Since the beginning of the year, the fair lending environment has undergone much uncertainty and upheaval at the federal and state levels. While the administration discusses consolidation of federal banking regulatorsi, the Office of the Comptroller of the Currency (OCC) continues prioritizing fair lending risk assessmentsii and examination of banks' lending compliance programs. Meanwhile, as federal regulations potentially soften, some industry pundits have noted that states are expected to tighten their consumer protection laws.
At the end of 2024, Wolters Kluwer convened regulatory, legal, industry, and other experts to make sense of it all and discuss what will likely occur over the next year. Our annual CRA & Fair Lending Colloquiumiii session on fair lending enforcement trends and emerging risks covered many topics, including redlining enforcement and risk management, opportunities and risks associated with Artificial Intelligence (AI), and possible changes to the regulatory landscape.
Based on what we heard at the fall Colloquium, coupled with recent uncertainty from the new administration, we highlight five key topics financial institutions should consider as well as Wolters Kluwer’s suggested response. The key takeaway? The regulatory environment is changing, but that does not mean financial institutions can afford to let their guard down. Simply put, now is the time to double down on strengthening their risk and compliance operations.
Changing regulatory landscape
Despite signs that the new administration will favor supervisory policy over aggressive enforcement of consumer fair lending and Unfair, Deceptive, or Abusive Acts or Practices (UDAAP), financial institutions must continue to comply with existing fair lending regulations, which are unlikely to be rolled back.
For example, final rules for automated valuation requirementsiv (AVMs), which require mortgage originators to remain compliant with nondiscrimination laws, are scheduled to be effective on October 1, 2025. Meanwhile, timelines for standing requirements like the Home Mortgage Disclosure Act (HMDA) and the Community Reinvestment Act (CRA) remain unchanged. On March 28, 2025, the three prudential regulators announced their intent to rescind the 2023 Final Rule that they initially issued to modernize CRA regulations; however, this change should affirm the need for banks to ensure their compliance with the legacy rule remains strong and on-point within today’s economic environment.
As one of our panelists said at Orlando’s Colloquium, "Don't expect tectonic shifts." Instead, financial institutions should stay the course, allowing organizations to maintain compliance no matter what happens, while setting themselves up for when “the pendulum swings back the other way.”
Current state of redlining enforcement
We will likely see fewer redlining enforcement actions at the federal level in 2025. However, that will not necessarily make things easier for financial institutions as state regulators are expected to “fill the void” and become more activev in enforcing fair lending and other consumer protection laws.
Therefore, organizations must continue to take steps to prevent redlining and minimize their regulatory risk. Panelists’ recommendations included:
- Revisit the institution’s geographic boundaries and identify any areas where there may be underserved or marginalized communities, to have a deep understanding of the markets.
- Review the branching strategy to determine where to place branches (or evaluate potential closures) so as not to raise red flags within the FDIC’s “reasonably expected market area (REMA).vi
- Proactively reach out to relevant community stakeholders.
Additionally, financial institutions should review their product and service offerings to ensure that UDAAP and related standards for fair and responsible banking are met. Lenders should document these efforts to ensure compliance with state and local regulations, as well, and maintain a record they can easily share with regulators.
Fair lending risk management
At the November 2024 Colloquium, panelists agreed that non-bank lenders will continue to be under heightened scrutiny to ensure their lending practices align with fair lending laws. Much of that sentiment at the time was due to a court ruling against a non-bank lender, which reaffirmed that discouraging prospective applicants from applying for credit violates the Equal Credit Opportunity Act (ECOA), and a later settlement with the CFPBvii. In 2025, the CFPB signalled a change in the agency’s views on the circumstances of that case when it announced plans to reverse the settlementviii and reimburse the civil money penalty.
This does not eliminate the added risk management concerns for other non-bank lenders, who should remain vigilant and carefully manage their fair lending risk. Less scrutiny from the federal government means that they could encounter more frequent examinations and enforcement actions from state regulators, as well as increased scrutiny of marketing programs by community groups and private parties. Any language or imagery perceived as discouraging minority groups from applying for loans will trigger regulatory action.
