Overview
In a series of recent enforcement actions, the US Department of Justice (DOJ) has signaled an increasingly broad approach to scrutinizing corporate diversity, equity, and inclusion (DEI) programs. Most notably, the DOJ's recent investigations and settlements with PayPal and IBM reflect a broader trend: the use of varied statutory frameworks to challenge race-conscious corporate programs. These developments suggest that companies should anticipate heightened regulatory risk for both past and present DEI-related practices, especially when those initiatives can be linked to credit activity or financial services.
PayPal Overview
The PayPal matter arose from the company's Economic Opportunity Fund (EOF), a roughly $535 million initiative launched in 2020 to support Black- and minority-owned businesses and to address economic inequality.[1] The EOF encompassed a range of activities, including direct grants to Black-owned businesses, funding to nonprofit organizations providing microloans, investments in minority-led startups, and internal diversity initiatives.[2] The DOJ investigated whether aspects of the EOF violated the Equal Credit Opportunity Act (ECOA), which prohibits discrimination in credit transactions on the basis of protected characteristics.[3]
The matter was ultimately resolved this May via settlement: PayPal expressly denied any liability related to the EOF, and the DOJ made no determinations or findings regarding an ECOA violation. The settlement agreement and the accompanying press release gave no specific theory tying the EOF to ECOA’s statutory definition of "credit," nor did they explain how the EOF fits within ECOA's traditional creditor–applicant framework.[4] Public statements by DOJ leadership in the press release emphasized the Department's broader commitment to eliminating discrimination and "root[ing] out illegal DEI from . . . corporate America" rather than identifying a precise theory of liability under ECOA.[5]
The absence of an articulated statutory theory is significant. ECOA applies to "creditors" that extend credit, and much of PayPal's EOF activity, including grants and equity investments, does not fit within that definition.[6] While certain elements of the EOF – such as funding nonprofit microlenders or partnering with financial institutions – may indirectly connect PayPal to credit markets, the DOJ has not clearly identified those connections as the legal basis for its case. It therefore remains unclear how PayPal's EOF activity is implicated by ECOA, or how it might be considered violative, especially as no allegations of violative conduct were asserted.
Federal Enforcement Patterns and IBM
The PayPal settlement aligns with a broader pattern of DOJ enforcement, reflected in part by the DOJ's recent establishment of the Civil Rights Fraud Initiative (CRFI). The CRFI was created in May of 2025 to "investigate and, as appropriate, pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws."[7] The CRFI uses the False Claims Act (FCA), a federal law that imposes liability on companies that falsely certify compliance with legal requirements to receive federal funds or contracts.[8] DOJ leadership framed the initiative in the accompanying press release as a response to concerns that certain DEI programs and related policies may violate federal civil rights laws.[9]
In line with this initiative, the DOJ recently entered into a settlement with IBM under the FCA. In this matter, the government alleged that IBM used race- and sex-based criteria in employment decisions, including tying bonuses to demographic targets, using "diverse interview slates," and limiting certain programs based on protected characteristics.[10] These practices allegedly caused IBM to falsely certify its compliance with applicable federal anti-discrimination requirements in connection with its government contracts.[11] Like PayPal, IBM denied liability and the case was resolved through settlement to avoid protracted litigation.[12]
The IBM matter illustrates a different but complementary aspect of the DOJ's DEI enforcement strategy. Here, the DOJ's use of the FCA rests on the established legal mechanism that federal contractors may be liable if they falsely certify compliance with applicable legal requirements. However, this still reflects a relatively novel application of the statute in a DEI enforcement context. The IBM matter does not present the same lack of statutory fit seen in the PayPal matter, but instead shows how the DOJ is using existing statutes to reach DEI-related conduct in new ways.
