Sexual Orientation and Fair Lending Laws

by. Henry Meier

The Supreme Court’s recent rulings striking down the Defense of Marriage Act (DOMA) and refusing to consider a challenge to California’s same sex marriage law are sure to give new energy to efforts to stamp out discrimination based on sexual orientation.  Interestingly, banking regulators have been ahead of the curve in clamping down on discrimination based on sexual orientation.  If you haven’t done so already (and if you’re located in New York you should have), it is time to include sexual orientation in the protected class list that your credit union does not discriminate against when making credit decisions.

This is not as obvious as you might think.  Congress will probably be one of the last institutions to pass laws banning discrimination on the basis of sexual orientation.  So, for example, Regulation B, which implements the Equal Credit Opportunity Act, does not prohibit such discrimination.  Nevertheless, federal agencies have been quietly moving since at least 2010 to clamp down on discriminatory lending practices.  In the latest edition of the Federal Reserve Board’s Consumer Compliance Outlook (which, as I’ve said before is a must read for anyone involved in compliance), an analysis of fair lending examination standards points out that since 2010 HUD guidance has forbidden discrimination against lesbian, gay, bisexual and transgendered people in housing transactions over which it has jurisdiction.  In addition, a regulation it promulgated in 2012 banned such discrimination.  Since HUD has jurisdiction over FHA loans, lenders are prohibited from engaging in practices that have the effect of discriminating against these individuals when providing these mortgages.  HUD even brought a lawsuit against Bank of America claiming that it was violating this rule by denying a loan to a same-sex couple in Florida seeking an FHA-insured mortgage.

State law is going to be the driving force behind increased enforcement in this area for the foreseeable future.  Section 296-a of New York’s Executive Law already prohibits discrimination based on sexual orientation in making credit determinations.

Remember with or without an explicit legal mandate, there is nothing to stop your credit union from explicitly banning discrimination on the basis of sexual orientation.  Given what is likely to be more aggressive federal enforcement in this area, not to mention the moral case for recognizing changing societal attitudes, it is time to consider changing your policy if you haven’t done so already.

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