Banks and DEI Efforts: Managing New Challenges

Banks and financial institutions are among several sectors facing uncertainty on how to ensure their employment practices, including  diversity, equity and inclusion (DEI) initiatives, comply with federal and state laws. The latest challenge began in January 2025 with Executive Order 14173, issued by President Donald J. Trump, titled “Ending Illegal Discrimination and Restoring Merit-Based Opportunity.”

Reversal of Affirmative Action Requirements
The 2025 executive order formally rescinds President Lyndon B. Johnson’s Executive Order 11246, as well as other executive orders. Issued in 1965, Johnson’s EO has been a key legal authority used to promote diversity and reduce bias among federal contractors by prohibiting discrimination based on race, color, religion, sex, or national original and requiring the implementation of affirmative action plans (AAPs) and other measures.

A few days after the new executive order was issued, Acting Secretary of the U.S. Department of Labor Vincent N. Micone III directed all U.S. Department of Labor workers — including the Office of Federal Contract Compliance Programs, or OFCCP, which enforced EO 11246 — to abandon all pending cases, conciliation agreements, investigations, complaints and "any other enforcement-related or investigative activity” under the rescinded EO 11246 and the regulations promulgated thereunder.

All banks, because they are backed by the FDIC, are considered government contractors and have been subject to three major compliance areas enforced by the OFCCP. These are anti-discrimination and affirmative action requirements under EO 11246, Section 503 of the Rehabilitation Act (which governs individuals with disabilities), and the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA), which governs protected veterans.

This article considers some consequences of the new EO to date and recommends ways for banks to mitigate the risk of violating the emergent rules and triggering government enforcement.

Increased Scrutiny for Banks and Financial Institutions
The language in President Trump’s EO 14173 is broad, and, as currently worded, does not actually have an impact on a federal contractor’s obligations under VEVRAA or Section 503. These obligations stem from statutes and not an executive order capable of being rescinded by the president via a subsequent executive order.

It appears that, at least currently, federal contractors and subcontractors should still comply with the requirements for protected veterans under VEVRAA and for individuals with disabilities under Section 503, including the affirmative action plan requirements.  

Notably, there have been subsequent actions directed at financial institutions specifically.

Shortly after EO 14173 was issued, a coalition of 10 state attorneys general, led by Texas Attorney General Ken Paxton and including attorneys general from Alabama and South Carolina, sent a letter to  six major U.S. financial institutions. The letter claims “unlawfully advance[d] discriminatory employment quotas,” and other possible discriminatory practices and violations of federal and state laws. The AGs requested answers to questions about the financial institutions’ DEI and environmental, social and governance (ESG) programs.

Although only six institutions received the letter, the message of increased scrutiny and possible government enforcement actions at the state and federal levels reverberated throughout the banking and financial worlds.

Reduce the Risk of “Illegal DEI” Missteps
Following EO 14173’s broad and general spotlight on “illegal DEI,” the Trump Administration told employers to expect detailed guidance that would provide clarification. As of publication, the clarifying guidance has not provided much direction.

In March 2025, there was a technical assistance document, from the U.S. Equal Employment Opportunity Commission and U.S. Department of Justice, entitled “What You Should Know About DEI-Related Discrimination at Work.” It focused on DEI-related discrimination and stated that all discrimination is unlawful under Title VII.

Thus, a lack of clarity persists for bank and business leaders seeking to comply with the law and to understand what is considered “illegal DEI” for all employers, including federal contractors. For those left scratching their heads on next steps, consider these factors to start.

Good Laws Are Still In Effect
It is important to remember that EO 14173 did not rescind federal anti-discrimination laws.

VEVRAA and Section 503 remain current law. Title VII, which prohibits discrimination against individuals in these protected categories, remains the law of the land. Federal employers, such as banks, may not be subject to affirmative action but are still very likely to be subject to Title VII, to the extent they employ the requisite number of employees. 

The question for employers to ask now is “Do any of our activities discriminate against ANY individuals?”

Practical Steps to Take

Definitive, letter-of-the-law recommendations are not viable yet. However, a “let’s wait and see” strategy will not sufficiently address the real risks financial institutions face. There are a few areas to review and actions to take to avoid inadvertently practicing “illegal DEI.”

• Employee resource groups. The EEOC guidance identified employee affinity groups, which have expanded in the past decade, as problematic. While the EEOC did not declare groups “prohibited,” the potential for reverse discrimination was noted.

Employers should review and assess the criteria for their resource groups. Make sure that trainings and other efforts do not exclude any members in the workplace.

Employee groups where membership is limited can create a problem. Invite everybody to the table to practice the full meaning of inclusion. Demonstrate how the workforce is meeting on a more global platform.

• Policies and procedures. Conduct a comprehensive review of policies and procedures as they reference areas rescinded by EO 14173. This would include affirmative action with regard to race, color, religion, sex, sexual orientation, gender identity or national origin.

Eliminate references to those characteristics to prevent claims of hiring quotas, illegal discrimination or disparate treatment on those issues. This is a delicate balance. While affirmative action is prohibited, discrimination on the basis of these protected characteristics violates Title VII, which is still binding law.

• Appropriate employee communications. While awaiting final guidance on DEI and federal contractors, employers should consider setting the stage for conversations with their employees. The types of conversations will depend in part on the company culture of each bank or financial institution.

Organizations with significant DEI initiatives will support different discussions than workplaces that have few minority representations.

Human resource leaders should be on the front line of communication and be prepared to speak with employees about their concerns. HR should be able to reaffirm the message that all employees will be assessed on the performance, merit and value they provide to the organization. Again, the tone and substance of the conversation should reflect and support each company’s culture.

Conversations around DEI can feel delicate, especially when the sand keeps shifting. To add weight, try using the phrase “The law as it exists now is … .” It is a good starting place and will hold up until more clear guidance is available.

In the near term, observers expect the unknowns around “illegal DEI” to expand as the courts begin interpreting guidelines and any inconsistencies with Title VII. The best strategy for employers now is to be prepared and set the stage for their workforces to perform well. Be intentional in monitoring changes in the workplace, adding flexibility into policies and procedures, and being vigilant around resource groups and other identified problematic areas.

Please contact Karleen J. Green or any member of the Phelps Banking and Financial Services and Labor and Employment teams if you have questions or need advice or guidance.