Here’s how woke banking is deciding your loans

The counterrevolution against Diversity, Equity and Inclusion is gaining steam. Public universities around the country are abandoning or curtailing DEI, courts continue to deal blows to race-based programs, and private corporations and law firms are closing down DEI programs, eliminating positions, and even backing away from DEI’s twisted sister, ESG.  

Yet the battle for a colorblind society is facing a growing threat in a large sector of the American economy: banking. 

Over the past two years, the Biden administration has been quietly encouraging banks to lend based on race. In 2022, seven federal agencies issued a statement encouraging lenders to use Special Purpose Credit Programs (SPCPs) to provide certain racial groups with special access to credit.  

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The Department of Housing and Urban Development explained that lenders "must find creative ways to advance equity" and "work to remedy past injustices." The Consumer Financial Protection Bureau noted that special programs are necessary to combat the wealth gap between "the average white family" and the "average Black family."   

Major lenders are using racial guidelines to handle loans and they think the Biden administration will protect them. (REUTERS/Yuriko Nakao/File Photo)

In response, banks are now setting up race-based lending programs. Wells Fargo boasts that its program lowered rates and monthly payments to "4,100 existing Black Wells Fargo customers." Bank of America’s program offers "a bank-provided down payment and no closing costs" in "Black/African American and Hispanic-Latino communities." Chase similarly started a program aimed at expanding "credit in majority Black, Hispanic and Latino communities."  

While some banks appear to limit their programs to certain geographic areas, other banks more aggressively target specific customers based on race. Indiana-based Old National Bank touts its new loan program exclusively for businesses with over "50% minority and/or women ownership."  

BMO Harris, one of the largest banks in the Midwest, offers a "0.25% rate discount" to Blacks and Latinos. U.S. Bank operates a $25 million Access Fund exclusively for "women of color microbusiness owners." 

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The list of banks offering special loan terms based on race is lengthy and growing. This trend is troubling since federal law prohibits race discrimination in lending under the Equal Credit Opportunity Act (ECOA).  

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However, some banks, encouraged by the Biden administration, are experimenting with a vague exception in the ECOA that exempts programs that help "an economically disadvantaged class of people." ECOA regulations for SPCPs further fuzz up the law by, on the one hand, allowing race as a consideration in setting up the program, but on the other hand emphatically say that programs may never "discriminate against an applicant on any prohibited basis" and a program may not be "administered with the purpose of evading the requirements of the Act" (which is, after all, nondiscrimination).  

But banks are blowing past these stop signs and lending based on race anyway. Why? Perhaps the legal cover from the Biden administration is just enough to encourage risky lending practices. And Biden’s own Justice Department endorses race-based SPCPs, using them as tools to settle disparate-impact "redlining" allegations.  

Banks should be much more cautious, and bank customers ineligible for programs because of their race should consider suing. The ECOA isn’t the only source of liability for race-based lending. Other federal laws, including the Fair Housing Act, prohibit discrimination in lending transactions.  

In response, banks are now setting up race-based lending programs. Wells Fargo boasts that its program lowered rates and monthly payments to "4,100 existing Black Wells Fargo customers." Bank of America’s program offers "a bank-provided down payment and no closing costs" in "Black/African American and Hispanic-Latino communities." Chase similarly started a program aimed at expanding "credit in majority Black, Hispanic and Latino communities."  

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Notably, the Civil Rights Act of 1866, specifically Section 1981, prohibits race discrimination in the making or enforcing of contracts such as loans and mortgages. This law has proven to be fertile ground for litigants challenging race-based grant programs.  

As the rest of society is moving away from DEI, ESG and a bevy of "anti-racist" policies, it’s hard to understand why the entire banking industry is bucking the trend and taking on unnecessary risk. To stop it, customers must challenge these discriminatory lending programs in federal courts. While success is not guaranteed, fostering a colorblind society demands that we hold our banking industry accountable, refusing to give them a blank check to discriminate based on race.  

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