CFPB Issues Interpretive Rule Clarifying that Sex Discrimination under ECOA and Regulation B Includes Sexual Orientation and Gender Identity Discrimination

Ballard Spahr LLP

Ballard Spahr LLP

Under the leadership of Acting CFPB Director Dave Uejio, the Bureau issued an interpretive rule on March 9, 2021 clarifying that the prohibition against sex discrimination under the Equal Credit Opportunity Act (“ECOA”) and Regulation B includes sexual orientation and gender identity discrimination. This prohibition includes discrimination based on actual or perceived non-conformity with traditional sex- or gender-based stereotypes, and discrimination based on an applicant’s social or other associations. The CFPB’s interpretive rule clarifies that lenders cannot discriminate on the basis of sexual orientation or gender identity and that individuals with those characteristics must be afforded equal opportunities to access credit.  The interpretive letter will be published in the Federal Register on March 16, 2021 and will become effective immediately.

We have long understood this to be the case.  In 2016, in response to an inquiry from Services & Advocacy for GLBT Elders (“SAGE”), an LGBTQ+ advocacy group, then-CFPB Director Richard Cordray responded that ECOA supports legal arguments that the prohibition against sex discrimination also affords broad protection from discrimination based on an applicant’s sexual orientation and gender identity.  This letter marked a major victory for SAGE and other LGBTQ+ advocates, who claimed that their community faced discrimination from lenders for many years. Nonetheless, the CFPB may have felt compelled to codify the letter as an interpretive rule in light of recent developments – specifically, a key U.S. Supreme Court case and an ECOA/Regulation B request for information by the Bureau, which are discussed below.

Impetus for the CFPB’s interpretive rule likely primarily arose from the U.S. Supreme Court’s 2020 landmark decision in Bostock v. Clayton County, Georgia (140 S. Ct. 1737), which held that the prohibition against sex discrimination in Title VII of the Civil Rights Act of 1964 encompasses sexual orientation and gender identity discrimination.  In Bostock, the Supreme Court dismissed the employers’ concerns that its decision “will sweep beyond Title VII to other federal or state laws that prohibit sex discrimination” with the statement that “none of those other laws are before us.”  Nevertheless, Bostock clearly provides support for the position that the ECOA prohibition against discrimination on the basis of “sex” includes discrimination based on sexual orientation.  Indeed, the Bureau’s interpretive rule cites extensively to the Bostock decision.  In addition, the CFPB issued a Request for Information (“RFI”) in July 2020 soliciting public comment to identify opportunities to prevent credit discrimination, promote access to credit, and encourage responsible innovation under ECOA and Regulation B.  One of the questions posed in the RFI was whether the Bureau should provide additional clarity or guidance interpreting ECOA in the wake of the Bostock decision.

In the press release accompanying its interpretive rule, the CFPB stated that the rule was being issued “consistent with the…Bostock decision and supported by many of the public comments received in response to the ECOA RFI.”  The Bureau also stated that it intends to review and update its examination guidance and other materials to reflect its interpretive rule, and “where appropriate,” take enforcement actions under ECOA to hold financial institutions accountable for their actions that violate the interpretive rule. The CFPB also expressed its interest in working with Congress on the federal Equality Act, which, if enacted, would codify protections for consumers against sexual orientation and gender identity discrimination in all financial products and services.

We also note that the CFPB’s action in issuing the interpretive rule is consistent with positions being taken across the federal government to prohibit discrimination on the basis of sexual orientation and gender identity.  For example, we have previously reported on President Biden’s Executive Order 13988 on “Preventing and Combating Discrimination on the Basis of Gender Identity or Sexual Orientation,” and the memo issued by HUD’s Acting Assistant Director for Fair Housing and Equal Opportunity on February 11, 2021 about enforcing the Fair Housing Act to prohibit discrimination based on sexual orientation and gender identity.  Also, over 20 state laws and the District of Columbia already prohibit discrimination in credit transactions on the basis of sexual orientation or sexual identity.

Given this CFPB interpretive rule development and the pending Equality Act in Congress, CFPB-regulated banks, financial institutions and financial services companies would be well-advised to immediately review their policies, procedures, training materials, legal disclosures and other consumer-facing materials to ensure that any references to ECOA’s prohibition on sex discrimination incorporate sexual orientation and gender identity discrimination.  And in light of CFPB Director-nominee Rohit Chopra’s expected interest in use of disparate impact analysis under ECOA, companies should also revisit their credit decisioning and pricing models to ensure that no variables are included that relate to sexual orientation or gender identity – or any close proxies for those characteristics.

The CFPB’s interpretive rule signals that discrimination on the basis of gender identity and sexual orientation will be a focus of the Bureau’s fair lending supervision and enforcement efforts going forward and raises the potential stakes for bank and non-bank creditors.  It is likely that legal and policy changes regarding LGBTQ+ rights will continue to evolve at both the federal and state levels, so companies should remain abreast of developments and consult legal counsel concerning any gray areas of fair lending compliance.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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