SBA scraps disparate-impact liability from its Title VI funding rules

The U.S. Small Business Administration has stripped disparate-impact liability and affirmative-action language from its Title VI regulations, so recipients of SBA funding can no longer be held liable for discrimination that is unintentional. The final rule, Removing Constitutional Concerns From SBA Programs, was signed by Administrator Kelly Loeffler and published in the Federal Register of September 29, 2026, taking effect the same day.

The rule amends 13 CFR part 112, titled “Nondiscrimination in Federally Assisted Programs of SBA—Effectuation of Title VI of the Civil Rights Act of 1964,” under RIN 3245–AI72. SBA says the changes align its rules with the text Congress enacted in 42 U.S.C. 2000d, which the agency reads as barring only intentional discrimination. The action follows the Department of Justice’s December 10, 2025 revisions to its own Title VI regulations (90 FR 57141) and conforms to Executive Order 14281, Restoring Equality of Opportunity and Meritocracy (90 FR 17537, April 23, 2025).

What the rule removes

• 13 CFR 112.3(b)(3), which authorized and in some instances required affirmative action based on race, color or national origin.
• The third sentence of 13 CFR 112.4, covering employment practices of federal funding recipients, plus a technical correction to its first sentence.
• 13 CFR 112.7(a), an illustrative example applying the rules to employment practices.
• 13 CFR 112.7(d), illustrative examples of the affirmative action authorized under 112.3(b)(3); paragraphs (b) and (c) are redesignated as (a) and (b).

SBA states the practical effect is that its Title VI regulations “do not prohibit conduct or activities that have a disparate impact,” and that the agency “will not pursue Title VI disparate-impact liability against its Federal funding recipients.”

Legal reasoning and procedure

SBA cites Alexander v. Sandoval (532 U.S. 275, 2001), which held that Title VI prohibits only intentional discrimination, and Loper Bright Enterprises v. Raimondo (2024), which requires agencies to stay within a statute’s “single, best meaning.” It also invokes Students for Fair Admissions v. Harvard (2023) and the Equal Protection Clause, arguing the rescinded provisions encouraged or coerced racial balancing without narrow tailoring. The agency says each reason independently justifies repeal and that the amendments are severable.

The rule was issued without prior notice and comment under the Administrative Procedure Act exception at 5 U.S.C. 553(a)(2) for matters relating to public property, loans, grants, benefits or contracts. The Office of Management and Budget deemed it a significant regulatory action under Executive Order 12866, and the Department of Justice reviewed and approved it under Executive Order 12250. The contact is Paul Fitzpatrick, Associate Administrator, Office of Entrepreneurial Development.

Costs, reliance and enforcement

SBA describes the rule as deregulatory under Executive Order 14192 and says the removed provisions “have been cited extremely infrequently,” are not currently enforced and impose no compliance obligations, leaving annualized compliance costs negligible. It adds that eliminating disparate-impact liability does not prevent the use of statistical disparity data as evidence of intentional discrimination, and that any reliance interests are minimal.

For small-business lenders, grant intermediaries and other SBA funding recipients, the change removes a liability standard the agency says drove costly impact analyses and race-conscious balancing; civil rights enforcement at SBA now turns solely on proof of intentional discrimination.

Source: Federal Register, Vol. 91, No. 187, September 29, 2026, Rules and Regulations, p. 61295 (official reference: 2026–19878).