Podcast - The Future of Fair Lending Under the CFPB's Regulation B Rule

Anthony DiResta: Welcome to another podcast of Clearly Conspicuous. As we've noted in previous sessions, our goal in these podcasts is to make you succeed in this current regulatory and governmental environment – that tends to be very aggressive and progressive, by the way – and to make you aware of what's going on with the federal and state consumer protection agencies and to give you practical tips for success. As always, it's a privilege to be with you today. 

Today I have the privilege of interviewing Dimitri Nionakis, a partner at my law firm, Holland & Knight, who focuses his practice of over 30 years on financial services and banking regulatory matters, corporate governance, and government and internal investigations. My interview with him today involves the final rule issued by the Consumer Financial Protection Bureau, the CFPB, concerning the Equal Credit Opportunity Act and Regulation B that went into effect last month. So to start off, Dimitri, tell me about your background.

Dimitri Nionakis: Well, first of all, Tony, thanks for having me today. It's a pleasure to be here. My background consists of a combination of private practice, government and in-house experience. I began my career in Washington, D.C., in Big Law, representing big corporations, executives and government officials. I focused on white collar government investigations and the related litigation, and that was across numerous industries, everything from medical device, technology and retail products. In 1997, I joined the Clinton White House, and I served as associate counsel to the president for four years and, in that capacity, I handled all manner of government investigations. I returned to private practice in 2001, and at that time, I decided I was going to focus more on government investigations and regulatory matters, and I really dove into those areas. And in 2010, I had the opportunity to join a federally regulated bank as its general counsel. And this bank had been through some regulatory struggles. It had been recently bought by a group of private investors, and they had a plan to turn it around. So this was very intriguing to me because it gave me the opportunity to help restore a bank and also to take a deeper dive into the financial services industry, which is an area that has always interested me. I served as the GC and then later as the GC and the COO for a combined 13 years at that bank. When I left the bank, I decided I really wanted to bundle my experience in private practice, in government and in-house and return to private practice to help banks and non-bank financial institutions with matters that have a regulatory component. And there are many, everything from transactional matters to non-transactional matters. In 2025, I had the privilege of joining Holland & Knight, and I'll simply say it's been a great move and I've really enjoyed being here.

Anthony DiResta: Dimitri, thank you. That's very impressive. You have quite an extensive and comprehensive background. Perfect person to talk about this issue. If you can describe for me then, Dimitri, the final rule issued by the CFPB concerning the Equal Credit Opportunity Act and Regulation B that went into effect, I believe, on July 21.

Dimitri Nionakis: Sure, it did go into effect on July 21. And as you said, it amends Regulation B (Reg B), and that's the implementing regulation for the Equal Credit Opportunity Act, we call it ECOA. And in a nutshell, Reg B amends provisions related to disparate impact, to the discouragement of applicants or prospective applicants and to special-purpose credit programs.

Anthony DiResta: Thank you. Tell me about the executive orders by the president last year that were relevant to the CFPB's review of the Equal Credit Opportunity Act.

Dimitri Nionakis: Sure, Tony. The key executive order that drove the CFPB to review its rulemaking posture under ECOA and Reg B was Executive Order 14281, "Restoring Equality of Opportunity and Meritocracy," that was issued in April of 2025. And that executive order argued that disparate impact violates the Constitution's equal protection guarantees by forcing race-oriented policies to balance outcomes. It also emphasized that credit decisions should be based on merit and not based on statistical parity among demographic groups. And lastly, it explicitly directed the CFPB to evaluate and deprioritize all pending ECOA proceedings that relied on disparate impact theories. And then from there, there was another executive order that was issued in August of 2025, which was "Guaranteeing Fair Banking for All Americans." This one further shaped the CFPB's ECOA-related review. And that was by shifting the agency's fair lending enforcement away from what was traditionally systemic group-based protections toward more individualized intentional discrimination. And when we discuss these changes, we'll see how that shift is evident in those rule changes. And then lastly, there are a few other, what I call broader, executive orders that brought the CFPB under White House oversight. And by doing that, the White House required the CFPB to conduct a comprehensive review of all of its regulations, and that included Reg B. So collectively, these orders essentially resulted in the CFPB amending Reg B in the areas that I discussed earlier.

