John Zasada, Compliance Consulting Director, Financial Institutions Group

On Jan. 14, 2022, the Consumer Financial Protection Bureau (CFPB) issued a blog post about it being illegal for financial institutions to penalize borrowers for being religious. CFPB examiners found some lenders violated fair lending laws by improperly inquiring about small business applicants’ religious affiliation and by considering an applicant’s religious affiliation in the credit decision. Lenders improperly utilized questionnaires which contained explicit inquiries about the applicant’s religious affiliation. Lenders also denied credit to applicants identified as a religious institution because the applicants did not respond to the questionnaire.

The CFPB pointed out religious discrimination can take many forms. For example, if a lender penalizes a borrower for being religious or for practicing a certain religion, this would be discriminatory. Similarly, if a lender penalizes a borrower for not practicing a certain religion, this will also be a violation.

Finally, the CFPB is particularly concerned about how financial institutions might be making use of artificial intelligence and other algorithmic decision tools. Many lenders use third-party data to analyze geolocation data to power their credit decision tools. If the algorithm leads to an applicant getting penalized for attending religious services on a regular basis this could lead to be a violation of fair lending laws. The CFPB stated it plans to monitor the use of algorithmic decision tools more closely, given they are often “black boxes” with little transparency. The CFPB stated institutions will face consequences for this type of robo-discrimination.

For more information on how religious discrimination regulations apply to your financial institution, please contact our regulatory compliance specialists.