[Federal Register Volume 64, Number 157 (Monday, August 16, 1999)]
[Proposed Rules]
[Pages 44582-44631]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-20598]
[[Page 44581]]
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Part II
Federal Reserve System
_______________________________________________________________________
12 CFR Part 202
Equal Credit Opportunity; Proposed Rule
Federal Register / Vol. 64, No. 157 / Monday, August 16, 1999 /
Proposed Rules
[[Page 44582]]
FEDERAL RESERVE SYSTEM
12 CFR Part 202
[Regulation B; Docket No. R-1008]
Equal Credit Opportunity
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Proposed rule.
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SUMMARY: The Board is issuing this proposal to revise Regulation B,
which implements the Equal Credit Opportunity Act (ECOA or Act),
pursuant to the Board's policy of periodically reviewing its
regulations. The Act makes it unlawful for creditors to discriminate
against an applicant in any aspect of a credit transaction on the basis
of race, color, religion, national origin, marital status, sex, age,
and other specified bases. Major proposed revisions include removing
the general prohibition against noting information about applicant
characteristics such as national origin or sex, although such
information still generally may not be considered in extending credit;
requiring creditors to retain records for certain prescreened credit
solicitations; and extending the record retention period for most
business credit applications. Proposed revisions to the Official Staff
Commentary are also included.
DATES: Comments must be received by November 10, 1999.
ADDRESSES: Comments, which should refer to Docket No. R-1008, may be
mailed to Jennifer J. Johnson, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, D.C. 20551. Comments addressed to Ms. Johnson may be
delivered to the Board's mail room between 8:45 a.m. and 5:15 p.m., and
to the security control room at all other times. The mail room and the
security control room, both in the Board's Eccles Building, are
accessible from the courtyard entrance on 20th Street between
Constitution Avenue and C Street, N.W. Comments may be inspected in
room MP-500 between 9:00 a.m. and 5:00 p.m., pursuant to Sec. 261.12,
except as provided in Sec. 261.14 of the Board's Rules Regarding the
Availability of Information, 12 CFR 261.12 and 261.14.
FOR FURTHER INFORMATION CONTACT: Natalie E. Taylor or Kathleen C. Ryan,
Staff Attorneys, Jane Jensen Gell, Senior Attorney, or Jane E. Ahrens,
Senior Counsel, Division of Consumer and Community Affairs, Board of
Governors of the Federal Reserve System, Washington, DC 20551, at (202)
452-3667 or 452-2412; for the hearing impaired only, Diane Jenkins,
Telecommunications Device for the Deaf, at (202) 452-3544.
SUPPLEMENTARY INFORMATION:
I. Background on ECOA and Regulation B
The Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691-1691f,
prohibits a creditor from discriminating against an applicant in any
aspect of a credit transaction on the basis of the applicant's race,
color, religion, national origin, sex, marital status, age (provided
the applicant has the capacity to contract), receipt of public
assistance benefits, or the good faith exercise of a right under the
Consumer Credit Protection Act (15 U.S.C. 1601 et seq.). The ECOA is
implemented by the Board's Regulation B.
When enacted in 1974, the ECOA prohibited discrimination on the
basis of marital status and sex. In 1976, the Act was amended to add
all of the other prohibited bases of discrimination. Over the years,
several significant amendments have been made to the ECOA, including
the following. In 1989, the ECOA was amended by the Women's Business
Ownership Act of 1988 (Pub. L. No. 100-533, 102 Stat. 2692) to require
that creditors give written notice to business applicants of the right
to a written statement of reasons for a credit denial, and to impose a
record retention requirement for certain business credit applications.
In 1991, the ECOA was amended by the Federal Deposit Insurance
Corporation Improvement Act (Pub. L. 102-242, 105 Stat. 2236) to
provide applicants with a right to obtain a copy of any appraisal
report used in connection with an application for credit to be secured
by residential real property; the amendments also expanded the
enforcement responsibilities of the federal financial supervisory
agencies when information about possible violations of the ECOA becomes
known. The Economic Growth and Regulatory Paperwork Reduction Act of
1996 (Pub. L. 104-208, 110 Stat. 3009) amended the ECOA to create a
privilege for information developed by creditors as a result of ``self-
tests'' they conduct.
