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While federal regulatory agencies retreat from enforcing disparate impact discrimination, at least one state agency has stepped forward. Massachusetts Attorney General Andrea Joy Campbell announced on July 10, 2025 a settlement with a student loan company, resolving allegations that the company’s artificial intelligence (“AI”) underwriting models resulted in unlawful disparate impact based on race and immigration status.

The disparate impact theory of discrimination in the lending context has been controversial. It has been 10 years since the Supreme Court held in Inclusive Communities that disparate impact is available under the Fair Housing Act if a plaintiff points to a policy or policies of the defendant that caused the disparity. In the fair lending context, then, disparate impact applies to mortgage loans. However, for other types of consumer credit – like auto loans or student loans – a plaintiff or government enforcer claiming discrimination would need to rely on the Equal Credit Opportunity Act (“ECOA”). While ECOA prohibits discrimination against an applicant with respect to any aspect of a credit transaction, there has been much debate over whether it applies to discrimination in the form of disparate impact. The federal government for years relied heavily on ECOA to bring credit discrimination actions. The Biden Administration pursued a vigorous redlining initiative against mortgage lenders. The government used the vast amount of data obtained under the Home Mortgage Disclosure Act (“HMDA”) and compared the activities of various lenders within a geographic area to determine whether a lender was significantly lagging its peers in making loans to certain protected groups. The government then looked to the lender’s branch locations, advertising strategies, the racial/ethnic make-up of its loan officers, and other factors to assert that the lender had discouraged loan applicants from protected classes. Through that redlining initiative, the government settled dozens of cases, resulting in well over $100 million in payments.

HMDA data provides extensive, if imperfect, demographic data on mortgage lending activities and has been key to building claims of lending discrimination, particularly disparate impact. However, that level of data is not generally available for other types of lending, like student loans. Without such data, the Office of the Massachusetts Attorney General (“OAG”) in this case reviewed the lender’s algorithmic rules, its use of judgmental discretion in the loan approval process, and internal communications, which the Attorney General described as exhibiting bias.

Disparate Impact Based on Race, National Origin

In that review, the OAG looked back to the scoring model the lender used prior to 2017, which relied in part on a Cohort Default Rate – the average rate of loan defaults associated with specific higher education institutions. The OAG asserted that use of that factor in its underwriting model resulted in disparate impact in approval rates and loan terms, disfavoring Black and Hispanic applicants in violation of ECOA and the state’s prohibition against unfair or deceptive acts or practices (“UDAP”). The public settlement order did not provide the level of statistical disparities. In addition, until 2023, the OAG asserted that the lender also included immigration status in its algorithm, knocking out applicants who lacked a green card. That factor “created a risk of a disparate outcome against applicants on the basis of national origin,” and as such violated ECOA and UDAP according to the OAG. The settlement order prohibits the lender from using the Cohort Default Rate or the knock-out rule for applicants without a green card (although it appears the lender had discontinued those considerations years ago).Continue Reading Massachusetts AG Settles Fair Lending Action Based Upon AI Underwriting Model

Mayer Brown has published a new edition of Licensing Link, a periodic publication that will keep you informed on hot topics and new developments in state licensing laws, and provide practice tips and primers on important issues related to state licensing across the spectrum of asset classes and financial services activities.

In this issue, we…

Mayer Brown has published a new edition of Licensing Link, a periodic publication that will keep you informed on hot topics and new developments in state licensing laws, and provide practice tips and primers on important issues related to state licensing across the spectrum of asset classes and financial services activities.

In this issue, we…

Mayer Brown has published a new edition of Licensing Link, a periodic publication that will keep you informed on hot topics and new developments in state licensing laws, and provide practice tips and primers on important issues related to state licensing across the spectrum of asset classes and financial services activities.

In this issue, we…

Earlier this month, both Kentucky and Virginia enacted significant legislation related to student loan servicing. Kentucky joined the ever-growing list of states to pass legislation regulating student loan servicing activities while Virginia pared back its existing student loan servicing law.

