Yes, we believe that your bank may offer a promotional CD only at your out-of-state branch.

We should note that, in general, any promotion that singles out a group of customers creates some potential for fair lending concerns. Although a customer base is not a protected class, a promotion offered only to customers of a particular branch conceivably could result in a disparate impact on a protected class. Moreover, while here the planned promotion would apply only to CDs, and the fair lending laws apply only to credit products, an affected person or examiner could attempt to creatively press an argument for a disparate impact analysis in this context, causing the bank some expense at a minimum. We at least want to raise this possibility and recommend being aware of the potential, albeit an extremely remote one, for disparate impact scrutiny of the promotion.

The FFIEC Interagency Fair Lending Procedures include a helpful explanation of the disparate impact concept and how institutions can mitigate the risks of a disparate impact finding. Notably, the FFIEC procedures state that a policy resulting in a disparate impact can be justified by a “business necessity,” with documentation of any factors that went into deciding the policy. Even though CDs would not fall under the definition of “credit,” the FFIEC’s approach could be helpful in understanding disparate impact in the context of deposit accounts that have a credit feature.

For resources related to our guidance, please see:

• Equal Credit Opportunity Act, 15 USC 1691 (“It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract); (2) because all or part of the applicant’s income derives from any public assistance program; or (3) because the applicant has in good faith exercised any right under this chapter.”)

• Equal Credit Opportunity Act, 15 USC 1691a(d) (“The term ‘credit’ means the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.”)

• FFIEC Interagency Fair Lending Procedures, page iv (“When a lender applies a racially or otherwise neutral policy or practice equally to all credit applicants, but the policy or practice disproportionately excludes or burdens certain persons on a prohibited basis, the policy or practice is described as having a ‘disparate impact.’ . . . The fact that a policy or practice creates a disparity on a prohibited basis is not alone proof of a violation. When an Agency finds that a lender’s policy or practice has a disparate impact, the next step is to seek to determine whether the policy or practice is justified by ‘business necessity.’ The justification must be manifest and may not be hypothetical or speculative. Factors that may be relevant to the justification could include cost and profitability. Even if a policy or practice that has a disparate impact on a prohibited basis can be justified by business necessity, it still may be found to be in violation if an alternative policy or practice could serve the same purpose with less discriminatory effect.”)