Fair lending remains one of the most active areas of regulatory enforcement, and 2025 is shaping up to be a year of even closer scrutiny. Federal agencies – including the CFPB, DOJ, OCC, FDIC, NCUA, and HUD – are sharpening their focus on practices that could create discriminatory effects in lending, even when unintentional. From redlining investigations to AI-driven underwriting models, the scope of enforcement is expanding, and the consequences for noncompliance are growing more severe.
Recent enforcement actions make it clear: regulators are not only looking for overt discrimination, but also for disparate impacts hidden in data, pricing, and automated decision-making systems. This means institutions of all sizes – banks, credit unions, and fintechs alike – must be proactive in testing their practices, documenting their controls, and demonstrating a strong commitment to equitable lending.
In this post, we’ll explore the key fair lending enforcement trends we’re seeing in 2025, highlight the areas regulators are most concerned about, and share steps your institution can take to stay ahead of scrutiny.
Increased Scrutiny on Redlining
Redlining remains one of the most visible – and costly – fair lending risks. In 2025, regulators are continuing to prioritize enforcement actions against institutions whose lending activity suggests that majority-minority or low-to-moderate income (LMI) neighborhoods are being underserved.
What Regulators are Doing
- DOJ’s Combatting Redlining Initiative is still active, with multimillion-dollar settlements announced in recent years. These cases often hinge on evidence of weak loan penetration in majority-minority census tracts.
- CFPB and prudential regulators are coordinating reviews, using demographic overlays and advanced mapping tools to test whether lending activity reflects equitable access.
- Examiners are not only reviewing mortgage lending but are beginning to expand their lens to small business credit as Section 1071 data becomes available.
Red Flags Examiners Look For
- Loan originations concentrated in majority-white neighborhoods, even when majority-minority areas fall within the institution’s service footprint.
- Limited or no marketing targeted to diverse communities.
- Branch locations clustered away from LMI or minority census tracts, without meaningful digital alternatives.
- Lack of documentation showing efforts to serve the broader community.
How Institutions Can Stay Ahead
- Conduct redlining self-assessments annually, using mapping tools to compare lending activity against community demographics.
- Review branch and loan officer distribution to ensure coverage aligns with community needs.
- Expand marketing and outreach to diverse communities through partnerships, community events, and inclusive media channels.
- Document your efforts – from community partnerships to advertising strategies – to demonstrate proactive outreach during an exam.
By prioritizing geographic equity in lending and marketing, institutions can reduce the likelihood of being flagged for redlining and position themselves as community-focused lenders.
Pricing Disparities Under the Microscope
While underwriting decisions often draw the most attention, regulators are increasingly focused on loan pricing practices – and for good reason. Even when approval rates are consistent, disparities in rates, fees, or loan terms across protected classes can reveal hidden fair lending risks.
What Regulators Are Doing
- CFPB, OCC, and FDIC examiners are digging deeper into loan-level data, using regression analysis to test whether pricing outcomes align with credit risk.
- Exception reviews are becoming a priority, as regulators examine how often discretionary discounts, waivers, or adjustments are granted – and to whom.
- Enforcement cases increasingly cite lack of documentation for pricing decisions as evidence of weak internal controls.
Red Flags Examiners Look For
- Higher interest rates or fees for borrowers in minority or protected-class groups, after controlling for creditworthiness.
- Patterns of discretionary pricing that favor certain demographics or geographies.
- Frequent fee waivers or discounts without consistent justification.
- Vague or incomplete documentation of why pricing exceptions were made.
How Institutions Can Stay Ahead
- Standardize pricing criteria and limit discretionary authority wherever possible.
- Require clear, documented business justifications for all pricing exceptions and subject them to compliance review.
- Conduct regular pricing disparity analyses using internal and peer data to identify trends.
- Train loan officers and underwriters on the risks of inconsistent pricing practices and reinforce the importance of accurate documentation.
- Integrate pricing reviews into your fair lending monitoring program and escalate disparities for timely remediation.
By tightening controls around pricing and exceptions, institutions can reduce both regulatory risk and reputational exposure – while reinforcing their commitment to fair and equitable treatment of all borrowers.
Algorithmic Bias and AI/ML Models
As more institutions turn to automated decisioning, artificial intelligence (AI), and machine learning (ML) in their underwriting and pricing, regulators are placing a spotlight on how these tools may introduce or perpetuate bias. In 2025, algorithmic bias has emerged as one of the fastest-growing areas of fair lending enforcement.