II. The 1998 Review of Regulation B
Pursuant to requirements of section 303 of the Riegle Community
Development and Regulatory Improvement Act of 1994, section 610(c) of
the Regulatory Flexibility Act of 1994, and section 2222 of the
Economic Growth and Regulatory Paperwork Reduction Act of 1996, the
Board is reviewing Regulation B. The Board's last comprehensive review
of Regulation B occurred in 1985. The Board began the current review of
Regulation B in March 1998 by publishing an Advance Notice of Proposed
Rulemaking (Advance Notice) (63 FR 12326, March 12, 1998). In addition
to soliciting general comment on revisions to the regulation, the Board
identified specific issues for comment involving: (1) Preapplication
marketing practices, (2) the distinction between an inquiry about
credit and an application for credit, (3) data notation for nonmortgage
products, (4) the definition of creditor, (5) documentation for
business credit, and (6) exceptions for business credit.
The Board received 330 comment letters on the Advance Notice. Most
commenters addressed only the six issues identified in the Advance
Notice. Based on its review and on the comments received, the Board now
proposes revisions to Regulation B and the official staff commentary.
In addition to comments on the proposed revisions, the Board requests
specific suggestions for other revisions that would facilitate
compliance with, or improve, the regulation.
III. Discussion of Proposed Revisions to the Regulation
Major proposed revisions include rules that remove the general
prohibition against the notation--but not the use--of certain
prohibited basis information (Sec. 202.5); extend the record retention
period for certain business credit applications (Sec. 202.12); and
require record retention for preapproved credit solicitations
(Sec. 202.12). The following discussion covers the proposed revisions
to the regulation section-by-section. A section-by-section discussion
of proposed revisions to the commentary appears in Part IV.
Section 202.1--Authority, Scope and Purpose
No revisions are proposed in this section.
Section 202.2--Definitions
Revisions are proposed in the definitions of adverse action,
application, and creditor in Secs. 202.2(c)(1) and (c)(2), 202.2(f),
and 202.2(l).
2(c) Adverse Action
2(c)(1)
Adverse action on a class of accounts--Section 202.2(c)(1)(ii)
provides that adverse action includes a creditor's termination of or
unfavorable change to the terms of an account, unless the action
affects ``all or a
[[Page 44583]]
substantial portion of a class of the creditor's accounts.'' Commenters
asked the Board to clarify the exception--namely, the meaning of
``class of accounts'' and ``substantial portion'' of a class of
accounts. Section 202.2(c)(1)(ii) would be revised to clarify the
exception by changing the language from ``substantial portion'' to
substantially all'' so that a creditor's action must affect the
overwhelming majority of accounts in a designated class to be excluded
from the definition of adverse action.
The ECOA and Regulation B require creditors to give consumers
reasons for an adverse credit decision. The notice requirement enables
some recipients to identify and remedy credit problems, and may also
help detect unlawful credit discrimination. The exception in
Sec. 202.2(c)(1)(ii) is intended to address the circumstance where a
creditor takes action that affects all or most of a type of its
accounts, rather than targeting specific customers, and an adverse
action notice seems unnecessary. For example, if a creditor terminates
its secured credit card program entirely, adverse action notices will
not likely serve the intended educational or anti-discrimination goals.
2(c)(2)
Section 202.2(c)(2)(iii) would be revised to conform to changes
proposed under Sec. 202.2(c)(1)(ii).
2(f) Application
The Board believes that a request for a preapproved loan under
procedures in which a creditor issues creditworthy persons a written
commitment to extend credit up to a designated amount that is valid for
a designated period of time--even if subject to conditions--is an
application. A ``preapproval'' without procedures involving a written
commitment would be treated as a prequalification for purposes of the
regulation. Section 202.2(f) of the regulation would be revised
accordingly. In addition, technical revisions would be made to the
definition of application for clarity.
2(l) Creditor
Section 202.2(l) would be revised to clarify that the definition of
``creditor'' applies to a person who regularly participates in making a
credit decision, including setting terms--not just the decision of
whether to extend or deny credit. (See detailed discussion of the
definition of ``creditor'' in ``Part IV. Discussion of Proposed
Revisions to the Official Staff Commentary'' under Sec. 202.2(l).)
