On June 15, 2020, the United States Supreme Court in the case of Bostock v Clayton County declared that disparate treatment based on sexual orientation or gender identity is sex discrimination under federal law. It is the law of the land.
On March 9, 2021, the Consumer Financial Protection Bureau (CFPB) issued an interpretative rule to amend Regulation B to clarify that disparate treatment based on sexual orientation or gender identity is sex discrimination under Regulation B. It is the prohibited by federal regulation.
Normally when such explicit guidance is issued, the banking industry whips into a frenzy to adopt polies and procedures to manage the newly identified risk. But that has not happened in this case. Most banks are waiting on the agencies to issue guidance on compliance expectations and examination procedures.
The agencies have updated Fair Lending guidance multiple times in the last two years, including, most recently, the Office of the Comptroller of the Currency’s revised Fair Lending booklet, which was issued on January 12, 2023. The OCC’s guidance mentions “sexual orientation and gender identity” in two footnotes. No guidance is provided to the industry, or to its own examiners, on how to conduct a review of this area.
Please understand that the agencies failure to act does not provide a defense to the industry. Any financial institution in the nation could be sued today for illegal discrimination based on either gender identity or sexual orientation.
Why are the agency ignoring this area? There might be several explanation, none of which are favorable to the agencies. Figuring out how to examine for Fair Lending in the area of gender identity or sexual orientation is a tough assignment. There is no monitoring information currently collected for this area, and few proxies exist.
Legislation outlawed discrimination based on race in the mid-1960s. The agencies largely ignored the issue until the late-1970s. Ultimately, the agencies realized that in order to effectively examine for race discrimination monitoring information was required.
We are at a similar point with gender identity and sexual orientation. The proposed regulation for Small Business Data Collection under Regulation B comes close to collecting monitoring information for gender identity and sexual orientation. When collecting data on the sex of the consumer, the proposed data collection form has the traditional options of female, male and I do not wish to provide this information, plus a new option to indicate I prefer to self-identify as: ____________. For the first time an applicant will be able to identity as gay, lesbian or any of the LGBTQ+ orientations.
Right now most financial institutions are defenseless against charges of discrimination based on gender identity or sexual orientation. Minimum steps include developing written policies and procedures, providing staff training on the issue, and developing an audit program. Those steps go a long way to indicating that the institution has made a good faith effort to comply with the law and regulation.