What Regulators are Doing
- CFPB guidance emphasizes that ECOA/Reg B applies equally to AI-driven decisioning as it does to traditional underwriting. Lenders remain responsible for ensuring models do not result in disparate impact.
- OCC and FDIC examiners are requiring institutions to demonstrate “explainability” in AI/ML models, meaning they must be able to explain why credit decisions were made, not just point to an algorithm.
- Vendor scrutiny is increasing, as regulators push financial institutions to validate third-party credit scoring or pricing models for fairness and compliance.
Red Flags Examiners Look For
- Models that rely on variables correlated with protected characteristics (e.g., ZIP code, education level, length of residence).
- Inability to explain why a loan was denied or why certain pricing was applied (“black box” risk).
- Lack of regular testing for disparate impact in model outputs.
- Overreliance on vendor assurances without independent validation.
How Institutions Can Stay Ahead
- Conduct model validations that test for disparate impact and ensure compliance with ECOA, FHA, and Reg B.
- Require vendors to provide transparency into model logic, variables used, and testing methodologies.
- Establish model governance frameworks that include compliance review, independent testing, and periodic revalidation.
- Document adverse action notices clearly, even when decisions come from complex algorithms, to meet regulatory requirements for borrower disclosures.
- Train staff and executives on the risks of algorithmic bias and the institution’s responsibilities for oversight.
By treating AI and ML as high-risk areas rather than convenient shortcuts, institutions can innovate responsibly while meeting regulators’ expectations for transparency, fairness, and accountability.
DOJ and CFPB Coordination on Fair Lending
Fair lending enforcement is no longer being handled in silos. In 2025, regulators are taking a more unified approach, with the DOJ, CFPB, OCC, FDIC, NCUA, and HUD working together to identify risks and pursue enforcement actions. This interagency coordination means institutions should expect broader investigations and higher-profile settlements.
What Regulators Are Doing
- Joint task forces between the DOJ and CFPB are investigating cases that cross both consumer protection and civil rights concerns.
- Agencies are increasingly sharing data from HMDA, Section 1071 small business lending, and other reporting sources to identify patterns of discrimination.
- Coordinated enforcement actions are expanding beyond mortgage lending to include auto loans, small business credit, and even fintech partnerships.
Red Flags Examiners Look For
- Inconsistent application of fair lending policies across different product lines.
- Weak governance over third-party partnerships, especially fintech-originated loans.
- Lack of institution-wide monitoring, leading to fragmented compliance efforts.
- Poor documentation of how senior management and the board oversee fair lending compliance.
How Institutions Can Stay Ahead
- Take a holistic approach to fair lending—integrating compliance across mortgage, consumer, auto, and small business lending lines.
- Establish a centralized fair lending governance structure, with board and executive oversight.
- Ensure policies, monitoring programs, and training are consistent across all lines of business and geographies.
- Document fair lending efforts thoroughly, so regulators see a unified and proactive approach to risk management.
With agencies coordinating more closely than ever, institutions must think enterprise-wide, not product-by-product, when it comes to fair lending compliance.
Focus on Small Business Lending
One of the most significant shifts in 2025 fair lending enforcement is the spotlight on small business lending. With the implementation of Section 1071 of the Dodd-Frank Act, regulators now have access to a much richer dataset on credit applications and outcomes for women-owned, minority-owned, and small businesses. This transparency is driving new enforcement priorities.
What Regulators Are Doing
- CFPB is actively analyzing Section 1071 data to identify disparities in approval rates, pricing, and terms across protected groups.
- DOJ and CFPB coordination has expanded to investigate whether minority- and women-owned businesses face systemic barriers to accessing credit.
- Examiners are looking for institution readiness – how banks, credit unions, and fintechs have prepared for Section 1071 compliance, including data integrity, governance, and remediation efforts.
Red Flags Examiners Look For
- Significant disparities in application or approval rates among minority- and women-owned businesses.
- Weak or missing policies and procedures governing small business underwriting and pricing.
- Lack of internal testing of Section 1071 data before submission.
- No clear governance or accountability structure for monitoring small business lending compliance.
How Institutions Can Stay Ahead
- Build robust data governance frameworks to ensure Section 1071 data is accurate, consistent, and reliable.