Section 202.3--Limited Exceptions for Certain Classes of Transactions
Revisions are proposed in Secs. 202.3(a)(2), 202.3(b)(2), and
Secs. 202.3(c)(1) and (2) relating to public-utilities, securities, and
incidental credit.
The regulation provides certain exceptions for public-utilities,
securities, incidental, and government credit. Each of these types of
credit remains subject to the general prohibition on discrimination;
the exceptions generally cover issues such as record retention,
inquiries about marital status and spousal information, and furnishing
credit information. Credit that does not meet the definitions is
subject to the full coverage of Regulation B.
The Board is required periodically to review the exceptions to
determine whether they should be retained. The Act provides that the
Board may extend an exception for a class of transactions if the Board
determines, after making an express finding, ``that the application of
[the Act] or of any provision of [the Act] of such transaction would
not contribute substantially to effecting the purposes of [the Act].''
15 U.S.C. 1691b. After analysis, the Board believes that extending some
of the exceptions is still appropriate, and that applying the rules of
Regulation B in their entirety would not contribute substantially to
effectuating the purposes of the Act, as discussed below.
3(a) Public-Utilities Credit
3(a)(2) Exceptions
Public-utilities credit refers to extensions of credit that involve
public-utility services if the charges for the service, delayed
payment, and any discount for prompt payment are filed with or
regulated by a governmental unit, such as a public-utilities
commission. Public-utilities credit is subject to all of the regulatory
requirements except those relating to collecting information about
marital status, furnishing credit information to consumer reporting
agencies, and retaining records. The proposed rule would retain the
relief from the record retention requirements only. Regulation B
permits inquiries into an applicant's marital status only in limited
circumstances. The exception from this provision permits creditors
offering public-utilities credit to request information concerning
marital status in all instances. The Board believes this exception is
no longer needed and is proposing to remove the exception. Specific
comment is solicited on this change.
The proposed rule also would remove the exception relating to the
furnishing of credit information under Sec. 202.10 (concerning accounts
held or used by spouses). The requirements of Sec. 202.10 apply only to
creditors that furnish credit information to consumer reporting
agencies or to other creditors. Such creditors are required to furnish
information that reflects the participation of both spouses if the
applicant's spouse is permitted to use or is contractually liable on
the account. Creditors are considering public-utilities payments more
frequently as a source of repayment history for underwriting purposes.
Thus, the Board believes that it would be helpful to consumers if
public-utility companies that furnish credit payment information were
subject to the same reporting requirements as other creditors subject
to the ECOA. The Board seeks comment on this approach.
The regulation requires creditors to retain certain records.
Public-utilities credit is not subject to the record retention
requirements. The Board would retain the exception regarding record
retention because public-utility companies must keep records pursuant
to regulations of other governmental bodies--often for longer periods
of time than required by the ECOA. The Board believes that extending
this exception is appropriate because requiring record retention would
not contribute substantially to effectuating the purposes of the Act.
3(b) Securities Credit
3(b)(2) Exceptions
Securities credit is credit subject to regulation under section 7
of the Securities Exchange Act of 1934 or extensions of credit by a
broker or dealer subject to regulation under that act. Brokers and
dealers are required to inquire about the financial activities of
spouses to comply with the rules of the Securities Exchange Act and the
National Association of Securities Dealers. For this reason, Regulation
B excepts securities credit from several provisions including, among
others, signature rule requirements, rules relating to record
retention, and requesting information about the sex of an applicant.
Given that the Board proposes to remove the prohibition against the
collection of information about certain applicant characteristics, the
current exception in Sec. 202.3(b)(2)(iii) would be redundant. The
Board believes that it is appropriate to extend the other exceptions
related to information concerning a spouse or former spouse, marital
status, name designations, open-end accounts, spousal signature
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requirements, the furnishing of credit information, and record
retention. Securities credit is subject to an extensive regulatory
scheme, and applying those provisions of Regulation B would not
contribute substantially to effectuating the purposes of the ECOA.
Technical revisions would be made for clarity, with no substantive
change intended.
