Fair lending risk in 2026 is marked by tension. Federal enforcement pulled back, but the risk didn't. It's still alive in the courts, in state attorneys general offices, and in new state and federal rules filling the space agencies vacated.
For example, in 2022, a bank agreed to pay $13 million to settle redlining allegations and entered a five-year consent order. Last year, the Department of Justice (DOJ) asked the court to end the order two years early, but the judge denied the request, saying the bank needed to meet all the terms of the original consent order.
This is just one example of an evolving fair lending landscape. This post explores how fair lending risk is changing in 2026, and what lenders need to be aware of.
- Exam Evolution
- Disparate Impact
- The ROAD to Housing Act
- Immigration Status in Underwriting
- State Regulations and AI Governance
- Final Thoughts
Related: What is Fair Lending? Program Essentials, Rules, and More
Fair Lending at the Federal Level
How Exams Have Evolved in 2026
Every prudential regulator except the Federal Reserve changed its approach to fair lending exams this year:
- The OCC ended its fixed, mandatory fair lending risk assessment schedule for community banks and dropped disparate impact from its exam scope but says it's still conducting risk-based fair lending reviews and screening HMDA data for signs of intentional discrimination.
- The FDIC ended the use of disparate impact in its exams and moved to a schedule based on asset size and compliance rating. For example, a well-rated bank under $350 million in assets now gets a joint compliance and CRA exam roughly once every six years.
- The NCUA is continuing defined-scope exams for credit unions with $50 million or less in assets, and risk-focused exams for everyone else.
- The CFPB has scaled back exam activity sharply.
The Fed's supervisory guidance hasn't mentioned scaling back fair lending review, and it's kept the door open to referring cases to the DOJ.
Takeaway: Track your specific regulator's posture rather than assuming any single move applies everywhere. A six-year gap between exams means a small disparity can turn into a runaway problem by the time your next exam comes around if you're not watching your own data in between.
Disparate Impact Under ECOA: What's Different Now
On April 22, the CFPB finalized a rewrite of Regulation B, eliminating disparate impact (known as “the effects test”) as a theory of liability the Bureau will pursue under the Equal Credit Opportunity Act (ECOA). Disparate impact holds that a policy violates fair lending law if it produces discriminatory effects, regardless of intent.
The rule also narrows the "discouragement" prohibition toward a standard requiring actual intent and restricts special purpose credit programs (SPCPs) run by for-profit lenders.
The rule took effect July 21, but it’s already being challenged. The National Fair Housing Alliance, Rise Economy, and two fair lending analytics firms sued the CFPB in the D.C. District Court in May, arguing the rule violates the Administrative Procedure Act and opens the door to lending discrimination against minority borrowers. They didn't seek an injunction, so the rule stays in effect on schedule, but a summary judgment briefing continues into January 2027.
Even if the challenge succeeds, each of the three provisions in the rule — disparate impact, discouragement, and SPCP restrictions — is explicitly severable. If a court strikes down one, the other two continue independently.
HUD's parallel effort is further behind. Its January proposal to strip disparate impact regulations from the Fair Housing Act (FHA) drew significant opposition and hasn't been finalized. In August, HUD opened a related but separate proceeding targeting its Title VI regulations, with comments due October 9.
Why Disparate Impact Still Matters
Regulators stepping back doesn't mean disparate impact theory has disappeared. It's still alive through other channels:
- Private litigation: Both ECOA and the FHA give individuals the right to sue. Private litigation risk is real. Attorneys can review your HMDA data, identify statistical disparities through analytics software, and file claims with a relatively low initial threshold.
- State enforcement: The Supreme Court's 2015 ruling in Texas Department of Housing v. Inclusive Communities Project grounded disparate impact liability in the Fair Housing Act's statutory text, not in HUD's regulations. States that have codified disparate impact theory independently can enforce it through their own Attorney General (AG).
