Somewhere Over the Rainbow of Credit: Potential Impacts of CFPB’s Interpretive Rule on ECOA and Sexual Orientation or Gender Identity Discrimination

By: Cyrus Mostaghim

DISCLAIMER: While the author is an employee of the Consumer Financial Protection Bureau (“CFPB”), this article’s contents reflect the author’s thoughts as a private citizen, not as an employee or representative of the CFPB.  The author wrote this article using only publicly available information and without the use of any CFPB resources.  The article’s contents should not be interpreted to be associated with the CFPB in any manner or construed in any way to be a representation or statement from the CFPB.

On March 9, 2021, the Consumer Financial Protection Bureau (CFPB) announced a new informal interpretive rule for the Equal Credit Opportunity Act (ECOA) and Regulation B under Acting Director David Uejio’s leadership.[1]  The announced rule adopts the Supreme Court’s holding from Bostock v. Clayton County[2] that updated the definition of sex-based discrimination under Title VII to include sexual orientation and gender identity.[3]  This interpretive rule was announced less than a year from CFPB’s initial Request For Information on the subject under former Director Kraninger.[4]  Before the rule announcement, and under the leadership of former Director Cordray, CFPB stated that case law did support an interpretation that sexual orientation and gender identity were forms of sex discrimination.[5]  However, CFPB did not proceed with any additional actions until after the Bostock decision.[6]  

The new rule is an essential change to the interpretation of ECOA and Regulation B because regulatory action is one of the most effective deterrents to the banking industry’s negative behaviors.[7]  Before the rule, it was legal for a financial institution to say the reason for denying an applicant’s credit application or charging different rates than other equally qualified applicants because the applicant(s) were LGBTQ+.[8]  However, ECOA is just one of the financial regulation laws that cover consumer finance.[9]  While ECOA makes discrimination against protected classes in access to credit illegal, the law does not provide all of the necessary tools for regulators to identify issues.[10]  Protection without the ability to identify issues via supervision and examination of banks leaves the CFPB only able to act on a consumer’s individual complaint.[11]  This issue mirrors the same community concerns submitted for the Department of Housing and Urban Development’s (HUD) Equal Access Rule, and CFPB will need to grapple with the same issues that HUD commented on when issuing the rule.[12]  Specifically, HUD declined creating a database for tracking cases related to the LGBTQ+ community despite public comments on needing data for identifying individual instances or trends of discrimination, monitoring the rule’s effectiveness in preventing discrimination, and mitigating the LGBTQ+ community’s unique privacy concerns regarding sexual orientation and gender identity.[13]  For financial regulation, the Home Mortgage Disclosure Act (HMDA) datasets serve as a vital source of information to federal regulators and the general public by enabling the identification of potential discrimination.[14]  However, sexual orientation and gender identity are not part of the HMDA datasets.[15] 

While the new interpretive rule is a welcome policy change, implementing the rule via an informal interpretive rule provides the lowest level of protection in administrative law because interpretive rules are easily rescinded.[16]  A new administration merely has to state that it is reading the applicable statute differently to justify rescinding an interpretive rule.[17]  On the positive side, an informal interpretive rule provides a foothold for CFPB to pursue additional rulemaking for ECOA or any other financial regulation statutes under CFPB’s jurisdiction.[18]  

One possible action CFPB could take is to create a two-part requirement related to sexual orientation and gender identity data.  The first part would be that financial institutions must ask credit applicants to voluntarily disclose their sexual orientation and/or gender identity.  The second part would require financial institutions to report any disclosed sexual orientation and/or gender identity data to regulators in any relevant datasets or reports.  This requirement could be implemented as an update to the HMDA datapoints or in the forthcoming rulemaking on section 1071 of Dodd-Frank, which deals with small-business lending data.[19]  Additionally, these potential new required data points could impact the fintech industry.  Already, concerns exist regarding fintech’s AIs and the direct discrimination or proxy discrimination against minority groups.[20]  The same concerns would apply to the LGBTQ+ community, especially since it would be difficult to identify discrimination against the community in the data used to train the AI algorithms.[21] 

New regulations or updates to existing regulations on data collection and reporting are not the only changes that may impact financial institutions.  Regulators and consumer advocate groups will probably modify their testing tools to account for the new ECOA interpretation, plus any other subsequent regulatory changes connected to the interpretation.  One possible modification could involve the secret shopper tactic.[22]  Regulators and advocate groups use this tactic to conduct “real world” testing and could expand the composition of their secret shoppers to include individuals posing as members of the LGBTQ+ community.[23]  Institutions that treated shoppers posing as members of the LGBTQ+ community differently than similarly situated heterosexual applicants would be liable for violating ECOA and Regulation B.[24]

The impact of informally interpreting ECOA to cover sexual orientation and gender identity may result in new requirements for data collection, compliance procedures, and examination procedures of financial institutions.  Thus, creating a new area of legal liability for financial institutions.  There will probably be a marginal but justified increase in operational costs that could impact all financial institutions that must comply with ECOA and Regulation B to avoid legal liabilities.[25]  These increases would be via changes to compliance procedures for regulatory requirements and an institution’s internal SOPs.[26]  As our society continues to grapple with the issue of diversity, equity, and inclusion across all aspects of life, a marginal increase in operating costs to ensure fairness and equity in access to credit is easily justified.[27]