Anthony DiResta: Dimitri, that's fascinating. Let's dig a bit deeper here. Tell me about a disparate impact claim. What is it?

Dimitri Nionakis: A disparate impact claim, Tony, is one where you've got a facially neutral policy and that policy is implemented consistently, but it has the unintended effect of having a statistically significant disproportionate adverse impact on a protected class. And that protected class is race, gender or national origin. And I'm going to give you an example of that. So let's say a bank that's a national lender says it's going to be our policy to only originate loans that are $300,000 or higher in the loan amount. Now, that policy is facially neutral, right? It doesn't mention race, it doesn't mention gender, it doesn't mention national origin. And let's also say that that bank enforces that policy consistently without exception. Yet, what we know is in practice, homes in minority or lower-income communities often have lower market values. So what that means is this minimum threshold blocks out the applicants in those communities from applying for this lending product. And we also know statistically, based on the demographics of those communities, this would exclude a significantly higher percentage of minority applicants compared to white applicants. So what that would mean is on its face, this, what is a neutral policy, could create a violation under ECOA. What the bank would be required to do was prove that it had a legitimate business necessity for the policy. For instance, it could say, well, we've learned that when we originate loans under $300,000, we don't make any money because of the origination costs, because of monitoring costs, the management costs and all these other things, and so it's not financially feasible for us to do this. And for that reason, we have a cutoff at $300,000, we have a threshold of $300,000. Now, that might work, but if there is a less discriminatory alternative, that legitimate business necessity may not be enough for the bank to overcome this claim of disparate impact and a violation of ECOA.

Anthony DiResta: Got it, got it. Well, as we sit here today, Dimitri, given this current change, is this now the end of the disparate impact risk?

Dimitri Nionakis: Tony, absolutely not. Mortgage creditors in particular have a federal disparate impact exposure under the Federal Housing Authority (FHA), which also protects discrimination, especially in the lending context. And so what this means is in the federal context, Tony, private plaintiffs can still pursue ECOA disparate impact theories in court under FHA. And the other thing that we need to talk about or note is that the circuit courts have decades of precedent dealing with disparate impact claims. And now you've got this new rule, and these courts are going to have to reconcile that precedent with this new rule. And it's going to be very interesting to see how that pans out.

Anthony DiResta: Well, finally, let me ask you this to be practical here, Dimitri. Provide me with a key takeaway. What do banks need to do in light of the final rule? 

Dimitri Nionakis: Sure. The key takeaway is this: Banks and non-bank lenders still have exposure for disparate impact claims. And they not only remain actionable by private plaintiffs under the FHA, but state laws have lending discrimination laws that even include not only disparate impact, but you could bring a discouragement claim as well under these state laws. And some of those states that really have those broad lending discrimination laws are New Jersey, California, New York, Massachusetts and Illinois. But the bottom line is that state regulators and private plaintiffs can still bring actions under state law using these, what we call effects-based theories. And so what should creditors do? What should banks and lenders do? Given the potential exposure, they should not alter their current compliance so that it matches the pre-final rule provisions on disparate impact and discouragement. And that's because the FHA and some states still prohibit this conduct. So what they should do, it's always healthy to review the applicable state laws, understand the scope of the discrimination statutes, what is prohibited conduct, review your policies and procedures, make sure that they comply with all applicable federal and state laws, not just ECOA. And as always is the case, your policies and procedures may be in place, but staff may be a little bit confused. And so you need to do some training with your staff to make sure they understand that the exposure still exists and always review the do's and don'ts. What can you do? What can you not do? And then continue to perform audits of ECOA, FHA and applicable state laws. Make sure there are no weaknesses in the execution or control mechanisms. And then just please remember, administrations change, and that means rules can change. Old rules can be reinstated, rules can be amended. It may stay the same, we don't know. And lastly, many of these statutes have a lookback provision. ECOA has a five-year lookback period, and the amendments to Reg B are not retroactive.

Anthony DiResta: Got it, got it. Well, Dimitri, thank you. This information really is most valuable and practical to know. So ladies and gentlemen, stay tuned to further programs as we identify and address the key issues and developments and provide you with strategies for success. I wish you continued success and a meaningful day. Thank you so much.