Just when you thought the flurry of executive orders pertaining to “deregulation” might have slowed down, the President signed, on April 23, 2025, Executive Order 14281, “Restoring Equality of Opportunity and Meritocracy.” The EO proclaims a policy goal of eliminating “the use of disparate-impact liability in all contexts to the maximum degree possible.'”
Talk about a 180-degree turn from the Biden Administration, which had made disparate impact analysis a key weapon in anti-discrimination enforcement, particularly in the “Combating Redlining Initiative” announced by then Attorney General Merrick Garland in October 2021. During 2022, 2023, and 2024, the federal bank regulators made a record number of referrals to the Department of Justice based on redlining accusations. In all those cases, disparate impact theory was applied and was the principal basis for the allegations. Moreover, in all those cases, the redlining activity had occurred prior to the Biden Administration's taking office.
There's a very important lesson to be learned here. Regulatory compliance is based on a retrospective view of activity. In other words, the alleged redlining activity “discovered” by the Biden DOJ between 2021 and 2024 had taken place during the first Trump Administration and was now being prosecuted during the Biden Administration.
President Trump’s rejection of disparate impact theory means that there is unlikely to be much enforcement of redlining during the second Trump Administration, but banks would be foolish to let their guard down. Any lending activity extended by a bank during the next four years will be subject to regulatory scrutiny during the next president’s term of office. That means a bank’s lending activity now and for the following three years will be examined not by the standards of the Trump Administration, but by the standards of the president who will succeed Trump.
Consequently, banks should continue to monitor any activity, and particularly potential redlining activity, for any pattern that exhibits statistically significant deviation from the norm established by peers. The failure to do so will not only expose an institution to potential discrimination litigation but also to criticism for not having an adequate risk monitoring system (another common theme in many of the alleged redlining cases).
Given that disparate impact theory has been in place for many years now, there is a well-established legal basis for its application. There are likely to be legal challenges to its rejection by the Trump Administration. For long-term impact, the more reliable approach to ensure clear and consistent application of the concept would be to pass legislation. But given the close margins in the House and the Senate, changes in the law are unlikely. Changes made by regulators are much more likely to be temporary and undermine the stability of the regulatory environment, thereby creating more challenges for bank compliance officers. A volatile regulatory environment will make regulatory compliance all the more difficult.
So, while the current Administration may promise short-term relief from potential discrimination litigation based on disparate impact theory, the activity any bank engages in during the next four years will be the subject of scrutiny by regulators appointed in the post-Trump presidential administration. Now is not the time to relax fair lending policies and procedures.
