The Equal Credit Opportunity Act (15 U.S.C.A. §§ 1691–1691f, the ECOA) generally prohibits lenders from discriminating in extending credit to any applicant on the basis of race, color, religion, national origin, sex, marital status or age. The definition of a “creditor” under the act is broad, encompassing any entity or individual who regularly extends, renews or continues credit. Importantly, an “applicant” entitled to protection under the ECOA includes both individuals and corporations. Discrimination under the ECOA can include not only the decision to extend credit, but also the terms under which credit is extended, such as interest rates and the taking of collateral and guaranties.
Enforcement Background
The Consumer Financial Protection Bureau and the Department of Justice are some of the governmental entities tasked with enforcing the ECOA. Repeated and systemic violations of the ECOA can lead to substantial penalties. In a recent case, a Northeast-based bank entered into a $1.9 million settlement to resolve allegations that the bank engaged in a pattern or practice of lending discrimination in violation of ECOA.
As can be expected, enforcement of the ECOA differs from administration to administration. For example, under President Biden, the government enforced the ECOA under theories that certain lending practices had a “disparate impact” under classes protected under the ECOA; in other words, that facially-neutral lending policies had a disproportionate adverse impact on classes protected under the ECOA.
Conversely, on April 23, 2025, President Trump issued an Executive Order titled “Restoring Equality of Opportunity and Meritocracy,” directing his administration to cease enforcement under the disparate impact theory. So, at least for the next few years, creditors can expect that the disparate impact theory will not be used, but should not rule out the possibility of its return after the next election.
The Executive Order
On August 7, 2025, President Trump signed the “Guaranteeing Fair Banking For All Americans” Executive Order, with the stated goal of ending “debanking on the basis of … political affiliations [and] religious beliefs….” This Executive Order states that when such practices are used to discriminate based on religion, they are in violation of the ECOA. The order cites to institutions flagging individuals who made peer-to-peer transactions involving the terms “Trump” or “MAGA,” among others, as those targeted by “politicized or unlawful debanking” practices, which are defined as:
an act by a bank, savings association, credit union, or other financial services provider to directly or indirectly adversely restrict access to, or adversely modify the conditions of, accounts, loans, or other banking products or financial services of any customer or potential customer on the basis of the customer’s or potential customer’s political or religious beliefs, or on the basis of the customer’s or potential customer’s lawful business activities that the financial service provider disagrees with or disfavors for political reasons.
Against this backdrop, the Executive Order tasks the Small Business Administration (SBA) with removing and scrutinizing reputation risk and politicized or unlawful debanking. In June, the Federal Reserve Board announced that reputational risk would no longer be a component of examination programs in its supervision of banks. The order expands on that by requiring the SBA to “remove the use of reputation risk or equivalent concepts that could result in politicized or unlawful debanking, as well as any other considerations that could be used to engage in such debanking, from their guidance documents, manuals, and other materials (other than existing regulations or other materials requiring notice-and-comment rulemaking) used to regulate or examine financial institutions over which they have jurisdiction.” The SBA is further charged with identifying any financial institutions that have engaged in politicized or unlawful debanking and to take remedial action, including levying fines or imposing other disciplinary measures.
The Executive Order’s action items are set to be completed within 180 days of its signing. Within 60 days (October 6, 2025), the SBA is required to give notice to each financial institution with which it guarantees loans, requiring those institutions to, among other things, within 120 days (December 5, 2025) identify and reinstate any previous or potential clients that were denied service due to a politicized or unlawful debanking action and take certain actions.
Next Steps for Lenders
In light of the Executive Order and anticipated heightened regulatory requirements and scrutiny, lenders and creditors should, among other things, review their policies and procedures to ensure that they are in compliance with the ECOA.
Moving forward, lenders and creditors should be sure to document their reasons for extending, or not extending, credit. If you are contacted by the SBA or other governmental entity in connection with a request for information, you should promptly communicate with legal counsel to assist in responding to the inquiry.
For questions about the impacts of ECOA enforcement on current or future lending activities, please contact Marie Gribble, James Schmidt, or your regular Lathrop GPM attorney.