities, non-inclusive imagery, and insufficient outreach events |
| Steering Risk | Directing applicants toward or away from specific loan products based on protected characteristics | Disparities in product offerings, unclear referral practices, and a lack of training in fair lending laws |
| Underwriting Risk | Potential biases during the loan underwriting process that result in unfair treatment of applicants | Disparities in loan approvals, pricing, and terms based on protected characteristics |
| Pricing Risk | Discriminatory pricing practices that result in unequal loan terms for similar applicants | Variances in interest rates, fees, or terms based on race or other protected characteristics |
| Servicing Risk | Risks related to unequal treatment during the loan servicing process, impacting borrowers' experiences | Disparities in payment processing, customer service, and foreclosure practices based on demographics |
| CMS Risk | Risk related to inadequate systems for monitoring compliance with fair lending laws | Lack of proper oversight, insufficient corrective action processes, and ineffective procedures for addressing identified risks |
Fair Lending touches every stage of the credit process, from the first marketing piece to the final payment in servicing. It applies to every loan type, not just those covered by the Home Mortgage Disclosure Act (HMDA).
While compliance teams may lead the charge, every staff member plays a role in supporting fair lending efforts. With that foundation in mind, let’s look at seven critical fair lending risk areas.
1. Redlining risk
Redlining occurs when an FI avoids lending or offers less favorable terms in areas with predominantly minority or underserved populations. It’s often the byproduct of underwriting criteria, marketing strategies, or branch placement decisions. Like many other fair lending risks, it often occurs without malice, but often due to lack of systems, testing, and appropriate oversight.
Over the years, redlining has been a major regulatory focal point, especially following the creation of the Combatting Redlining Initiative, which was launched by the Justice Department (DOJ) in October 2021. In 2024, the DOJ announced its first-ever redlining settlement with a credit union, underscoring the department’s commitment to redlining mitigation while expanding its focus into all regulated lending entities.
While there have not been any redlining consent orders yet under this administration, risk continues to exist at all levels of regulatory oversight, states such as New Jersey are actively analyzing demographic lending data for redlining.
What you can do: Continue to evaluate your Reasonably Expected Market Area (REMA), branch locations, application patterns, and advertising reach to minority communities to ensure you’re proactively avoiding redlining risk.
Related: 7 Ways to Analyze Your Data for Redlining Compliance Risk
2. Marketing and outreach risk
Marketing and outreach risk was one of the most-discussed risk topics during the 2024 Interagency Fair Lending webinar. Some common marketing and outreach risks include
- Excluding majority Black and Hispanic census tracts through criteria, limited in-branch-only marketing, or a lack of materials in relevant languages.
- No targeted mortgage marketing within the assessment area or credit market.
- Non-inclusive advertising imagery that lacks diversity in race, ethnicity, or age, or visuals that don’t align with the audience or message.
- No outreach events in minority neighborhoods to promote mortgage credit access, such as homebuyer education or financial literacy programs.
What you can do: Regularly assessing your marketing and outreach practices to avoid potential oversights is crucial. This includes setting clear policies to evaluate risks in your marketing strategies, monitoring campaigns to ensure they reach diverse communities, and reviewing digital marketing criteria for potential bias. Your assessment should also account for third-party risks by understanding how advertising algorithms work and requesting vendor reports on marketing reach to confirm compliance.
Related: Fair Lending 101: Pricing is Only One Piece of the Puzzle
3. Steering risk
Steering risk occurs when applicants are directed toward or away from specific loan products, terms, or channels based on race, ethnicity, and other protected characteristics.
Consider these questions when evaluating your lending compliance program for steering risk:
- Standards and policies: Do you have clear, objective, and consistently applied standards for referring applicants to specific loan products or channels? How are these standards documented and communicated to all relevant staff?
- Training and awareness: Are loan officers and staff regularly trained in fair lending requirements related to product referrals and steering risks?
- Data analysis and monitoring: Do you periodically analyze loan data to detect disparities in product offerings or channel referrals across different demographic groups? What specific metrics or reports are used to monitor for potential steering?
