By Nate Raymond

May 27 (Reuters) - Advocacy groups that support expanding housing and borrowing opportunities for low-income communities and people of color on Wednesday sued to block the U.S. Consumer Financial Protection Bureau from ending certain civil-rights-era antidiscrimination requirements for the lending industry.

The National Fair Housing Alliance, Rise Economy and two companies in a lawsuit filed in federal court in Washington, D.C., took aim at a rule backed by the Trump administration that the consumer finance watchdog agency issued last month.

The new rule altered how regulators implement the 1974 Equal Credit Opportunity Act, a decades-old law that the plaintiffs say was enacted with the goal of eradicating credit discrimination against minorities and other underrepresented borrowers.

The plaintiffs in Wednesday's lawsuit argue the changes will make it harder to challenge banks and lenders for policies that unfairly hurt Black people, women and other groups.

"This rule undermines one of the nation’s core civil rights protections in lending and will lead to more discrimination in access to credit,” Skye Perryman, the head of the liberal legal group Democracy Forward, said in a statement.

The CFPB did not respond to a request for comment.

The agency in adopting the rule cited a January 2025 executive order from President Donald Trump that called for agencies to end "illegal preferences and discrimination" and described diversity, equity and inclusion policies as illegal.

Under the CFPB's rule, lenders would no longer be required to prevent policies and practices that have unintentionally discriminatory results for borrowers, known as "disparate impacts."

The new rule also narrows what counts as illegally discouraging people from applying for credit and restricts the use of programs that are designed to help expand access to loans or mortgages for groups that historically faced discrimination.

The lawsuit argues that the agency failed under the Administrative Procedure Act to provide a reasoned explanation for why it was making the change, did not rely on any data or evidence about the costs it would pose to consumers; and ran afoul of the terms of the Equal Credit Opportunity Act itself.

The lawsuit also argues the rule is invalid because Acting CFPB Director Russell Vought, who is also the director of the Office of Management and Budget, has not been lawfully appointed to head the agency, which he has overseen since February 2025 without being confirmed by the U.S. Senate.

The case is National Fair Housing Alliance v. Consumer Financial Protection Bureau, U.S. District Court for the District of Columbia, No. 1:26-cv-01820.

For the plaintiffs: Lila Miller of Relman Colfax; Allison Zieve of Public Citizen; Janell Byrd-Chichester of National Fair Housing Alliance; and Johanna Hickman of Democracy Forward

For the government: Not yet available

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Trump consumer finance watchdog ends key civil rights-era anti-discrimination protection