3(c) Incidental Credit
3(c)(1) Definition
Currently, incidental credit is limited to consumer credit that is
not: (1) Made pursuant to the terms of a credit card account, (2)
subject to a finance charge under Regulation Z (Truth in Lending), or
(3) payable by agreement in more than four installments. This type of
credit might be extended, for example, by a local merchant that does
not normally extend credit, to a long-standing customer; or by a doctor
or lawyer, as an accommodation to a patient or a client.
The proposed rule would expand the exception for incidental credit
to include incidental business credit, as the Board believes that full
regulatory coverage of such credit does not contribute substantially to
effectuating the purposes of the Act. Incidental business credit would
be defined as business credit that is not made pursuant to the terms of
a credit card account, is not subject to interest charges or fees, and
is not payable by agreement in more than four installments. The Board
solicits specific comment on this proposed change.
3(c)(2) Exceptions
Incidental credit is excepted from a number of provisions in the
regulation including requesting information about an applicant's
marital status, spouse or former spouse, and certain sources of an
applicant's income. The proposed rule would eliminate the exception for
requesting information about the sex of an applicant, in light of the
Board's proposal to remove the prohibition against the collection of
information related to a prohibited basis. The proposed rule would
extend the other exceptions concerning information about an applicant's
spouse or former spouse, marital status, income sources, signatures,
notifications, the furnishing of credit information, and record
retention. The Board believes that, given the nature of the credit
extension, applying these rules would not contribute substantially to
effectuating the purposes of the Act.
3(d) Government Credit
With regard to government credit, the exceptions apply to
extensions of credit made to governments or governmental subdivisions,
agencies or instrumentalities. The Board believes that extending these
exceptions remains appropriate, as applying the rules would not
contribute substantially to effectuating the purposes of the Act.
Section 202.4--General Rule Prohibiting Discrimination
Revisions are proposed in Sec. 202.4. In the Advance Notice, the
Board solicited comment on how and to what extent creditors are using
prohibited bases in preapplication marketing--specifically, prescreened
solicitations--to determine whether the coverage of the regulation
should be expanded to such practices. Although this section includes a
discussion of the issue, the proposed rule does not recommend expanding
the regulation's coverage to prescreened solicitations; however,
Sec. 202.12(b)(7) would require creditors to retain certain records
related to preapproved credit solicitations.
General Rules
Section 202.4 would be revised to incorporate general rules that
apply under the regulation, some of which are currently in other
sections of the regulation and official staff commentary. The Board
believes this approach would facilitate compliance with the regulation.
Section 202.4(a) would provide the general rule against discrimination.
Section 202.4(b) would provide the general rule against discouraging
applications. Section 202.4(c) would provide the rule for when written
applications are required.
Section 202.4(d) would contain new clear and conspicuous and
retainability standards that the Board is proposing to apply to the
disclosures and other information required to be in writing. In March
1998, the Board requested public comment on a proposal to permit the
electronic delivery of disclosures for four of its consumer protection
regulations: Regulation B; Regulation M, Consumer Leasing; Regulation
Z, Truth in Lending; and Regulation DD, Truth in Savings (63 FR 14533-
14552, March 25, 1998). Except for Regulation B, each of those
regulations expressly provides that creditors must present required
information in a clear and conspicuous manner, in a form the consumer
may keep. Accordingly, the Board proposed that the clear and
conspicuous and retainability standards be applied to information
required under Regulation B (63 FR 14552, March 25, 1998). Their
inclusion in Sec. 202.4 is consistent with that proposal.
Prescreened Solicitations
The ECOA prohibits discrimination by a creditor against an
applicant on a prohibited basis regarding any aspect of a credit
transaction. Regulation B defines an applicant as a person who has
requested or received credit. A credit transaction is defined by
Regulation B as covering every aspect of an applicant's dealings with a
creditor, beginning with requests for information. Thus, the coverage
of the ECOA is generally limited to a person who has, at a minimum,
sought credit information. The law does not generally extend to a
creditor's preapplication marketing practices--such as the selection of
persons solicited for a credit card. The regulation applies only after
individuals respond to a creditor's offer of credit. But because a
person could be discouraged from seeking credit or credit information,
the regulation expressly prohibits a creditor from engaging in any
practice that would discourage a reasonable person (on a prohibited
basis) from applying for credit. The regulation also applies to
advertising.
