By Lynn Woosley, CRCM
(Originally published in ABA Risk and Compliance, September/October 2023)

Citing an alarming increase in antisemitic incidents, on May 25, 2023, the Biden Administration released a National Strategy to Counter Antisemitism (“Antisemitism Strategy”). [1] This follows the administration’s establishment of an Interagency Policy Committee on Antisemitism, Islamophobia, and Related Forms of Bias and Discrimination in December 2022. The Antisemitism Strategy includes four pillars:

1. Increase awareness and understanding of antisemitism, including its threat to America, and broaden appreciation of Jewish American Heritage;
2. Improve safety and security for Jewish communities;
3. Reverse the normalization of antisemitism and counter antisemitic discrimination; and
4. Build cross-community solidarity and collective action to counter hate.

As part of the Antisemitism Strategy, several agencies, including the Department of Housing and Urban Development (“HUD”), the United States Department of Agriculture (“USDA”), and the Department of the Treasury (“Treasury”) will produce fact sheets explaining the relationship between Title VI of the Civil Rights Act of 1964 and prohibitions on “discrimination based on shared ancestry or ethnic characteristics, including certain forms of antisemitic, Islamophobic, and related forms of discrimination and bias.” In addition, federal agencies will take additional steps to raise awareness of legal prohibitions against antisemitism. For example, HUD will partner with faith-based organizations to educate young adults on their fair housing rights, remind federally-funded Fair Housing Initiatives Programs and Fair Housing Assistance Programs of the rights of people experiencing antisemitism in violation of the Fair Housing Act. USDA will convene a dialogue with religious leaders across rural America to build solidarity across faith traditions, as well as partnering with rural and land-grant colleges to develop and disseminate educational materials and promising practices to combat antisemitism and other forms of hate and bias. SBA will encourage small businesses to report incidents of antisemitism and other hate incidents.

Given the focus on antisemitism and religious discrimination, banks should take this opportunity to review their fair lending programs to ensure that religious discrimination is sufficiently addressed. A robust fair lending compliance management system (“CMS”) should include components to manage risks associated with religious discrimination, which is illegal under both the Equal Credit Opportunity Act (“ECOA”) and the Fair Housing Act (“FHA”).

First, institutions should review their policies and procedures to ensure religious discrimination is sufficiently addressed. This review should include both consumer and commercial policies and procedures. ECOA covers both consumer and commercial lending, and lending to religious organizations is typically housed within a bank’s commercial or nonprofit lending business units. In addition, since the FHA prohibits discrimination in advertising related to the sale, rental, or finance of residential real estate, be sure to look at marketing and advertising policies and procedures. Some questions to consider include the following:

• Do policies and procedures indicate a preference or distaste for borrowers of certain religious traditions? For example, suppose a lender’s credit policies gave preference to religious organizations with a national organization over independent religious organizations, regardless of whether the national organization guaranteed the loan. This policy would violate the prohibitions of religious discrimination in both ECOA and FHA.
• Do applications for credit, or underwriting or pricing criteria request or consider information about the applicants’ religion? In its Fall 2021 Supervisory Highlights, [2] the CFPB discussed a lender’s improper consideration of small business applicants’ religious beliefs in decisioning loans. An accompanying blog post [3] noted that both penalizing a borrower for practicing a particular religion and penalizing a borrower for not being religious at all would violate ECOA.
  

Second, ensure compliance and fair lending training curricula include religion as a protected class. In addition, examine course assignments to confirm that all lenders, including those focused on business and nonprofit borrowers, receive appropriate fair lending training.

Third, review the institution’s complaint program. Does the program capture complaints alleging religious discrimination and consider those complaints in its fair lending program? Are religious discrimination complaints escalated in a similar manner as other complaints alleging discrimination? Is there adequate root cause analysis and, if necessary, remediation? Does reporting include religious discrimination complaints? Is testing of complaint resolution included in work plans for compliance and audit functions?

Fourth, consider monitoring and testing. Typically, an assessment of a bank’s fair lending CMS would include monitoring and testing for discrimination on a prohibited basis. However, testing for religious discrimination suffers from a lack of available data. Religious affiliation is not part of the data collected under the Home Mortgage Disclosure Act (HMDA). Similarly, religious affiliation is not a data point included in the final rule under Regulation B for small business lending data collection under Section 1071 of the Dodd-Frank Act.

Normally, for products where such data is not available, banks would use proxies to impute membership in protected classes. However, religious affiliation is difficult to proxy. Although some non-mandatory Census Bureau surveys ask questions about charitable donations to religious organizations, attendance at religious services, or religious education, the U.S. Census Bureau has never directly asked Americans about their religious practices on a mandatory decennial census. In fact, Congress forbade the Census Bureau from doing so in 1976. The lack of official data regarding religious beliefs makes direct monitoring and testing of religious discrimination difficult. Although there are non-governmental lists of surnames with Jewish faith or heritage, there is limited information regarding the accuracy or completeness of these lists to support their use in proxying for Jewish heritage.

Given these data limitations, institutions may have to limit their monitoring and testing for antisemitic discrimination. If an organization has significant nonprofit or religious lending, it may be possible to conduct comparative file reviews using synagogues as the protected class and churches (or other nonprofit membership organizations) as the control class. Such comparative file reviews could consider credit decisions, terms and conditions offered, interest rates, fees, and amortization, among others. Mystery shopping may be another useful tool to detect antisemitic bias. In addition, when reviewing appraisals for evidence of bias, be on the lookout for inappropriate comments about the religious character of the neighborhood where the property is located. Beyond that, lenders may find themselves limited to ensuring training, complaints response, and other elements of the fair lending CMS include religious affiliation where possible.

As evidenced by the National Strategy to Counter Antisemitism, HUD’s letter to Fair Housing Program grantees and agencies, [4] and Department of Justice’s enforcement actions related to the Fair Housing Act and the Religious Land Use and Institutionalized Persons Act, [5] combatting antisemitism is a top priority for the United States. Banks should take steps to ensure their lending practices and fair lending CMS are sufficient to prevent, detect, and mitigate risks associated with antisemitism.

Lynn Woosley is a Managing Director with RiskExec. She has more than 30 years’ risk management experience in both financial services and regulatory environments. She is an expert in consumer protection, including fair lending, fair servicing, community reinvestment, and UDAAP.

Before joining RiskExec, Lynn led the fair banking practice for an advisory firm. She has also held multiple leadership positions, including Senior Vice President and Fair and Responsible Banking Officer, within the Enterprise Risk Management division of a top 10 bank. Prior to joining the private sector, Lynn served as Senior Examiner and Fair Lending Advisory Economist at the Federal Reserve Bank of Atlanta.

1. FACT SHEET: Biden-⁠Harris Administration Releases First-Ever U.S. National Strategy to Counter Antisemitism

2. CFPB | December 2021 Supervisory Highlights

3. CFPB | It’s illegal to penalize borrowers for being religious

4. Ensuring Fair Housing Amidst Ongoing Religious Discrimination and FACT SHEET: Protecting Persons from Housing Discrimination Based on Actual or Perceived Shared Ancestry or Ethnic Characteristics

5. See, for example, U.S. v. Borough of Woodcliff Lake, U.S. v. Township of Jackson and Jackson Planning Board. In addition, see the Department of Justice’s Statement of Interest in Lost Lake Holdings LLC et. al. v. Town of Forestburgh et al., 22 Civ 10656 (VLB)