The Biden CFPB has begun a significant expansion in the use of consumer finance enforcement tools to act on behalf of marginalized communities. On the back of Acting Director David Uejio’s announcement earlier this year of his intention to prioritize cases involving racial equity, and subsequent filing of the Biden CFPB’s first enforcement action against Libre Services for alleged abuse and “unfair practices” involving Spanish-speaking immigrant communities, the CFPB has also signaled a focus on potential violations of fair lending protections for LGBTQ individuals.
Early last month, the CFPB issued an interpretive rule clarifying that the Equal Credit Opportunity Act (ECOA) and Regulation B prohibit discrimination on the basis of sexual orientation and gender identify.[1] Passed in 1974, the ECOA prohibits banks and lenders from rejecting, discouraging or applying inconsistent standards to customers seeking credit products or loans on the basis of their sex, even where other reasons for differing treatment are cited. The ECOA does not define “sex,” however, and, according to the Bureau, lenders have sought clarification about its meaning, including whether it encompassed discrimination on the basis of sexual orientation or gender identity.
Shortly after the Supreme Court’s ruling in Bostock v. Clayton County,[2] that Title VII’s ban on sex-based discrimination in employment prohibited workers from being fired on the basis of their sexual orientation or gender identify, the CFPB issued a notice and request for information on, among other issues, whether and how the Bostock decision should affect its interpretation of its authority under the ECOA.[3], The revised interpretive guidance notes that the CFPB’s interpretation of the ECOA was consistent with the ruling in Bostock because discrimination on the basis of sexual orientation or gender identity “necessarily involve consideration of sex.”
One notable piece of the guidance is the Bureau’s view that, in addition to an individual’s stated or actual sexual orientation or gender identify, the ECOA and Regulation B also encompasses “discrimination motivated by perceived nonconformity with sex‑based or gender-based stereotypes, as well as discrimination based on an applicant’s associations.”[4] The guidance includes an example of potentially illegal conduct as a lender denying a loan to a person who is perceived to be wearing clothing that does not match their apparent sex.
The guidance also highlights the CFPB’s likely intention to pursue disparate impact theories when policing fair-lending and other consumer finance laws and regulations. The guidance noted the Bureau’s view that “[d]isparate treatment on a prohibited basis is illegal whether or not it results from a conscious intent to discriminate.”[5] Thus, for example, the Bureau noted that it would be illegal to provide a non-minority credit applicant the opportunity to address or correct adverse information in a credit report, while denying a minority applicant’s loan application on the grounds of similar adverse information without first offering that applicant the same opportunity to address the information.[6]
The CFPB has already begun taking a more active approach to fair-lending enforcement authority, and this is yet another example of the expansive interpretation the Bureau is taking of that authority. While most major lenders and financial institutions have existing policies prohibiting discrimination against LGBTQ individuals—largely resulting from state-level prohibitions against such discrimination—there has been effectively no enforcement by the CFPB of such cases, and it remains to be seen how aggressive the Bureau will be in identifying and pursuing such cases. Lenders should ensure that they have considered how the CFPB’s broad interpretation of the ECOA might impact their policies and practices for extending credit to LGBTQ individuals, including whether their policies and practices may lead to disparate treatment of LGBTQ individuals.
[1] 86 Fed. Reg. 14363 (Mar. 16, 2021).
[2] 140 S. Ct. 1731 (2020).
[3] 85 Fed. Reg. 46600 (Aug. 3, 2020).
[4] 86 Fed. Reg. at 14365 (emphasis added).
[5] 86 Fed. Reg. at 14364 n.24.
[6] Id.