- Conduct disparity analyses on small business lending outcomes, similar to those already expected for mortgage and consumer lending.
- Update policies and procedures to address underwriting, pricing, and exceptions specific to small business credit.
- Train lending and compliance staff on the unique fair lending risks in the small business market.
- Document remediation steps taken when disparities are found, so you can demonstrate proactive compliance during an exam.
Small business lending is quickly becoming the “next frontier” of fair lending enforcement. Institutions that prepare now will be in a stronger position to manage risk, meet examiner expectations, and serve their communities more equitably.
Enforcement Through UDAAP
In 2025, regulators are continuing to frame discriminatory lending practices not just as fair lending violations under ECOA or FHA, but also as Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) violations. This dual enforcement approach allows agencies, especially the CFPB, to broaden their scope and pursue institutions even when traditional fair lending claims may be harder to prove.
What Regulators Are Doing
- CFPB enforcement actions increasingly cite discriminatory treatment or disparate impacts as inherently “unfair” under UDAAP standards.
- UDAAP gives regulators a wider jurisdictional reach, covering products, services, and practices beyond traditional credit transactions.
- Agencies are reviewing marketing, servicing, collections, and even fintech-driven credit programs for potential UDAAP violations tied to discrimination.
Red Flags Examiners Look For
- Marketing that could be perceived as steering or excluding certain communities.
- Loan servicing practices (e.g., hardship assistance, forbearance) that disproportionately disadvantage protected groups.
- Collections practices that create unequal burdens on certain borrower demographics.
- Incomplete or misleading disclosures that may affect certain borrowers differently.
How Institutions Can Stay Ahead
- Incorporate fair lending reviews into your UDAAP compliance framework to ensure coverage across all customer interactions, not just origination.
- Perform end-to-end testing – from marketing and application through servicing and collections – for potential disparate impacts.
- Review and refresh disclosure practices to ensure clarity and fairness across all borrower groups.
- Train staff on the intersection of fair lending and UDAAP, emphasizing that discrimination can be both a fair lending and consumer protection issue.
- Document proactive remediation efforts to show regulators that your institution treats fair lending risk as part of its broader consumer protection strategy.
By linking fair lending violations with UDAAP, regulators are sending a strong message: discrimination in any form is not only illegal, it is inherently unfair. Institutions that fail to address these risks holistically could face enforcement on multiple fronts.
How RADD Can Help
Keeping up with evolving fair lending enforcement trends can feel overwhelming – but you don’t have to manage it alone. At RADD, we help banks, credit unions, and fintechs prepare for regulatory scrutiny with tailored fair lending solutions that go beyond check-the-box compliance.
Here’s how we can support your fair lending compliance efforts:
- Fair Lending Risk Assessments
Independent, comprehensive reviews that identify gaps in your lending, pricing, and marketing practices, with clear risk ratings and recommendations. - Regression & Disparity Analysis
Advanced statistical testing to uncover hidden disparities in underwriting, pricing, or outcomes before regulators find them. - Redlining & Geographic Distribution Reviews
Mapping and demographic analysis to assess loan penetration and marketing across majority-minority and low-to-moderate income areas. - Model Validation & Governance
Independent reviews of AI, ML, and vendor models to detect algorithmic bias and ensure compliance with ECOA/Reg B and FHA requirements. - Policy and Procedure Enhancement
We develop and refine policies to standardize decision-making, limit discretion, and ensure consistent documentation of underwriting and pricing decisions.
Conclusion: Fair Lending Enforcement
Fair lending enforcement in 2025 is broader, deeper, and more data-driven than ever before. Regulators are not only examining traditional mortgage lending but also expanding their focus into pricing, small business credit, redlining, and even algorithmic models. With agencies coordinating efforts and framing discrimination as both a fair lending and UDAAP issue, the stakes for institutions have never been higher.
The good news is that these risks are manageable – if addressed proactively. By implementing rigorous monitoring, enhancing governance, validating models, and documenting every step, financial institutions can demonstrate a genuine commitment to equitable access to credit and avoid costly findings.
RADD is here to help.
Whether you’re preparing for your next exam, evaluating your fair lending program, or strengthening your internal controls, we provide the tools, expertise, and independent perspective to keep you ahead of regulatory expectations.
Schedule a consultation with RADD today to learn how we can help your institution stay ahead of fair lending enforcement trends in 2025.
Click here to book your session.