The bank's spread remains at 2% and your interest expense is lower meaning the account is less costly while the admin side remains the same. It seems to me the bank does better overall. That interest expense is likely negligible in the big picture. The fact that the depositor reports less income is only because they earned less income. If it's preferential it's reversed preferential, if you will.
I don't know what religion it was, but many years ago we had a group of depositors moving funds from CDs and savings to DDA because they were told based on their religion they should not earn interest on deposits. Personally I thought that must've been an underserved group and maybe we'd get CRA credit for banking them.