What type of discrimination occurs when a lender refuses to lend to an applicant based on their ethnicity?

The correct choice in this context is "Disparate Treatment." This concept refers specifically to instances where an individual is treated less favorably than others based on a protected characteristic, such as ethnicity. In the scenario where a lender refuses to lend to an applicant solely because of their ethnicity, it represents a clear case of disparate treatment as it involves direct discrimination against the applicant based on their racial or ethnic background.

Disparate impact, which is another choice, refers to policies or practices that may appear neutral but result in a discriminatory effect on a group protected by law. However, the scenario described does not involve a neutral practice that adversely affects a group's outcome; it is a direct refusal based on ethnicity.

While overt discrimination also involves explicit actions of bias, including refusing to lend based on ethnicity, the legal term most frequently used in training regarding discrimination in lending practices is disparate treatment. Thus, understanding these terms helps clarify the nature of discriminatory practices in lending and their legal implications.