Fair Lending: Legal vs. Illegal

Lenders discriminate every day.  That might seem like a shocking statement but it’s important to understand that the discrimination itself is not the problem.  It’s whether the discrimination is legal or illegal.  Regulation B prohibits discrimination, in any aspect of a credit transaction, that is based upon:

1. Race or Color;
2. Religion;
3. National Origin;
4. Sex (including Sexual Orientation and Gender Identity);
5. Marital Status;
6. Age (provided the applicant has the capacity to contract);
7. The applicant’s receipt of income derived from any public assistance program; or,
8. The applicant’s exercise, in good faith, of any right under the Consumer Credit Protection Act.

 Thus, discrimination based on any of the above factors is illegal.  Legal discrimination can be based on anything outside these things.  So, for example, a lender can discriminate on the basis of an applicant’s credit history, their debt-to-income ratio, etc.  They could even discriminate based on the applicant having a criminal record or their education level.  Those are not “protected”.  Lenders still need to be careful; however, as sometimes the lines of legal discrimination can get blurred and end up looking like illegal discrimination.

Jerod discussed this during our July 1071 Thought Leadership, Implementation & Planning Membership Group meeting.  Here’s a short snippet:

Section 1071 is all about fair lending, specifically small business lending, and while we are waiting for the 1071 regulation to be rewritten, that doesn’t mean you can’t continue to educate your team about fair lending.  In fact, ongoing training to maintain awareness is something you should be doing.  Jerod discussed this as well:

If you want to learn more about fair lending, we have several webinars on this subject dedicated to different audiences, so be sure to check out our store.

Published
2025/08/08