Assuming that the underlying loan program is not otherwise discriminatory, we do not believe that offering gift cards or concert tickets to a subset of your mortgage loan customers would be found to violate fair lending laws, but we do recommend monitoring the promotion, documenting your business reasons for targeting first-time homebuyers and remaining sensitive to the fair lending risks, even if they are remote.

In general, any promotion that singles out a group of customers creates some potential for fair lending concerns. Although mortgage loan customers who are not first-time homebuyers are not a protected class, the fact that first time homebuyers tend to skew younger than your other mortgage loan customers could result in a disparate impact on a protected class, such as older borrowers (who may have already purchased their first homes), and the promotion could have unforeseen effects on other protected classes.

The FFIEC provides a helpful explanation of the disparate impact concept and how institutions can mitigate the risks of a disparate impact finding in its Interagency Fair Lending Examination Procedures (adopted by the FDIC in the Consumer Compliance Examination Manual). 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. We recommend carefully documenting your business reasons for providing this promotion only to first-time homebuyers. This way, even if an examiner (or others) find a measurable disparate impact on a protected class, at least the bank would have a defense by pointing to these business justifications.

For resources related to our guidance, please see:

• Illinois Fairness in Lending Act, 815 ILCS 120/2 (“No financial institution, in connection with or in contemplation of any loan to any person, may: (a) Deny or vary the terms of a loan on the basis that a specific parcel of real estate offered as security is located in a specific geographical area. (b) Deny or vary the terms of a loan without having considered all of the regular and dependable income of each person who would be liable for repayment of the loan. (c) Deny or vary the terms of a loan on the sole basis of the childbearing capacity of an applicant or an applicant's spouse. (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 (“‘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.”)

• Fair Housing Act, 42 USC 3605(a) (“It shall be unlawful for any person or other entity whose business includes engaging in residential real estate-related transactions to discriminate against any person in making available such a transaction, or in the terms or conditions of such a transaction, because of race, color, religion, sex, handicap, familial status, or national origin.”)

• 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.”)