This trend is not limited to the DOJ. The Equal Employment Opportunity Commission has also pursued investigations and enforcement actions targeting corporate diversity policies. These matters span multiple industries and further demonstrate that DEI-related practices are facing increased scrutiny across agencies.[13]
Takeaways
Two significant takeaways emerge from the PayPal and IBM agreements. First, the DOJ deployed statutes not traditionally associated with DEI enforcement in both cases. The PayPal investigation relied on ECOA, a fair lending statute, while the IBM case relied on the FCA, an anti-fraud law. Viewed together, the PayPal and IBM matters show two different sides of the DOJ’s approach: in one case, extending statutes beyond their traditional boundaries, and in the other, using established frameworks to address DEI programs in novel ways.
Second, the matters suggest a scalable enforcement approach. The PayPal matter provides a potential roadmap for scrutinizing DEI-related investment, grantmaking, and financial inclusion initiatives. In contrast, the IBM matter illustrates how DEI practices of federal contractors and funding recipients may be challenged through certification and fraud theories under the FCA. Taken together, these actions indicate a willingness by the DOJ to use a broad range of novel statutory tools to target DEI-related conduct across industries.
For financial institutions and firms operating in adjacent markets, these developments carry important implications. The PayPal matter suggests that regulators may be willing to scrutinize programs that are not themselves extensions of credit, but that intersect with credit markets or financial services ecosystems. More broadly, DEI-related programs may be evaluated under a range of legal theories, even where the statutory fit is not straightforward.
Companies should consider reviewing their existing DEI initiatives with an eye toward how eligibility criteria, program design, and external partnerships may be characterized under these new developments. Particular attention is warranted for DEI programs involving financial assistance and partnerships, investments, and grants, as these areas appear especially susceptible to evolving enforcement theories.
Steptoe continues to monitor these developments and is available to assist clients in assessing and mitigating risk associated with DEI-related programs in this evolving enforcement landscape.
[1] PayPal Holdings, Inc., PayPal Announces $530 Million Commitment to Support Black Businesses, Strengthen Minority Communities and Fight Economic Inequality (June 11, 2020) https://newsroom.paypal-corp.com/2020-06-11-PayPal-Announces-530-Million-Commitment-to-Support-Black-Businesses-Strengthen-Minority-Communities-and-Fight-Economic-Inequality.
[2] Id.
[3] US Dep’t of Justice, The Equal Credit Opportunity Act (Jan. 2, 2025) https://www.justice.gov/crt/equal-credit-opportunity-act-3.
[4] US Dep’t of Justice & PayPal, Inc., Resolution Agreement (May 12, 2026) https://www.justice.gov/crt/media/1440286/dl. See also US Dep’t of Justice, Justice Department Secures $30M Settlement with PayPal Over Unlawful DEI Investment Program (May 12, 2026) https://www.justice.gov/opa/pr/justice-department-secures-30m-settlement-paypal-over-unlawful-dei-investment-program.
[5] US Dep’t of Justice, supra note 3.
[6] US Dep’t of Justice, The Equal Credit Opportunity Act (Jan. 2, 2025) https://www.justice.gov/crt/equal-credit-opportunity-act-3. See also 15 U.S.C. § 1691 (2018).
[7] US Dep’t of Justice, Justice Department Establishes Civil Rights Fraud Initiative (May 19, 2025) https://www.justice.gov/opa/pr/justice-department-establishes-civil-rights-fraud-initiative.
[8] US Dep’t of Justice, The False Claims Act (Jan. 15, 2025), https://www.justice.gov/civil/false-claims-act.
[9] US Dep’t of Justice, supra note 6.
[10] US Dep’t of Justice & International Business Machines Corporation, Settlement Agreement (May 12, 2026) https://www.justice.gov/crt/media/1440286/dl.
[11] Id.
[12] Id.
[13] Equal Emp. Opportunity Comm’n, EEOC Delivers on Administration Priorities and President Trump’s Executive Orders (May 7, 2026) https://www.eeoc.gov/newsroom/eeoc-delivers-administration-priorities-and-president-trumps-executive-orders.
