On September 30, 2026, California Governor Gavin Newsom signed Assembly Bill 801 (AB 801), the California Fair Lending Examination Act. Effective January 1, 2027, AB 801 requires the California Department of Financial Protection and Innovation (DFPI) to incorporate compliance with federal and California mortgage nondiscrimination laws into recurring examinations of covered state-chartered banks, California credit unions, and California Residential Mortgage Lending Act (CRMLA) licensees. Under the Act, a violation of an applicable mortgage nondiscrimination law becomes independently enforceable under the institution’s governing California financial law.
What Happened?
AB 801 adds a formal fair lending examination framework to the Banking Law and California Credit Union Law and expands the existing scope of examinations required under the CRMLA. For covered banks and credit unions, the DFPI Commissioner generally must conduct a mortgage fair lending examination at least once every four years. For CRMLA-licensed residential mortgage lenders and servicers, DFPI must include fair lending compliance within the examination already required at least once every 48 months.
The examination scope expressly includes the federal Equal Credit Opportunity Act (ECOA), the federal Fair Housing Act, the California Fair Employment and Housing Act (FEHA), the Holden Act, and the Unruh Civil Rights Act. A violation of any applicable nondiscrimination law is treated as a violation of the Banking Law, California Credit Union Law, or CRMLA, as applicable, allowing DFPI to use its existing supervisory and enforcement authority or its authority under the California Consumer Financial Protection Law.
Which Institutions Are Covered?
AB 801 does not apply the same threshold to every institution. The new four-year examination requirement applies to a state-regulated bank or California credit union that satisfies at least one criterion in the federal Regulation C definition of a “financial institution” at 12 C.F.R. § 1003.2(g)(1)(v). In practical terms, the institution must meet the applicable federal loan-volume threshold referenced by that provision. By contrast, AB 801 amends the CRMLA to require a fair lending review as part of the regular examination of each residential mortgage lender and servicer licensee. Notably, the statutory text does not import the Regulation C threshold for CRMLA licensees.
What Laws Will DFPI Examine?
The Act identifies five central fair lending statutes, while preserving DFPI authority to examine for compliance with any other federal or California nondiscrimination law applicable to mortgage lending:
- ECOA (and implementing regulation, Regulation B). Prohibits discrimination in any aspect of a credit transaction on a prohibited basis, including race, color, religion, national origin, sex, marital status, age, receipt of public assistance, and the good-faith exercise of rights under the Consumer Credit Protection Act.
- Federal Fair Housing Act. Prohibits discrimination in residential real estate-related transactions based on race, color, religion, sex, familial status, national origin, and handicap.
- California FEHA. Prohibits specified discriminatory housing and housing-finance practices and recognizes discriminatory-effect liability. For banks and credit unions, AB 801 specifically directs DFPI to require correction of a discriminatory effect under FEHA that is not attributable to the institution’s legitimate business interest.
- Holden Act. Prohibits discrimination in the availability or terms of financial assistance for housing based on specified protected characteristics and certain neighborhood conditions. It also restricts consideration of a neighborhood’s racial, ethnic, religious, or national-origin composition in appraisal and credit decisions.
- Unruh Civil Rights Act. Requires full and equal accommodations, advantages, facilities, privileges, and services in all business establishments and prohibits arbitrary discrimination, including discrimination based on characteristics enumerated in Civil Code § 51.
How Will the Examination Framework Operate?
DFPI may review records, examine personnel under oath, coordinate with state and federal agencies, Fannie Mae, and Freddie Mac, and accept another entity’s examination unless it lacks information DFPI needs. For covered banks and credit unions, DFPI must coordinate fair lending examinations with other scheduled examinations when practicable but may conduct targeted or off-schedule reviews for due cause. DFPI may also exempt a bank or credit union, or examine it less frequently, following a fully compliant examination. No parallel exemption applies to CRMLA licensees.
DFPI must provide written findings and ensure correction of violations. Findings are confidential but may be shared with law enforcement and regulators. Affiliates of banks and credit unions may be examined when documented evidence shows qualifying unlawful activity involving the affiliate. Examination fees may not exceed reasonable examination expenses.
Why Does It Matter?
AB 801 makes California mortgage nondiscrimination laws part of routine DFPI supervision and renders any such violations enforceable under each covered institution’s governing financial statute.
For covered banks and credit unions, the Act expressly requires correction of unjustified discriminatory effects under FEHA. DFPI may therefore assess whether facially neutral practices produce discriminatory outcomes in underwriting, pricing, exceptions, marketing, redlining, servicing, loss mitigation, and other mortgage activities. This state-law focus is especially significant because the CFPB’s 2026 amendments to Regulation B state that ECOA does not authorize disparate-impact liability. That federal position does not displace FEHA, which may also apply to CRMLA licensees engaged in covered housing-finance activities.
Covered banks and credit unions also face examination risk outside the ordinary four-year cycle: complaints or other evidence of possible discrimination may support a targeted or off-schedule examination.
What Do I Need to Do?
Covered institutions should use the period before January 1, 2027 to evaluate whether their fair lending compliance management systems are prepared for examination by the DFPI. This should include the following steps:
- Map California-law requirements. Update fair lending policies and risk assessments to address FEHA, the Holden Act, and Unruh in addition to ECOA and the federal Fair Housing Act. The analysis should identify California-specific protected classes, prohibited geographic considerations, and discriminatory-effect risk.
- Maintain comprehensive records. Document all facts surrounding inquiries, applications, and decisions. If a complaint is received, having a clean, transparent audit trail is critical because written findings from DFPI exams go directly to principals, officers, or directors, and violations become actionable breaches under the Banking Law, Credit Union Law, or the CRMLA. Also retain current policies, risk assessments, loan-level data, exception reports, complaint logs, management reporting, and remediation evidence in an exam-ready format.
- Scrub and geocode loan data. Assemble comprehensive loan datasets and ensure every single record is accurately geocoded, and track marketing footprints and branch locations by geography.
- Run statistical testing on underwriting and pricing. Conduct periodic (at least annually) risk-based testing of underwriting, pricing, exceptions, steering, redlining, marketing, servicing, and loss-mitigation outcomes, controlling for legitimate factors supported by policy and loan-level records.
- Document business justifications for disparities. If the statistical review flags any disparities, pull comparative files, review exceptions and manual overrides, and document a clear legitimate business interest for any remaining variance.
- Prepare for state-level disparate impact scrutiny. Evaluate whether neutral policies or automated underwriting/pricing rules inadvertently generate a disparate impact against protected groups, and review pricing exception reports for trends in magnitude or frequency of exceptions. Unlike recent federal rollbacks, the new statute explicitly requires the DFPI to address discriminatory effect (disparate impact) under California fair housing and civil rights laws unless it is justified by a legitimate business interest.
- Treat complaints as exam triggers. Escalate and route complaints immediately to the compliance officer or legal counsel to review whether the complaint highlights systemic patterns, steering, redlining, or inconsistent application of underwriting standards. The DFPI explicitly uses incoming discrimination complaints as cause to launch off-schedule or targeted fair lending examinations outside of the standard four-year examination cycle.
- Prepare for examinations. The new statute authorizes the DFPI to conduct examinations under oath and issue formal written statements of findings requiring direct correction of violations. Therefore, covered institutions should maintain materials for efficient production and readiness for sworn examinations, written findings, and corrective action.
Alston & Bird’s Consumer Financial Services team is available to assist banks, credit unions, and mortgage lenders and servicers in assessing AB 801 coverage, evaluating California fair lending risk, and preparing for DFPI examinations.