The 10-3 en banc decision in Zarda v. Altitude Express issued earlier this week by the U.S. Court of Appeals for the Second Circuit is likely to be relied on by regulators and private plaintiffs alleging violations of the Equal Credit Opportunity Act based on sexual orientation discrimination.  In Zarda, the Second Circuit held that the prohibition on employment discrimination on the basis of sex in Title VII of the Civil Rights Act includes discrimination based on sexual orientation.  As a result, regulators and private plaintiffs are likely to use the decision as support for the argument that the ECOA’s prohibition against credit-related discrimination on the basis of “sex” also includes discrimination based on sexual orientation.

The Second Circuit’s decision follows an April 2017 Seventh Circuit decision that held that discrimination based on sexual orientation was actionable under Title VII as sex-based discrimination.  The Second and Seventh Circuit decisions are at odds with a March 2017 Eleventh Circuit decision. The widening circuit split could lead the U.S. Supreme Court to agree to resolve the issue if a petition for certiorari is filed in Zarda.

The Department of Justice had filed an amicus brief in Zarda.  In its brief, the DOJ argued that based on Title VII’s plain text and precedent, the prohibition does not encompass sexual orientation discrimination “as a matter of law” and observed that “whether it should do so as matter of policy remains a question for Congress to decide.”  The DOJ’s position in the amicus brief is at odds with that of former CFPB Director Cordray, who had attempted to use Title VII cases to support the CFPB’s position that the ECOA’s prohibition against discrimination on the basis of “sex” includes discrimination based on sexual orientation.

Under Mr. Cordray’s leadership, the CFPB signaled that discrimination on the basis of sexual orientation might be a focus of fair lending supervision and enforcement.  Since Mr. Cordray’s resignation and President Trump’s appointment of Mick Mulvaney as Acting Director, the CFPB has not yet taken a position on this issue.  However, in light of Mr. Mulvaney’s statements that the CFPB would no longer “push the envelope” in its enforcement efforts, it seems likely that the CFPB will retreat from any efforts to extend ECOA protections to sexual orientation.

Regardless of the positions of the CFPB and DOJ, companies should be mindful of the fact that numerous state laws already prohibit discrimination in credit transactions on the basis of sexual orientation.  Companies should therefore continue to consider revising their policies, procedures and fair lending analyses to incorporate discrimination based on sexual orientation.