Kentucky’s new Student Education Loan Servicing, Licensing, and Protection Act of 2022 (“KY Law”) will…

On September 7, 2021, the CFPB announced that it had entered into a consent order with an education finance nonprofit (“nonprofit”) in connection with the nonprofit’s offering of income share agreements (“ISAs”). In the consent order, the CFPB asserted that ISAs are extensions of credit covered by the Consumer Financial Protection Act and the Truth in Lending Act (“TILA”) as well as TILA’s requirements with respect to “private education loans.” Because the CFPB asserts in the consent order that it views the nonprofit’s ISAs as credit, the CFPB takes the position that they are also subject to numerous other federal consumer financial protection laws that impose requirements and restrictions on student loan products. This consent order has significant implications for those in the ISA market, as it indicates how the CFPB views re-characterization for ISAs and similar products.
Continue Reading CFPB Finds that Income Share Agreements are Credit Products

On August 6, 2021, the U.S. Department of Education announced that it would extend the moratorium on federal student loan payments until January 31, 2022. According to the Department’s press release, this will be the final moratorium extension.

As we discussed back in 2020, the CARES Act provided temporary financial relief to federal student loan…

In a March 30, 2021 announcement, the Biden administration announced that it would be extending relief to approximately 1.14 million student loan borrowers who previously were not covered under the CARES Act relief enacted last year. These are borrowers who have defaulted on loans issued pursuant to the Federal Family Education Loan Program (“FFELP”). Specifically, under the measure, borrowers who have defaulted on FFELP loans will not face further penalties (and will see penalties already assessed unwound) and will also see their current interest rates reset to 0%.[1] The Biden administration’s action will be retroactive to March 13, 2020—the day the governmental formally declared a state of emergency due to the COVID-19 pandemic—and will return FFELP loans that defaulted during this period to good standing, with credit bureaus asked to remove any related negative credit reporting, allowing the applicable borrowers to rehabilitate their credit scores.[2]
Continue Reading Approaching Student Loan Relief Piecemeal: The Biden Administration Extends CARES Relief to Defaulted FFELP Student Loan Borrowers; Weighs Options for Further Measures

One of the great ironies of the Supreme Court’s decision in Seila Law v. CFPB, in which the Supreme Court held that the Consumer Financial Protection Bureau’s (CFPB) structure was unconstitutional, is that it effectively provided no relief to Seila Law, the party that took the case all the way to the Supreme Court. On remand, the Ninth Circuit held that the CFPB’s case against Seila Law could continue. Now, for the first time, a court has held that a pending CFPB enforcement action must be dismissed because of that constitutional infirmity. On March 26, 2021, a federal district court dismissed the CFPB’s action against the National Collegiate Student Loan Trusts, a series of fifteen special purpose Delaware statutory trusts that own $15 billion of private student loans (the NCSLTs or Trusts), finding that the agency lacked the authority to bring suit when it did; that its attempt to ratify its prior action came too late; and that based on its conduct, the CFPB could not benefit from equitable tolling. In doing so, the court avoided ruling on a more substantial question with greater long-term implications for the CFPB and the securitization industry—whether statutory securitization trusts are proper defendants in a CFPB action.
Continue Reading CFPB Suffers First Loss After Seila Law

With President Joe Biden’s inauguration as the Nation’s 46th President, change is coming to Washington. And that change will be felt quickly and acutely at the Consumer Financial Protection Bureau (CFPB). At President Biden’s request, CFPB Director Kathy Kraninger submitted her resignation on Wednesday, clearing the way for the President to appoint current FTC Commissioner and former CFPB official Rohit Chopra as the next Director of the agency. Given the CFPB’s single Director structure, the new Director will have significant opportunities to shape the direction of the CFPB over the next four years. Below we address what we can expect to see from CFPB under the new administration.
Continue Reading A New Day Dawns at the CFPB