Signage is seen at the Consumer Financial Protection Bureau (CFPB) headquarters in Washington, D.C., U.S., August 29, 2020. REUTERS/Andrew Kelly

By Douglas Gillison

WASHINGTON (Reuters) -The U.S. Consumer Financial Protection Bureau plans to propose in the coming days narrowing a key part of civil-rights era fair-lending regulations as Republican President Donald Trump's administration overhauls protections and rules it says burden companies, according to two people with knowledge of the matter.

The changes to the CFPB's rules implementing the 1974 Equal Credit Opportunity Act (ECOA) follow Trump's April executive order that federal regulators curtail regulations intended to prohibit policies and practices with unintentionally discriminatory impacts.

Curbing so-called "disparate impact" liability, which is common in employment-related cases, removes a tool the government has used for decades to police racial and gender discrimination in housing, education, lending and other areas.

Democrats in Congress have condemned the Trump administration's rollback of disparate impact enforcement, saying it ignores the history and reality of discrimination and will harm the public.

Requiring companies to prevent discriminatory outcomes in practice encourages racial favoritism and unfairly burdens them, according to the White House, a position rejected by consumer advocates, who say it is a principal tool in reversing ingrained discrimination in the financial sector and housing.

The White House and CFPB did not immediately respond to requests for comment.

The CFPB plans to propose changes that would de-emphasize "disparate impact" as an ECOA requirement, the people said.

The people said the changes will also limit the permissible use of Special Purpose Credit Programs, which allow lenders to offer targeted credit assistance to specific classes of individuals without falling foul of ECOA.

At the encouragement of former Democratic President Joe Biden's regulators, many banks and other lenders in recent years had launched such programs to help address the racial equity gap by expanding credit to communities that might otherwise be denied it.

The CFPB may also make changes to its ECOA rules which bar a creditor from discouraging borrowers from applying for credit, such as through advertising or other marketing materials or statements, the people said.

A court in June blocked the CFPB from undoing a settlement with a Chicago-area mortgage lender that officials in Trump's first administration had accused of "redlining" by discouraging would-be loan applicants.

(Writing and additional reporting by Michelle Price)