What are the Main Fair Lending Laws & Regulations?

What are your pronouns? A loaded, controversial question for some, it’s a cue that their own gender identity will be respected by others. In banking, this seemingly political question still matters. That’s because banks are essential tools for creating equitable communities. When it comes to who, when, and how they choose to lend, the standards set for approving a loan have far-reaching effects. Fair lending laws and regulations acknowledge this power. Put in place to try to guarantee equal rights, these laws tell lenders to make credit decisions without regard to specific category labels. Protections for gender identity and sexual orientation apply based on federal law, but only a handful of states echo these protections in their local laws. In those cases, federal laws still apply, however. 

So, what are the concrete laws around fair lending and regulations? Let’s take a look at the ways the federal government seeks to protect groups of people who have faced discrimination in lending based on broad category labels. Those laws are essential to become familiar with as either a lender or borrower. They could affect you, your family, friends, and loved ones. 

Fair Housing Act

There was an old woman who lived in a shoe. So goes an old nursery rhyme. She had so many children she didn’t know what to do. Whether the rhyme refers to substandard housing or signals a magical premise is debatable. What we do know is that discrimination based on the number of children in a household falls under the category of familial status, thus violating our current fair housing laws. Specifically, the Fair Housing Act (FHA), enacted in 1968, prohibits that discrimination. FHA protection applies regardless of the number of children, pregnancy status, or wish to seek custody of a child. 

The Fair Housing Act, enforced by the Office of Fair Housing and Equal Opportunity, likewise protects everyone who attempts to purchase, rent, or secure financing for a home regardless of citizenship status, race, color, national origin, religion, sex, or disability.

Locally, governments can add protections to this act, and they often do. Criminal history cannot be requested in New York, for example. Additionally, the federal government amends this law to add protections, as it did in 1998 and 2021. Gender identity would become a new protected class in 2021, alongside sexual orientation, according to a news release HUD issued in February.  

Note that this law is not meant to apply to banks and lenders only but to anyone who can approve an application for housing, permanent or temporary. 

Equal Credit Opportunities Act

Where the Fair Housing Act extends to renters and anyone looking for housing, as well as the financing of housing, the Equal Credit Opportunities Act (ECOA) focuses on credit. This law dates back to 1974 and targets lenders. Lenders should not discriminate against anyone seeking financing, per the ECOA. Further, lenders should only consider the individual’s ability to repay the loan. 

But what else is there to consider? The ECOA says that lenders are in the wrong when they consider any of the following: age, race, sex, color, religion, national origin, or marital status. Within the category of sex, gender identity and sexual orientation are included. Further illegal considerations include the applicant’s receipt of public assistance and the applicant’s exercise of specific consumer protection laws.

The Office of Fair Housing and Equal Opportunity is part of the United States Department of Housing and Urban Development. The Equal Credit Opportunities Act, however, does not fall under the jurisdiction of HUD. Instead, the Consumer Financial Protection Board enforces the ECOA in cooperation with a few other agencies. 

Home Mortgage Disclosure Act

So, what are your pronouns? Similar questions may still be posed. Prospective borrowers should be aware that lenders are allowed to collect information on which those same lenders are not allowed to discriminate. In fact, it’s mandatory. 

Based on the Home Mortgage Disclosure Act of 1975, the collected information is filtered to the federal government, helping them enforce their anti-discrimination laws. Government agencies are then able to look for evidence of compliance – or not – with the FHA, ECOA, and other laws. 

The Department of Justice has shown that it will levy fines against banks of all sizes for violating fair lending laws. In September 2023, it reached a 1.5 million dollar settlement with the Bank of Oklahoma. In 2012, Well Fargo settled a lending discrimination lawsuit for $175 million. In each case, race discrimination was at issue.

Prevent fines by loaning based on borrower fitness. To learn more about fair housing laws and how your bank can develop robust procedures to evaluate credit applicants legally, visit us for courses and certifications. On-demand courses and self-paced certifications are available for both new and seasoned professionals in banking and similar financial industries.