LGBTQ individuals are subject to two types of discrimination in lending: denials of credit due to their LGBTQ-identity (disparate treatment) and denials of credit, or high interest and fees, due to their economic insecurity as a result of outside discrimination (a disparate impact). Both forms of discrimination are under reported and under pursued, and both can be addressed through improved access to financial services.
The (Limited) Reach of Anti-Discrimination Laws
There are two types of discrimination: disparate treatment and disparate impact. Disparate treatment is when an individual is denied a benefit or service explicitly for a reason linked to the trait and bias. Disparate impact is when a group of individuals are denied a benefit or service for reasons that are not explicitly biased, but lead to generally different outcomes based on the trait. Cases of either disparate treatment or disparate impact are seldom reported by LGBTQ individuals to regulators or litigated separately (the CFPB complaint database contains only a handful of reports of individuals experiencing bias).
In 2013 (prior to the Supreme Court’s ruling on marriage equality), a Florida woman sued Wells Fargo for failing to recognize income reported from her wife, because Wells Fargo’s policies could not accommodate the request. No other major litigation has been filed on behalf of LGBTQ persons to vindicate denials of credit or applications based on failure to recognize same-sex partnerships, likely due to changes in internal policies at lenders to accommodate for the Obergefell ruling. No reports of disparate treatment on account of LGBTQ identity. This is not to say discrimination does not occur: merely it is under-reported and under litigated. Likewise, no cases of disparate impact have been brought on behalf of LGBTQ persons asserting disparate impact on account of their LGBTQ identity.
It is also unfortunately the case that economic circumstances, regardless of their discriminatory cause, have not been sufficient to win cases against credit scoring agencies or financial services groups to cease their “risk-based” pricing of credit, which charges more for credit to those least able to afford it. Consequently, it remains the case that LGBTQ individuals, are charged higher costs for credit and financial services based on credit scoring and financial risk analyses, because they are already financially vulnerable already due to discrimination.
A financial services firm designed to help increase LGBTQ communities’ access to non-discriminatory services can help address the silent problem of LGBTQ discrimination in lending. Also, it can reduce the costs and fees of the high interest that individuals are currently subject to due to other factors of economic discrimination.