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 top U.S. watchdog for consumers' finances on Wednesday proposed narrowing key civil-rights-era anti-discrimination requirements for the financial industry, advancing President Donald Trump's effort to curtail and eliminate policies he views as promoting racial favoritism.

In an official notice, the U.S. Consumer Financial Protection Bureau said it was proposing to change existing rules to hold that the 1974 Equal Credit Opportunity Act, a landmark statute preventing lenders from discriminating against borrowers, "does not authorize disparate-impact liability."

Reuters had previously reported the CFPB planned to make the change. The CFPB did not immediately respond to a request for comment.

DISPARATE IMPACT LIABILITY USED AGAINST DISCRIMINATION

Curbing 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.

Wednesday's proposals are subject to 30 days of public comment before the agency can finalize the new regulations.

The legal doctrine is rooted in Supreme Court precedent and holds that business practices that produce discriminatory outcomes, known as "disparate treatment," are prohibited, in addition to intentional discrimination. If federal authorities cease to enforce disparate-impact requirements, preventing discrimination in large sectors of the economy will become much harder, consumer advocates say.

The changes to the CFPB's rules implementing the 1974 law follow Trump's April executive order that federal regulators curtail regulations intended to prohibit policies and practices with unintentionally discriminatory impacts.

The change may be subject to legal challenges. During Trump's previous term, the Department of Housing and Urban Development scrapped rules barring housing practices with disparate impacts on protected groups, but that was paused by a court, then reversed by the Biden administration.

CFPB PROPOSES NARROWING TARGETED CREDIT ASSISTANCE

As part of Wednesday's notices, the CFPB also proposed narrowing the permissible uses of Special Purpose Credit Programs, which allow lenders to offer targeted credit assistance to specific classes of individuals without falling foul of the equal credit law.

The agency furthermore proposed changing regulatory language that bars creditors from discouraging borrowers from applying for credit, such as through advertising or other marketing materials or statements, finding that this can unduly inhibit free speech and commerce.

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 from predominantly Black neighborhoods.

In a separate proposal on Wednesday, the CFPB called for changes it said would streamline a survey of banks' small business lending that has met with heated opposition from industry and Republicans, who call it invasive and burdensome. The survey regulations are on hold pending a legal challenge.

(Reporting by Douglas Gillison in WashingtonEditing by Rod Nickel)