If passed, the Equality of Act of 2021 could have significant implications to the ways financial institutions are required to serve newly protected classes of customers and potential customers. The Equality Act would amend several regulations (1964 Civil Rights Act, the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act) which currently drive significant compliance needs for banks. These compliance needs would expand under the Equality Act and require new capabilities and further understanding of the customer to stay on the forefront of current bank compliance requirements.
The Equality Act would specifically protect individuals based on sex, including sexual orientation and gender identity, to prevent discrimination in Public Accommodations, extension of Credit and Housing. The Equality Act of 2021 would amend the 1964 Civil Rights Act, the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act to further protect certain classes of individuals previously not explicitly protected in these laws. In addition, ECOA would be explicitly expanded to protect these additional classes of consumers from discrimination with respect to any aspect of a credit transaction.
The House of Representatives has passed the Equality Act and President Biden has urged its passage, meaning the only roadblock remains with the Senate. However, influential Senators including, Susan Collins (R-ME), Jeff Merkley (D-OR), Tammy Baldwin (D-WI), and Cory Booker (D-NJ) have publicly supported the Equality Act, which show there is a strong possibility for it to pass the Senate and ultimately become law.
Implications for Financial Institutions
With the inclusion of additional protected classes in federal anti-discrimination policies, the primary impact for financial services institutions would fall under housing/lending requirements under the Federal Housing Administration (FHA) and credit requirements under ECOA. This could have direct implications within Marketing and Complaints Management as well.
- FHA and Housing: The FHA would be required to extend the definition of protected class status which may result in additional underwriting requirements specifically for home mortgages. In addition, Fannie Mae and Freddie Mac may set additional guidelines pertaining to repurchased loans. These requirements could also result in needed updated to investor reporting. Furthermore, FHA could look at demographics of the population of borrowers and require banks to prove they have not discriminated against the newly protected classes.
- Data collection and Extension of Credit: Regulators may require banks to verify that protected populations are not underrepresented in the customer population. However, the new classes created by the Equality Act may be difficult to identify and less likely to self-identify to a financial services institution. Same-sex domiciling partners were counted for the first time on the 2020 US Census which could facilitate regulatory analysis and scrutiny. This may require banks to similarly examine new ways to gain insight into their customers to verify they are not under extending certain populations loans and credit. As banks gather more information, they may be required to change existing classifications for customer data. Furthermore, additional data points collected that contain Personally Identifiable Information (PII) may present additional regulatory obligations across their lifecycle within the organization, for example retention, tracking of primary and any secondary usages, and disposal requirements.
- Marketing: Institutions may be required to update internal controls and requirements for marketing to verify targeted campaigns and offers are not inadvertently avoiding newly created protected populations via certain campaign specifics (location, marriage status, etc.) similar to how banks should verify other protected classes are not targeted or avoided.
- Disputes/Complaints: Banks may be required to develop a method for determining if they are receiving a disproportionate number of complaints from certain populations. The Equality Act explicitly calls out individuals from multiple protected classes. Banks could be required to identify which specific type—or multiple types—of discrimination has occurred adding further complexity to Complaints reporting. Furthermore, the administration may put increased focus on Complaints from protected classes of individuals.
In addition to specific financial services, implications, the Equality Act could have an impact for all employers in terms of how the Department of Labor enforces discrimination via Equal Employment Opportunity (EEO) laws. This could have implications for hiring, wage disparity, retaliation, and reasonable accommodation requirements amongst others.
Additional Points of Consideration for Financial Institutions
Today, most financial institutions do not collect data on sexual orientation and/or gender identity populations or fully understand this customer segment. The Equality Act could require banks to verify they are not intentionally or inadvertently discrimination against this newly protected population. Therefore, a bank’s ability to understand their customers becomes increasingly important in order to comply with all sections under the Equality Act.
To better understand the customer population and verify all populations are not unfairly targeted or avoid for lines of credit, financial institutions could be required to examine new data sources and use that data to better understand their customers. Updates to internal controls, data collection and modeling, internal and external reporting, marketing, and disputes management may be required to facilitate proper compliance with the Equality Act of 2021.
The Equality Act would have many implications for banks as a business, employer as well as financial services institutions and may result in additional regulatory burden on banks. Noncompliance with these mandates could lead to significant reputational risk, but also have direct financial impact via lawsuits or government fines. In addition, shareholders may require additional disclosures and could expect banks to quickly come into compliance with these new Equality Act-driven mandates.
For more information, please contact Accenture: Bailey Mayer