California Governor Newsom signed a slate of legislation on September 30, 2026, including Assembly Bill 801, the California Fair Lending Examination Act. The Act (or AB 801) establishes a new state fair lending examination regime for California-chartered banks and credit unions, and California Residential Mortgage Lending Act (CRMLA) licensees. The Act requires the California Department of Financial Protection and Innovation (DFPI) to conduct periodic examinations of those mortgage lenders for compliance with applicable federal and state nondiscrimination laws. The Act takes effect on January 1, 2027.

Assemblymember Mia Bonta introduced AB 801. Earlier versions were more like a mini-Community Reinvestment Act, requiring lenders to meet the credit needs of the communities they serve, especially low- and moderate-income areas. Following significant industry pushback, the state legislators narrowed the bill to target fair lending mortgage compliance examinations.

The Act requires the DFPI to examine, at least once every four years, state-chartered banks and credit unions that meet the asset, volume, and other criteria to be a reporting financial institution under the federal Home Mortgage Disclosure Act (HMDA). The affiliates of covered banks and credit unions also are examinable under certain conditions. In addition, all CRMLA licensees (without regard to HMDA thresholds) are subject to the new state fair lending examination cadence.

The examinations will cover federal and California fair lending laws, including the Equal Credit Opportunity Act, the Fair Housing Act, California’s Unruh Civil Rights Act, and the Holden Act, California’s anti-redlining statute. While the DFPI may cooperate with federal and other state agencies and must align its examinations with others, it may conduct its own examinations, particularly in response to complaints or evidence of potential discrimination.

Importantly, contrary to the Trump administration and its regulators, the Act expressly requires the DFPI to address discriminatory effect (i.e., disparate impact) under the California fair housing laws, to the extent that disparate impact is not attributable to the lender’s legitimate business interest. While that “discriminatory effect” language appears only in the Act’s bank and credit union provisions, and not in its CRMLA provisions, the state’s fair housing laws may recognize disparate impact. Accordingly, it is unclear whether CRMLA licensees will be spared disparate impact scrutiny. Another open question relates to the disparate impact burden-shifting requirements – specifically, whether the DFPI will require the examined institutions to show there was no less discriminatory alternative to challenged acts or practices.

Under California law, protected classes include more categories than federal fair lending laws. California generally prohibits discrimination against persons because of their race, color, religion, sex, gender, gender identity, gender expression, sexual orientation, marital status, national origin, ancestry, familial status, source of income, disability, veteran or military status, or genetic information. The state’s Unruh Civil Rights Act also applies to persons’ medical condition, citizenship, primary language, or immigration status.

Results of the DFPI’s fair lending examinations must not be disclosed to the public, but may be shared with law enforcement officials and other state or federal regulatory agencies. Unsurprisingly, the DFPI will impose fees on examined institutions.

A violation of an applicable nondiscrimination law is a violation of the state’s banking or credit union laws or CRMLA, as applicable, and of the state’s Consumer Financial Protection Law. A willful violation of the CRMLA is a misdemeanor.

California’s new Fair Lending Examination Act further sharpens the knife’s edge that mortgage lenders must now navigate. Federal regulators will not pursue or enforce disparate impact discrimination, and in fact the Consumer Financial Protection Bureau (CFPB) has stated that lenders’ efforts to address disparate impact “raises constitutional concerns” under the Equal Protection Clause. However, states like California (and Illinois and New Jersey, among others) maintain that disparate impact discrimination is illegal. While many lenders are abandoning special purpose credit programs, as such, in light of the CFPB’s ECOA interpretations, states like California will still be looking at lending data and other activities to determine what impact they are having on protected classes.