No, the Military Lending Act (MLA) does not preempt the Illinois Human Rights Act, which protects borrowers based on their military status. The MLA preempts inconsistent state laws and regulations, but not state laws or regulations that provide service members more protection. In this case, the Illinois law provides broader protection for military members than its counterpart federal law.

We should note that if you decline to offer all MLA-covered products and services to all customers, you still could face fair lending concerns. For example, a neutral policy, such as declining to offer certain loan products, still may violate fair lending laws if the policy has a disparate impact on a protected class of citizens (e.g., military members). While the fact that a policy creates a disparity is not by itself proof of a violation (provided you can justify the policy based on a business necessity such as cost or profitability), it is difficult to predict how an examiner or a court would analyze such a policy in light of state and federal laws that clearly favor military service members. Ultimately, whether your bank offers all MLA-covered products to all customers will be a business decision for your bank to make based upon its risk appetite.

For resources related to our guidance, please see:

• Military Lending Act Regulations, 32 CFR 232.7 (“[The Military Lending Act] as implemented by this part preempts any State or Federal law, rule or regulation, including any State usury law, to the extent such law, rule or regulation is inconsistent with this part, except that any such law, rule or regulation is not preempted by this part to the extent that it provides protection to a covered borrower greater than those protections provided by [the Military Lending Act] and this part.”)

• Illinois Human Rights Act, 775 ILCS 5/4-102 (With regard to loans, “it shall be a civil rights violation for any financial institution, on the grounds of unlawful discrimination, to: . . . [d]eny any person any of the services normally offered by such an institution.”)

• Illinois Human Rights Act, 775 ILCS 5/1-103 (“‘Unlawful discrimination’ means discrimination against a person because of his or her . . . military status . . . or unfavorable discharge from military service as those terms are defined in this Section.”)

• 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.”)