- Documentation: Is there consistent documentation explaining why particular applicants were referred to certain products or channels? How often are these decisions reviewed for consistency and fairness
- Third-party oversight: If third-party vendors or brokers are involved, do you review their referral practices and data for potential steering risks? Are vendor activities incorporated into your fair lending monitoring program?
- Corrective actions: When disparities or steering risks are identified, what processes do you have in place to investigate and remediate? How do you document corrective actions and track their effectiveness over time?
What you can do: Regularly analyze your lending data to actively identify potential steering and disparities in product mix or confirm that your current processes are compliant.
Related: Is Your FI Complying with Fair Lending Laws? - Leverage Analytics
4. Underwriting risk
Underwriting risk refers to the potential for discriminatory practices or biases during the loan underwriting process that result in unfair treatment of applicants based on protected characteristics. This risk arises when underwriting criteria, decision-making processes, or automated models unintentionally create disparities in loan approvals, pricing, or terms.
Manual underwriting can introduce risk, but automated and AI-powered underwriting tools also carry risks if not carefully monitored. As noted previously, a Massachusetts lender failed to implement proper fair lending controls in its use of algorithmic decision-making, leading to a host of violations.
What you can do: Look for subjectivity or discretionary criteria — especially vague terms like “good character” — and monitor exception usage. Analyze denial/origination patterns by group to detect disparities in similarly situated borrowers.
Before investing in AI underwriting tools, consider your institution’s risk appetite and the necessary controls and procedures that must be in place to address risk properly.
5. Pricing risk
Pricing risks arise when similarly situated borrowers receive different pricing, whether in the form of interest rates, fees, or loan terms, without objective justification. This risk covers disparate* pricing and loan officer discretion or compensation incentives that unfairly influence pricing decisions.
What you can do: While unique lending situations pop up, having a consistent lending process is critical to ensuring customers are treated fairly. For example, what determines “good character,” and is this criterion consistent for loan officers across all your institutions? Consistency is critical to mitigating pricing risk.
*An executive order signed in April 2025 aimed to eliminate the use of disparate-impact liability in various contexts, including federal regulatory documentation. However, FIs should consider the states where they operate and have customers, as disparate impact laws exist in many states.
6. Servicing risk
Along with pricing risk, FIs and their servicing teams must ensure all similarly situated borrowers receive consistent loan servicing practices to avoid servicing risk. This includes differences in:
- Loss mitigation options offered
- Decision processing times
- The collections process
- Overall quality of service during servicing
As the Interagency Guidance on Third-Party Risk Management emphasizes, FIs remain responsible for fair and compliant services even when they outsource specific functions.
The CFPB’s Mortgage Servicing Procedures and the OCC’s Fair Lending Handbook also offer guidance for high-risk activities that can lead to servicing risk.
What you can do: Your lending data tells a story. Use fair lending complaint management tools to track complaint patterns, processing times, fee waiver policies, and third-party servicing for discrepancies.
7. Compliance Management Program (CMP) risk
As your third-party relationships increase, technology (including artificial intelligence) advances, and lending processes continue to evolve, your FI’s fair lending risks are growing. Your fair lending compliance management system (CMS) should scale with your institution’s complexity.
Keeping your CMS current is not just a best practice — it’s a regulatory must. Examiners expect ongoing training, data analysis, monitoring, independent reviews, and clear oversight from senior management and the board. Without these vital components, your FI is most likely susceptible to fair lending risks.
What you can do: Consider your compliance management platform. How can you automate and streamline tasks, such as data analysis, data transmission, and exam reporting, to improve your internal processes?
Related: What You Need to Know Ahead of Your FI's Next Exam
Looking ahead: The future of fair lending risks
Proactively addressing fair lending risks such as those stated above isn’t just about compliance — it’s about protecting your institution from legal risk, building trust, and strengthening relationships with diverse communities. Taking the steps to embed fair lending as a core value not only supports long-term resilience but also empowers your FI to thrive in an increasingly competitive lending landscape.
Want more info on how to create a stronger fair lending program?
Learn how to implement proper controls, uncover hidden fair lending risks, and more in our free whitepaper.
Subscribe to the Nsight Blog
Top 5 Takeaways from the 2024 Interagency Fair Lending Webinar: Redlining, HMDA Compliance & More
Regulators Say Redlining & Pricing Risk are Fair Lending Hot Topics
