In essence, they had discriminated and essentially deterred those applicants from applying and therefore they had to go back and offer them a loan later. As a resolution, these lenders identified the affected applicants and provided an offer for each identified applicant to reapply for a small business loan. In the release, the CFPB said that examiners also found that lenders denied credit to applicants identified as religious institutions, because the applicants did not respond to the questionnaire. So the examiners are finding this and they're saying that it's illegal to discriminate based on religion for your business customers. I've been saying this for years that what we're seeing here is that this is now coming to fruition. That said, what that means is that in the future, we're going to see more and more scrutiny on small business discrimination and discrimination in the commercial loan departments. So this is something that's going to be a big deal when it does become finalized. It's not a final rule, it's proposed, but it's not even a final rule yet. Now, if you're not aware of that rule, you need to take a look at it because it's coming.
The examiners are now starting to really dig into commercial credit in loans to business customers And they're going to do so more and more as they develop this new rule under Regulation B for small business data collection reporting that I call “HMDA for small businesses”. The challenge is that examiners often look mainly at consumer credit, but let me tell you, this is changing. The Equal Credit Opportunity Act or ECOA, which is implemented by Regulation B, prohibits discrimination based on religion for all types of credit, not just consumer credit, but of course, business credit.
When we think about fair lending, you have to think about the Equal Credit Opportunity Act. However, what the CFPB is saying in their article is that they were finding that lenders violated fair lending laws by improperly inquiring about small business applicants’ religious affiliation by utilizing questionnaires, which contained explicit inquiries about their religious affiliation. It's not permissible and the regulators look at that, and they monitor for that. You may be saying, “What? That doesn't happen.” Well, we understand on the consumer side that you really cannot discriminate against religion or any protected class. What the CFPB is concerned about is that some financial companies are unlawfully considering religion when making decisions on financial products. The article emphasized that it is illegal to penalize borrowers for being religious. This article talked about discrimination based on religious beliefs. Specifically, what we're talking about here is the CFPB releasing an article on January 14, 2022. And in our quarterly update, we always cover all the material that took place during the prior quarter, so in our Spring 2022 quarterly update, this was something that took place in the prior quarter. The reason we're talking about this is this is a topic that showed up in our Spring 2022 Quarterly Compliance Update, in other words, the CFPB brought this up during the first quarter of 2022. This Compliance Clip is going to talk about discrimination based on religion. The following is a transcript of this video.
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