Creditors use a number of techniques to identify potential
recipients of credit. For instance, creditors will often specify
criteria to consumer reporting agencies, which then draw on information
from credit files to compile mailing lists of persons who meet those
criteria. This marketing technique--involving prescreened
solicitations--is typically carried out through mailed solicitations as
well as by telemarketing.
There has been concern through the years that Regulation B
generally does not apply to preapplication marketing. During the 1985
review of Regulation B, the staff presented to the Board the issue of
whether prescreened solicitations should be made subject to the
regulation, but recommended against coverage. While recognizing the
potential for unfair treatment in such practices, available evidence
did not support a finding that creditors were improperly making use of
prohibited characteristics. Moreover, it was thought that prescreened
solicitations could result in a greater availability of credit to many
consumers. Accordingly, the Board did not propose to expand the
regulation's coverage to such practices.
Over the past several years, the Board has become aware (through
its own observations and those of other federal financial regulatory
agencies) of instances in which creditors, primarily in the credit card
industry, use age to identify potential recipients of
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preapproved credit. In some instances, creditors have used zip codes to
exclude credit solicitations in low-income areas that represent
predominantly minority neighborhoods. In other cases, creditors have
used ethnicity or gender to target potential customers in affirmative-
outreach programs.
The Board raised the issue of prescreened solicitations for public
comment in its Advance Notice. Specifically, the Board requested
comment on how and to what extent creditors are using a prohibited
basis in preapplication marketing. Of the industry commenters who
addressed preapplication marketing, only a few discussed the extent to
which the selection criteria include a prohibited basis. These
commenters indicated that except for using age to identify consumers
too young to be approved for credit, or to identify potential customers
for unique products such as reverse mortgages, they do not directly use
prohibited bases in preapplication marketing.
The majority of commenters--primarily creditors and their trade
associations--addressed the more general issue of whether the Board
should expand the regulation's coverage to preapplication marketing
practices. Most of these commenters opposed any expansion. These
commenters were concerned that an expansion of Regulation B would
prevent creditors from marketing their products to those most likely to
respond. They stated, for example, that a creditor offering products
that are used predominantly by women might be prohibited from targeting
consumers on a mailing list for a magazine geared toward women. Some
commenters believed that the regulation's protections need not apply to
prescreened solicitations because they are only one aspect of a
creditor's overall marketing program, and that consumers who are not
solicited may nevertheless obtain credit from the creditor. A few
questioned the Board's legal authority to expand the regulation's
coverage beyond ``applicants.''
Others--including most of the federal financial enforcement
agencies and consumer advocates that commented--favored expanding the
coverage of Regulation B to preapplication marketing practices. Some of
these commenters expressed concern that currently a creditor is
permitted to use a prohibited basis to limit or avoid extending credit
by target marketing to certain groups. Other commenters believed that
regulatory coverage of solicitations is necessary to fulfill the Act's
purpose, arguing that those not solicited are denied information that
could lead them to apply for credit. Some commenters expressed concern
about the inconsistent approaches between the Fair Housing Act, which
extends coverage to preapplication marketing, and the ECOA, which does
not.
Prescreened credit solicitations are not new, particularly credit
card solicitations. The use of prescreened solicitations has become
more commonplace beyond credit cards, however, and in some instances
may be the primary vehicle for offering credit. In the marketing of
some credit cards, prescreened solicitations often offer discounted
introductory rates, attractive terms, and enhancements (such as
purchase discounts) to those solicited that may not be available
through other application channels. Prescreened solicitations can be
used to target consumers most likely to use a particular credit
product, or to target segments of the population that in the creditor's
experience are most likely to respond to the offer of credit.
Conversely, prescreened solicitations can be used to exclude some
consumers from offers of credit. They can also be used to target
consumers in certain neighborhoods for less favorable credit products
or less favorable terms.
