Yes, we believe that a promotion offering a discounted interest rate on loans to essential workers could present some potential fair lending risk, particularly if the program is found to have a disparate impact on a protected class. While it is possible to mitigate some of the fair lending and related risks with careful documentation and monitoring, as discussed below, your bank should take care to avoid unfairness or adversely impacting any protected classes.
In general, any promotion that singles out a group of customers creates some potential for fair lending concerns. Although customers who are not essential workers are not a protected class, the promotion could result in a disparate impact on a protected class if employment as an essential worker tends to skew towards specific demographics.
The FFIEC explains disparate impact and how to mitigate the risks of a disparate impact finding in its Interagency Fair Lending Examination Procedures. Notably, a policy resulting in a disparate impact can be justified by a “business necessity,” with documentation of any factors that went into setting the bank’s policy.
If your institution decides to offer discounted interest rates on loans to essential workers, we recommend documenting your business reasons for providing the promotion only to essential workers so that your bank has a defense in the event an examiner finds a measureable disparate impact on a protected class. We also recommend monitoring the promotion and remaining sensitive to fair lending risks.
For resources related to our guidance, please see:
- Illinois Fairness in Lending Act, 815 ILCS 120/3 (“No financial institution, in connection with or in contemplation of any loan to any person, may: . . . (c-5) Deny or vary the terms of a loan on the basis of the borrower’s race, gender, disability, or national origin. (d) Utilize lending standards that have no economic basis and which are discriminatory in effect. . . .”)
- Illinois Human Rights Act, 775 ILCS 5/1-103(Q) (“‘Unlawful discrimination’ means discrimination against a person because of his or her race, color, religion, national origin, ancestry, age, sex, marital status, order of protection status, disability, military status, sexual orientation, pregnancy, or unfavorable discharge from military service . . . .”)
- 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.”)
- FFIEC Interagency Fair Lending Procedures, page ii (“The courts have recognized three methods of proof of lending discrimination under the ECOA and the FHAct:
- Overt evidence of disparate treatment;
- Comparative evidence of disparate treatment; and
- Evidence of disparate impact.”)
- 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.”)