[1] Equal Credit Opportunity Act (ECOA), 15 U.S.C. § 1691; Equal Credit Opportunity Act (Regulation B), 12 C.F.R. § 1002 (2011); Equal Credit Opportunity (Regulation B); Discrimination on the Bases of Sexual Orientation and Gender Identity, 86 Fed. Reg. 14363 (Mar. 16, 2021) (to be codified at 12 C.F.R. pt. 1002); CFPB Clarifies That Discrimination on the Basis of Sexual Orientation and Gender Identity is Illegal, Consumer Fin. Protection Bureau (Mar. 09, 2021), https://www.consumerfinance.gov/about-us/newsroom/cfpb-clarifies-discrimination-by-lenders-on-basis-of-sexual-orientation-and-gender-identity-is-illegal/ [hereinafter “CFPB ECOA Announcement”].

[2] 140 S. Ct. 1731 (2020).

[3] See CFPB ECOA Announcement, supra note 1.

[4] Bureau of Consumer Fin. Protection, Docket No. CFPB-2020-0026, Request for Information on the Equal Credit Opportunity Act and Regulation B 9–10 (2020), https://files.consumerfinance.gov/f/documents/cfpb_rfi_equal-credit-opportunity-act-regulation-b.pdf [hereinafter “CFPB RFI”]; see CFPB ECOA Announcement,supra note 1;Cyrus Mostaghim, Coming Out of the Title VII Closet: Bostock’s Potential Ripple Effects on Financial Regulation, Am. U. Bus. L. Rev.: The BLR Buzz Blog (Sept. 27, 2020), http://www.aublr.org/2020/09/coming-out-of-the-title-vii-closet-bostocks-potential-ripple-effects-on-financial-regulation/ [hereinafter “Mostaghim Bostock”] (serving as author’s initial analysis of CFPB’s RFI and potentially using the holding from the Bostock case to update ECOA to cover sexual orientation and gender identity and providing additional background information). 

[5] Letter from Richard Cordray, Dir., CFPB, to Michael Adams, CEO, Services & Advocacy for GLBT Elders (SAGE) (Aug. 30, 2016), https://www.cfpbmonitor.com/wp-content/uploads/sites/5/2016/09/SAGE-Letter.pdf (stating CFPB believed case law could support a finding that ECOA covered sexual orientation and gender identity as sex discrimination prior to the Bostock decision by citing EEOC’s Title VII interpretation).

[6] See CFPB RFI, supra note 4; Mostaghim Bostock, supra note 4.

[7] See Hilary J. Allen, The Pathologies of Banking Business as Usual, 17 U. Pa. J. Bus. L. 861, 863–64 (2015) (stating criminal law and private litigation not effective to address financial industry’s negative behavior) [hereinafter “Allen Pathologies of Banking”].

[8] J. Shahar Dillbary & Griffin Edwards, An Empirical Analysis of Sexual Orientation Discrimination, 86 U. Chi. L. Rev. 1, 3, 9 (2019) (stating most federal laws do not prohibit discrimination in lending based on sexual orientation); Hua Sun & Lei Gao, Lending Practices to Same-Sex Borrowers, 116 PNAS 9293, 9293 (2019), https://www.pnas.org/content/116/19/9293 (stating no requirement to disclose sexual orientation); see also Cyrus Mostaghim, The True Colors of Financial Services and LGBTQ+ Discrimination, AM. U. BUS. L. REV.: THE BLR BUZZ BLOG (Nov. 16, 2019), http://www.aublr.org/2019/11/the-true-colors-of-financial-services-and-lgbtq-discrimination/ (serving as author’s initial exploration on the topic of the LGBTQ+ community’s lack of protection in financial services and providing additional background information).

[9] See generally Leonard J. Kennedy, Patricia A. McCoy & Ethan Bernstein, The Consumer Financial Protection Bureau: Financial Regulation for the Twenty-First Century, 97 Cornell L. Rev. 1141 (providing overview of the CFPB’s mission and an overview of the laws that CFPB has jurisdiction to enforce).

[10] See id.

[11] See Equal Access to Housing in HUD Programs Regardless of Sexual Orientation or Gender Identity, 77 Fed. Reg. 5662, 5663, 5669–70 (Feb. 03, 2012) (codified at 24 C.F.R. pts. 5, 200, 203, 236, 400, 570, 574, 882, 891, 892) (addressing public comments on the lack of data to identify discrimination against the LBTQ+ community in housing and urging HUD to create a database to help identify discrimination against the community).

[12] See id.

[13] See id.