Non-bank lenders must enhance their compliance frameworks and internal monitoring processes to mitigate these risks. Organizations should adopt a dynamic risk management approachix, where risk is continually and proactively evaluated. Lenders can augment the strategy with an internal risk and control matrixx to monitor regulatory changes that could impact them.
AI opportunities and risks
No discussion of fair lending is complete without assessing the impact of artificial intelligence (AI) and machine learning. Panelists in November 2024 agreed that integrating these technologies into lending practices introduces both opportunities and risks.
One panelist asked, “Is AI going to be a tool that can benefit customers and reduce discretion, or will it embed existing discretion?" AI can significantly streamline lending decisions and improve efficiency - but it also has the potential to work against regulatory compliance if not correctly implemented and not periodically monitored. Poorly designed AI models can reinforce limiting patterns by relying on narrowly focused training data, leading to unintentional but systemic differences in lending outcomes and putting financial institutions at risk of non-compliance with federal, state, and local regulations.
Financial institutions must establish robust governance frameworks and fair lending testing protocols to mitigate these risks. Regular testing should include detection and monitoring for potential negative impacts across different borrower groups. Institutions should also document their AI decision-making processes to ensure transparency and accountability.
If lenders discover their AI-driven lending models are disproportionately affecting certain groups, they should explore other alternatives. These can be alternative algorithms or data inputs that achieve the same business goals while minimizing partiality. Implementing these safeguards will be critical as regulators focus on AI-powered lending decisions.
Consumer complaints driving fair lending investigations
Finally, panelists touched on how consumer complaints drive fair lending investigations. Regulatory agencies are increasingly using complaints as a risk indicator and early warning system. A pattern or high volume of complaints related to loan denials, unfair terms, or other unsavory practices can raise concerns and trigger investigations.
Implementing a structured complaint management system is critical to protecting the organization and maintaining compliance. Financial institutions should actively log, categorize, and monitor consumer complaints and maintain proper records and documentation of complaints. They can use the feedback to improve their customer service experiences and be ready should they receive an inquiry from a regulator. Secondarily, a proactive review committee could be established to review all customer inquiries, not just those that are deemed complaints, to ensure that minor issues or inconveniences do not escalate into larger concerns with fair lending implications.
Organizations should also engage in proactive communication with regulators to discuss complaints in “real time” rather than waiting until examinations. Regulators view effective complaint management as a strong indicator of risk mitigation and corporate governance. Engaging with them early and often is a good faith sign that the financial institution takes consumer complaints seriously.
As one panelist said, “If you take a complaint from start to finish and handle it the right way, that could be an asset to the bank’s overall fair lending risk management program.”Conclusion: Stay the course, remain vigilant
Despite indications that regulations will soften under the Trump administration, most fair lending requirements will likely remain in effect. As such, financial institutions must practice and refine fair lending best practices to minimize risks. Specifically, Colloquium panelists recommended:
- Proactively engaging with regulators before, during, and after examinations.
- Performing routine statistical analysis of lending patterns and peer comparisons.
- Periodically reviewing the placement of branches.
- Ensuring fair lending discussions take place at all levels of the organization, including the C-suite.
- Electronically documenting actions to prove regulatory compliance.
Everyone agreed that now is not the time to cut risk management corners. Remaining vigilant and steadfastly committed to managing compliance are the keys to growing a business while staying within regulatory requirements.
Join the discussion. Mark your calendars for the next CRA & Fair Lending Colloquium, November 16 – 19, 2025.
iTrump administration says CFPB won't be shut down - POLITICO
ii2025 Bank Regulatory Priorities: Compliance and Enforcement
iiiA view from the podium and reflections from an expert | Wolters Kluwer
ivQuality Control Standards for Automated Valuation Models | FHFA
v2025 Bank Regulatory Priorities: Compliance and Enforcement
viIdentifying and Mitigating Potential Redlining Risks
viiCFPB Reaches Settlement with Townstone Financial, Inc. | Consumer Financial Services Law Monitor
viiiCFPB Seeks to Vacate Abusive, Unjust Case Against Townstone | Consumer Financial Protection Bureau
ixProactive risk management approach | TeamMate | Wolters Kluwer
xRisk and Control Matrix maturity| TeamMate | Wolters Kluwer