Covering credit solicitations without providing many exceptions
could have unintended consequences. For example, it could result in
prohibiting practices that increase credit availability. Targeted
marketing through prescreened solicitations can effectively increase
access to credit for consumers. Moreover, while there is anecdotal
evidence that creditors do target potential applicants on the basis of
age and geographic location, such evidence is somewhat limited; it does
not suggest that the application of Regulation B rules is warranted at
this time. Because of concerns about the potential impact on some
segments of the population, however, the Board believes that taking
other steps would enable the Board and the other enforcement agencies
to monitor solicitation practices in a more systematic way than has
been possible to date.
The ECOA directs the Board to prescribe regulations to carry out
the purposes of the Act. Further, section 703(a)(1) of the Act
authorizes the Board to make ``such classifications * * * adjustments
and exceptions * * * as in the judgment of the Board are necessary or
proper to effectuate the purposes of [the law] * * * or to prevent
circumvention or evasion * * * .'' 15 U.S.C. 1691b. The Board proposes
to use this exception authority to require creditors to keep records
related to certain prescreened solicitations--namely, preapproved
credit solicitations. The Board's proposal adds a new
Sec. 202.12(b)(7).
For purposes of the proposed rule, a preapproved credit
solicitation is defined as the ``firm offer of credit'' described in 15
U.S.C. 1681a(l) of the Fair Credit Reporting Act (FCRA). Under the
FCRA, a person that receives a list of consumers from a consumer
reporting agency in connection with credit transactions not initiated
by the consumers must generally offer credit to the consumers on the
list, subject to certain exceptions. 15 U.S.C. 1681b(c)(1)(B). A
creditor must maintain the criteria used to select the consumers for
three years after the date the credit offer is made. 15 U.S.C.
1681m(d)(3). The Board's draft rule would require creditors to retain
(for 25 months after a creditor solicits potential applicants for
credit) certain information related to preapproved credit
solicitations: the list of criteria used to select potential customers,
the text of the solicitation mailing, correspondence (to and from
selected potential customers) related to complaints--whether formal or
informal--about the solicitation, and the portion of the marketing plan
(including any response model) to which the solicitation relates.
The draft rule would require creditors to retain information that
the Board believes they already retain for business and other reasons.
The Board solicits comment on the incremental burden associated with
retaining information beyond the records creditors already retain under
the FCRA or for business purposes.
The information required by the proposed rule--the criteria for
selection, the solicitation, correspondence, and the marketing plan to
which the solicitation relates--should allow for an effective review
and analysis of creditors' possible use of prohibited bases in
preapproved credit solicitations. For entities that are regularly
examined, the Board believes that the most effective way to review and
evaluate creditor practices would be through the use of the examination
process.
Section 202.5--Rules Concerning Taking of Applications
Section 202.5 of the regulation would be revised.
Because the ECOA makes it unlawful for creditors to consider any of
the prohibited bases of discrimination in a credit transaction,
Regulation B generally has prohibited creditors from inquiring about,
or noting, those
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applicant characteristics in any aspect of a credit transaction. This
general prohibition was intended to discourage discrimination, based on
the premise that if creditors cannot inquire about or note such
information, they are less likely to unlawfully consider the
information. For home mortgage lending (given frequent allegations and
concerns about unlawful discrimination) the regulation has required
creditors, since 1977, to note the applicant's national origin or race,
marital status, sex, and age in applications for home purchase loans,
so that enforcement agencies can better monitor home mortgage lenders'
compliance with the ECOA. The Home Mortgage Disclosure Act, 12 U.S.C.
2801 et seq. (implemented by Regulation C), imposed a similar data
collection requirement in 1989 that applies to mortgage loans more
broadly, encompassing home improvement loans in addition to home
purchase loans.
In 1995, the Board proposed to remove the prohibition against
noting an applicant's race, color, religion, national origin, and sex
for nonmortgage credit products. The proposed revision was published at
the time the banking agencies were revising regulations that implement
the Community Reinvestment Act; the proposal responded to concerns
about whether creditors were meeting the needs of their communities,
particularly for small business and small farm lending. The majority of
the comments received on the 1995 proposal opposed removal of the
prohibition, generally expressing concern that voluntary data notation
would lead to mandatory data collection and result in substantially
increased costs and burden. In addition, many commenters raised
concerns about the quality of the data that would be obtained, given
that supplying information would be voluntary and not all applicants
would choose to provide it. Commenters who supported removal of the
prohibition believed that the data would allow creditors to better
identify underserved groups and design programs to address unmet credit
needs; they also believed that it would provide useful data for
evaluating creditors' compliance with fair lending laws. After
extensive deliberation, the Board withdrew the proposal in December
1996, and stated that, given the political sensitivity of the issues
involved, the matter was better left to the Congress.