[14] Home Mortgage and Disclosure Act (HMDA) of 1975, 12 U.S.C. §§ 2801–10; see Kennedy, McCoy, & Bernstein, supra note9,at 1149 (explaining HMDA); Patricia McCoy, Inside Job: The Assault on the Structure of the Consumer Financial Protection Bureau, 103 Minn. L. Rev. 2543, 2581–82 (2019) (discussing HMDA dataset importance). 

[15] See Bureau of Consumer Fin. Protection, Reportable HMDA Data:  A Regulatory and Reporting Overview Reference Chart for HMDA Data Collected in 2019 (2019), https://files.consumerfinance.gov/f/documents/cfpb_reportable-hmda-data_regulatory-and-reporting-overview-reference-chart-2019.pdf (listing and defining current HMDA data points on page thirty-eight that does not include sexual orientation and gender identity); Jason Richardson & Karen Kali, Same-Sex Couples and Mortgage Lending, NCRC (2020), https://ncrc.org/same-sex-couples-and-mortgage-lending/ (stating no way to identify same-sex couples using HMDA data) (last accessed Mar. 31, 2021); Sun &  Gao, supra note 8 (stating no requirement to disclose sexual orientation).

[16] See Am. Hosp. Ass’n v. Bowen, 834 F.2d 1037, 1045 (D.C. Cir. 1987) (discussing section 553 of the Administrative Procedures Act’s exemptions for interpretive rules and general policy statements); Pac. Gas & Elec. Co. v. Fed. Power Comm’n, 506 F.2d 33, 37–38 (D.C. Cir. 1974) (discussing what constitutes an interpretive rule versus a substantive rule).

[17] See Andrew F. Popper et al., Administrative Law: A Contemporary Approach 282–83, (3d. ed. 2016) (illustrating the distinction between interpretive rules and substantive rules via discussion of Pacific Gas & Electric Company. v. Federal Power Commission, 506 F. 2d 33 (D.C. Cir. 1947), National Organization of Veterans’ Advocates v. Secretary of Veterans Affairs, 260 F.3d 1365 (Fed. Cir. 2001), and views of various legal scholars).

[18] See id.

[19] See Small Business Lending Data Collection Rulemaking, Bureau of Consumer Fin. Protection, https://www.consumerfinance.gov/1071-rule/ (last visited Apr. 10, 2020) (documenting purpose of CFPB’s rulemaking for section 1071 of Dodd-Frank and rulemaking’s status in the process); HMDA Data List, supra note 15; Richardson & Kali, supra note 15 (providing the study’s methodology); Dillbary & Edwards, supra note 8, at4–5.

[20] See Jack M. Balkin, 2016 Sidley Austin Distinguished Lecture on Big Data Law and Policy: The Three Laws of Robotics in the Age of Big Data, 78 Ohio St. L.J. 1217, 1239 (2017) (expressing concerns about AI and its impact on society); Anya Prince & Daniel Schwartz, Proxy Discrimination in the Age of Artificial Intelligence, 105 Iowa L. Rev. 1257, 1267, 1273–74, 1283 (defining proxy discrimination as when discrimination against a protected class happens based on factors that are not protected statuses, and providing AI’s history, evolution, general business impact, and risks); see generally Cyrus Mostaghim, The Danger of Proxy Discrimination in FinTech and the Need for Regulatory Sandboxes, Am. U. Bus. L. Rev.: The BLR Buzz Blog (Apr. 1, 2020), http://www.aublr.org/2020/04/the-danger-of-proxy-discrimination-in-fintech-and-the-need-for-regulatory-sandboxes/ [hereinafter “Mostaghim Proxy Discrimination”] (providing author’s thoughts on proxy discrimination in fintech).

[21] See HMDA Data List, supra note 15; Balkin, supra note 20; Prince & Swartz, supra note 20; Sun &  Gao, supra note 8 (stating no requirement to disclose sexual orientation); Mostaghim Proxy Discrimination, supra note 20.

[22] Dillbary & Edwards, supra note 8, at 30 (describing field tests).

[23] Id.

[24] See id.; Equal Credit Opportunity (Regulation B); Discrimination on the Bases of Sexual Orientation and Gender Identity, 86 Fed. Reg. 14363 (Mar. 16, 2021) (to be codified at 12 C.F.R. pt. 1002); CFPB ECOA Announcement, supra note 1.

[25] See Allen Pathologies of Banking, supra note 7; Hilary J. Allen, A New Philosophy for Financial Stability Regulation, 45 Loy. U. Chi. L.J. 173, 185, 190–91 (2013) [hereinafter “Allen Financial Stability”] (discussing cost impact of financial regulation and how cost-benefit analysis is sometimes used to determine value of regulation).

[26] See Allen Financial Stability, supra note 25.

[27] See id.; Jordan Bryan, How 2020 Accelerated Conversations on Diversity, Equity, and Inclusion, Gartner:  Smarter with Gartner (Sept. 11, 2020), https://www.gartner.com/smarterwithgartner/how-2020-accelerated-conversations-on-diversity-equity-and-inclusion/ (discussing how the events of 2020 have forced greater dialogue on diversity and equity issues than the #MeToo movement in the employment arena).

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