CFPB Clarifies How Same-Sex Ruling Affects Lending Rules

WASHINGTON — New policy from the Consumer Financial Protection Bureau is shedding light on how a Supreme Court decision last year ensuring rights for same-sex married couples applies to financial services regulations.

Last month, CFPB Director Richard Cordray issued a memo stating that — as a result of the Supreme Court ruling — the agency would recognize a same-sex marriage as being legally valid "nationwide" as long as it was legally binding in the state where the couple was married. The legal opinion was meant to clarify the meaning of terms such as "marriage" and "spouse" in laws the CFPB implements.

The court decision struck down a part of the Defense of Marriage Act that required marriage, for the purposes of interpreting regulations, to be defined only as being between one man and one woman. While the case, United States v. Windsor, specifically related to spousal exemptions from federal estate taxes, its application is also relevant for consumer financial services laws under the CFPB's purview.

"In light of the Supreme Court decision and more states legalizing same-sex marriage, my guess is the CFPB has been fielding a lot of questions from the industry," said Richard Andreano, the practice leader of Ballard Spahr's mortgage banking group.

Cordray said the policy will be applied to the bureau's implementation of the Equal Credit Opportunity Act — which prohibits discrimination based on race, gender, religion and marital status — as well as other statutes. The CFPB's approach is consistent, he noted, with a recent legal opinion announced by the Department of Justice about how it will interpret laws affected by the decision.

"The bureau will regard a person who is married under the laws of any jurisdiction to be married nationwide for purposes of the federal statutes and regulations under the bureau's jurisdiction regardless of the place of residency," Cordray said in the policy, which was released as a memorandum to all staff on June 25. (The CFPB posted it earlier this week on its agency blog.)

"Consistent with other federal agencies, the bureau will not regard a person to be married by virtue of being in a domestic partnership, civil union, or other relationship not denominated by law as a marriage," Cordray said.

In the Supreme Court case, a New York woman, who had been in a same-sex marriage, objected to her being denied an exemption from federal estate taxes for widowed spouses. She had been lawfully married in Ontario, Canada.

Observers said it made sense for the CFPB to clarify how the case affects financial services-related laws where the treatment for same-sex couples may be unclear.

For example, the ECOA prohibits creditors from seeking information about the spouse of a loan applicant, but allows for certain exceptions. Those include when the spouse will share liability for the loan repayment, or when the applicant is relying, at least in part, on income from a spouse to repay the loan.

The law also generally blocks creditors from asking about an applicant's marital status. But it exempts secured credit transactions and cases involving an applicant that lives in a "community property" state, where a married person may co-own assets with a spouse.

"Key goals of the marital status prohibition under ECOA were to provide qualified unmarried individuals the same access to credit as married individuals, and to allow qualified married individuals — particularly females — to obtain credit on their own," said Andreano. "But ECOA does not expressly address how the various prohibitions related to marital status apply to same-sex marriages."

In addition to the ECOA, Cordray's memo said the bureau would also apply the policy to its implementation of the Fair Debt Collection Practices Act, the Interstate Land Sales Full Disclosure Act, the Truth in Lending Act and the Real Estate Settlement Procedures Act.

"In order to fully implement [the Supreme Court] decision, we took steps to clarify how the decision affects the rules that we are responsible for," said Meredith Fuchs, the CFPB's general counsel, in the blog post that publicized the agency's policy."This [memo] aligns our policy with other agencies across the federal government."

Still, some said the effect of the agency's policy will be limited.

Andy Dunn, a senior attorney at Wolters Kluwer Financial Services, said the memo "doesn't articulate a significant change for the industry."

"It is noteworthy, however, that the CFPB has chosen to make this kind of a gesture regarding a Supreme Court decision not directly tied to the agency, since there is little precedence for such a move," he said.

Some experts said the memo is important because lenders have been deferring to state laws on whether the applicant is "married," without understanding how their federal regulator views the issue.

"It is very unusual for an agency to announce a legal interpretation or policy through a memo from the director to the staff" as opposed to a notice that would be published in the Federal Register, said Leonard Chanin, a partner at Morrison & Foerster. "But it is important for the industry to know because, ultimately, it provides guidance on a topic the CFPB likely received questions on from the industry."