The Board's 1998 Advance Notice solicited comment on whether the
Board should again consider removing the prohibition for nonmortgage
credit products, in its review of Regulation B. The Advance Notice
raised the issue in response to concerns that continue to be expressed
by the Department of Justice and some of the federal financial
enforcement agencies, pointing to anecdotal evidence of discrimination
in connection with small business and other types of credit. These
agencies believe that the ability to obtain and analyze data about race
and ethnicity (such as creditors might collect on a voluntary basis)
would aid fair lending enforcement. In addition, some creditors
continue to express interest in being able to note--on a voluntary
basis--information about the ethnicity, sex, and race of their
applicants and borrowers to evaluate compliance with fair lending laws,
as well as for marketing and outreach initiatives. Small-business
owners and community groups also continue to strongly support data
notation, particularly for small business lending.
More than 300 commenters addressed the issue in response to the
Advance Notice. Many commenters--primarily banks and banking trade
associations--urged the Board not to remove the prohibition. These
commenters believed that, if the prohibition were to be removed,
examiners and others would pressure depository institutions to collect
data. They feared that a requirement to collect data would soon follow,
which would impose a substantial burden on institutions. These
commenters expressed concern that creditors that obtained data about
race, ethnicity, and other applicant characteristics would be subjected
to greater scrutiny by enforcement agencies. They also stated that data
notation is intrusive of consumers' privacy, and would encourage a
perception of creditors' using the data to discriminate. Some
commenters stated that data noted on a voluntary basis would be
unreliable and that the lack of standards for notation could render the
quality of data questionable. (In some cases, commenters used this
criticism to argue against lifting the prohibition; in other cases,
they used it to argue for mandatory data collection.) Commenters also
suggested that the current rule effectively discourages discrimination
because loan officers often do not have access to information that
would enable them to discriminate on a prohibited basis.
Many other commenters--including most of the federal financial
enforcement agencies, the Department of Justice, the Department of
Housing and Urban Development, small businesses and their trade
associations, consumer advocates, community organizations, and some
banks--favored removing the prohibition. A number of commenters favored
removing it for all nonmortgage credit products, but most of those who
favored lifting the ban were focused on small business lending. Some of
these commenters believed that the most effective way to monitor and
enforce fair lending compliance on small business loans is with
mandatory collection, although they see voluntary notation for such
loans as an important first step. They said that allowing data notation
would enable creditors and government agencies to monitor for possible
discriminatory practices, and might enable creditors to better target
underserved markets for small business or other lending. Some
commenters suggested that, in the case of home mortgage lending, the
mandatory collection and disclosure of data have increased access to
those products for low-income and minority consumers.
The Board proposes to remove the prohibition against noting
information about an applicant's race, color, religion, national
origin, and sex for all credit products. Consideration of such
information in evaluating creditworthiness, except as permitted by law,
would continue to be prohibited by the ECOA and Regulation B. The Board
recognizes that removing the prohibition would allow loan officers to
have access to information on applicant characteristics that might not
otherwise be available and, thus, could provide the opportunity for
unlawful discrimination. Also, the Board recognizes that the usefulness
of the data for fair lending enforcement purposes would depend on
whether creditors implement standards for uniform collection of the
data--such as by product, for all applicants, for all borrowers, etc.
On balance, however, removing the prohibition for all nonmortgage
credit may allow issues of credit discrimination to be better
addressed. Because notation would be on a voluntary basis, creditors
could target those products where particular concern exists about
potential discrimination.
The proposed rule provides that applicants may not be required to
provide information about their race, color, religion, national origin,
or sex. It also requires creditors who request information on applicant
characteristics to disclose--at the time they request the information--
that providing it is optional, and that the creditor will not take the
information (or the applicant's decision not to provide the
information) into account in any aspect of the credit transaction. (See
proposed Sec. 202.5(a)(4).) (A proposed model notice is included in
Appendix C.) The Board seeks comment on this approach.