- Timing: ECOA claims carry a five-year statute of limitations, while FHA claims carry two. In practice, the DOJ has examined data beyond the five-year statute, so a lending practice that draws no scrutiny under today's exam posture can still surface in a broader review down the road, whether from a private plaintiff, a state AG, or a future administration with a different read on the effects test.
- Existing consent orders: A court holding a consent order answers to the order, not to shifting enforcement priorities.
Top takeaway: Don't let your institution’s risk controls lapse. A disparity that isn't a problem on today's exam could be a problem in a private lawsuit or a state AG investigation over the next few years.
Related: What is the Risk Management Process?
The ROAD to Housing Act Requires Lenders to Address Appraisal Bias
In March 2025, the FHA rescinded its fair housing guidance on appraisals, citing the administration's deregulatory goals. The 21st Century ROAD to Housing Act, signed in July 2026, reversed course at the statutory level: the Department of Agriculture (USDA), Department of Veterans Affairs (VA), FHA, and Federal Housing Finance Agency (FHFA) are required to write rules mandating that lenders on federally backed loans maintain a formal reconsideration of value process. That process has been optional up to now. The agencies haven't issued the rule yet, but the requirement itself is locked in.
Appraisal bias tied to a home's location or the owner's race is a fair lending risk any mortgage lender carries. For lenders originating FHA, VA, or USDA loans, the CFPB has stated that a clear, consistent reconsideration process isn't optional under current guidance, mandate or no mandate.
Top takeaway: If your FI falls under the ROAD Act, build your reconsideration of value process now before a rule forces your timeline.
Immigration Status Is Now a Factor in Underwriting
In June, the CFPB told creditors that immigration status and work authorization status may factor into ability-to-repay assessments. The prudential regulators followed with guidance treating immigration-related income disruption as a credit risk factor, extending into portfolio concentration risk. This guidance follows the Executive Order 14406, “Restoring Integrity to America’s Financial System.”
The guidance tells creditors what to weigh — repayment risk, portfolio concentration, and documentation — but not how to weigh it. The CFPB says that it "cannot, and does not, provide a comprehensive analysis" of how different immigration statuses bear on repayment ability, and neither statement addresses where legitimate credit judgment ends and disparate impact on national origin begins. Immigration status correlates closely with national origin, a protected class under both ECOA and the FHA, which means any underwriting criteria or portfolio monitoring built around it lands directly in that gray area.
Top takeaway: Get fair lending counsel involved before updating your underwriting policy and stay updated on the latest developments.
States Are Setting Their Own Fair Lending and AI Governance Rules
While federal agencies are pulling back when it comes to areas such as disparate impact, many states are setting their own fair lending standards, contributing to ongoing state regulatory fragmentation.
- New York's FAIR Business Practices Act, effective February 2026, expands its consumer protection law beyond deceptive practices to cover unfair and abusive conduct as well, giving the AG broader enforcement authority.
- New Jersey adopted disparate impact rules covering housing and lending under its Law Against Discrimination in December 2025, with guidance on how that liability applies to AI and automated decision-making tools.
- Connecticut's AG followed in February 2026 with a memorandum confirming its anti-discrimination and credit laws apply the same way to AI-driven lending decisions as they do to any other lending decision.
- California's Department of Financial Protection and Innovation, which already regulates state-licensed mortgage lenders, servicers, brokers, and fintechs, now sits under a new cabinet-level Business and Consumer Services Agency led by Rohit Chopra, the former CFPB director.
Top takeaway: Build your program to the level of the strictest state standard you operate under and the newest mandate you haven't stress-tested.
Related: Emerging Risks: Q3 Update
Where This Leaves Your Fair Lending Program
Quieter federal enforcement doesn't mean lower fair lending risk. It means the risk shows up somewhere else first. If you can't explain a monitoring change to a new examiner, or show a documented process where one's now required, that's exposure sitting in your program today. Address it, and keep tracking changes on the state and federal levels.
If your lending program was built around federal requirements, Stephanie Lyon's webinar Buried in the Fine Print: How State-Level Regulations Are Creating Compliance Blind Spots walks through where the exposure lives.
