Illinois Governor Pritzker signed the new Civil Rights Safeguard Act (Senate Bill 3777) on July 31, 2026 to codify disparate impact as an available theory of discrimination, including in the provision of financial services.
The state’s Human Rights Act currently provides that it is a civil rights violation for a financial institution, on the grounds of “unlawful discrimination,” to deny services to a person, or to provide a person with different services, including denying or varying the terms of a loan, or using lending standards that have no economic basis. (The Human Rights Act also prohibits discrimination in other realms, including employment, real estate transactions, and public accommodations.) A “financial institution” for this purpose includes a bank, credit union, insurance company, mortgage banking company, or savings and loan association that operates or has a place of business in the state.
The new Civil Rights Safeguard Act amends the Human Rights Act, including by revising the state’s definition of “unlawful discrimination.” The new definition clarifies that “unlawful discrimination” includes discrimination against a person, “whether by purpose or effect,” because of his or her actual or perceived protected status. Accordingly, for example, even if a financial institution has no intention to discriminate in its provision of loans or other services, if its lending standards or other activities have the effect of treating persons differently on a protected basis, it appears those standards or activities could implicate fair lending scrutiny in Illinois.
The new legislation also addresses the burden-shifting obligations when making or defending against a disparate impact claim. The new Civil Rights Safeguard Act states that it is a civil rights violation for any financial institution, based on unlawful discrimination, to use criteria or methods that have the effect of subjecting individuals to unlawful discrimination. The Act clarifies that criteria or methods are unlawful if they are not necessary to achieve a substantial, legitimate, nondiscriminatory interest or if that substantial, legitimate, nondiscriminatory interest could be served by another practice that has a less discriminatory effect. That standard is familiar – for instance, it was articulated in the Fair Housing Act regulations of the Department of Housing and Urban Development in the past (the Department is, however, currently considering significant changes to that standard), and it appears in various formulations in Supreme Court disparate impact cases. In that way, it appears the Illinois legislature intends to incorporate and codify that line of interpretation into its disparate impact analysis. Of course, it will be up to the Illinois Departments of Human Rights and Financial and Professional Regulation and the courts to provide guidance on the exact parameters of the Act’s burden of proof.
The state’s prohibited bases for discrimination against a person are a person’s race, color, religion, national origin, ancestry, age, sex, marital status, order of protection status, disability, military status, sexual orientation, pregnancy, reproductive health decisions, or unfavorable discharge from military service.
Illinois follows New Jersey in affirmatively recognizing disparate impact discrimination, while the federal government has determined that the theory actually “imperils the effectiveness of civil rights laws by mandating, rather than proscribing, discrimination” and is “wholly inconsistent with the Constitution.” In that vein, the Consumer Financial Protection Bureau, Federal Trade Commission, and other agencies have followed President Trump’s directive to remove references to disparate impact from their regulations and examination guidance. Financial institutions operating in those states are left, then, to determine how to comply with battling interpretations and seemingly inconsistent mandates.
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