In July 2020, we wrote an article for Hudson Cook Insights, entitled “Equality in Credit Decisions—Does ‘Sex’ Include Sexual Orientation and Gender Identity?,” following the Supreme Court’s decision in Bostock v. Clayton County, Georgia. Today we can affirmatively answer that yes, “sex” does include sexual orientation and gender identity under the Equal Credit Opportunity Act and Regulation B.

On March 9, David Uejio, acting director of the Consumer Financial Protection Bureau, issued an interpretive rule clarifying that ECOA and Reg. B’s prohibition against sex discrimination extends to discrimination on the basis of sexual orientation and gender identity. In reaching this conclusion, the CFPB noted that Title VII, which prohibits employment discrimination on the basis of sex, and ECOA are usually interpreted consistently with one another. ECOA, like Title VII, prohibits discrimination on the basis of sex. And discrimination based on sexual orientation or gender identity “necessarily involve[s] consideration of sex.” Per the interpretive rule, a creditor discriminates against an applicant on the basis of sex if the creditor discriminates against the applicant for traits or actions it would accept in an applicant of the opposite sex or if the discrimination is motivated by “the applicant ‘failing to fulfill traditional sex stereotypes.’“

The CFPB also noted that neither ECOA nor Reg. B requires that discrimination based on sex be the sole or primary reason for the discriminatory action—only that the applicant’s sex be a reason for the discriminatory action. This is often referred to as “but for” causation—but for the applicant’s sex, the creditor would not have rejected the applicant. Further, like the court in Bostock, the CFPB found that ECOA and Reg. B do not require discrimination on a group basis—e.g., refusing to grant credit to all persons identified as male at birth. Instead, a violation under ECOA and Reg. B can also occur when an individual applicant is denied credit based on his or her biological sex.

Finally, the CFPB noted that sex discrimination under ECOA and Reg. B also includes discrimination “based on an applicant’s associations.” An example of associational discrimination is requiring a person married to an individual of the same biological sex to provide different documentation of the marriage than a person who is married to a person of the opposite biological sex. This statement is consistent with the CFPB’s previous statements establishing “that a creditor may not discriminate against an applicant because of that person’s personal or business dealings with members of a protected class, because of the protected class of any persons associated with the extension of credit, or because of the protected class of other residents in the neighborhood where the property offered as collateral is located.”

Based on the CFPB’s March 2021 interpretive rule, the CFPB can engage in an enforcement action against a creditor that discriminates against a credit applicant on the basis of sexual orientation or gender identity. Therefore, it is doubly important that creditors ensure that their underwriting policies and procedures do not facially discriminate against such individuals or create a disparate impact on applicants of a specific sexual orientation or gender identity. Creditors should also review customer complaints for allegations of discrimination and revise existing policies, procedures, and training materials to specifically state that the creditor does not discriminate on the basis of sexual orientation or gender identity.

Practicing equality in credit decisioning is not just required from a legal and regulatory perspective. Today’s consumers value social consciousness, and failing to treat all consumers equally will have reputational and financial consequences for a financial services provider. 

Erica A.N. Kramer is a partner in the Tennessee office of Hudson Cook, LL

K. Dailey Wilson is an associate in the Tennessee office of Hudson Cook, LLP

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