[[Page 44587]]
Section 202.5(a) would be moved to Sec. 202.4. Sections 202.5(b)-
(d) would be redesignated as Secs. 202.5(a)-(c), and the rules in those
sections barring information requests about sex, race, color, religion
and national origin would be removed. The proposed removal does not
extend to substantive rules relating to marital status that effectuate
the antidiscrimination provisions of the Act. Some technical edits
would be made to newly-designated Secs. 202.5(a)(1), (a)(2), and
(a)(3), and to newly-designated Secs. 202.5(b)(2) and (b)(3). Part of
existing Sec. 202.5(d)(5) concerning inquiries about permanent
residency and immigration status would be moved to newly-designated
Sec. 202.5(c)(5). Also, Sec. 202.5(e) would be moved to Sec. 202.4 to
facilitate compliance with the regulation.
Section 202.5a--Rules on Providing Appraisal Reports
No revisions are proposed in this section.
Section 202.6--Rules Concerning Evaluation of Applications
Revisions are proposed in Sec. 202.6(b).
6(b) Specific Rules Concerning Use of Information
6(b)(8)
Section 202.6(b)(8) would be added to clarify that a creditor may
not evaluate married and unmarried applicants by different standards.
The Board believes that this guidance-- currently in the commentary--is
more appropriately placed in the regulation.
6(b)(9)
A new paragraph 202.6(b)(9) would be added to make clear that a
creditor may not consider race, color, religion, national origin, or
sex to determine an applicant's creditworthiness, except as permitted
by law; nor may the creditor consider the applicant's decision not to
provide the information.
Section 202.7--Rules Concerning Extensions of Credit
Revisions are proposed in Sec. 202.7(d)(1).
7(d) Signature of Spouse or Other Person
Section 202.7(d)(1) would be revised to clarify the rule concerning
joint applications for credit. Regulation B does not require written
applications for business credit. Often, requests are made orally or
without a formal written application. In such cases, a creditor usually
requests that the applicant submit a financial statement for
evaluation. As a general rule, Regulation B prohibits creditors from
requiring the signature of a person other than the applicant on any
credit instrument if the applicant is individually creditworthy. Where
the financial statement submitted by the applicant lists jointly held
property and is signed by both property owners (attesting to the
accuracy of the data), some creditors are treating the financial
statement as an indication that the owners are making a joint
application for credit. In those cases, both owners often are being
required to sign the promissory note--even where the request for credit
has been made only by the property owner engaged in operating the
business. The Board believes that a joint property owner's signature on
a financial statement (to attest to the accuracy of information) alone
does not represent definitive evidence of a joint application.
In the Advance Notice of Proposed Rulemaking, the Board asked
whether additional guidance should clarify the mechanisms through which
an application for joint credit can be evidenced. Although some
commenters stated that a written application is the best mechanism to
establish an application for joint credit, other commenters believed
the Board should provide additional guidance on the issue.
The Board does not propose to require written applications for
business credit. Section 202.7(d)(1), however, would be revised to
clarify that the submission of joint financial information or other
evidence of jointly held assets does not of itself constitute an
application for joint credit. The rule would apply to both consumer and
business credit. In addition, the official staff commentary would be
amended to suggest ways in which a creditor may obtain a clear
indication of a joint application. (See proposed comment 7(d)(1)-3.)
Section 202.8--Special-Purpose Credit Programs
Technical revisions are proposed in Sec. 202.8(a)(3).
8(a) Standards for Programs
Section 202.8(a)(3) of the regulation, which addresses special-
purpose credit programs offered by for-profit organizations, would be
revised. The Board believes that paragraphs (a)(3)(i) and (ii) set
forth the criteria; the phrase regarding ``special social needs'' would
be deleted to eliminate confusion.
Section 202.9--Notifications
Revisions are proposed in Secs. 202.9(a)(3) and 202.9(b)(2).
9(a) Notification of Action Taken, ECOA Notice, and Statement of
Specific Reasons
9(a)(3) Notification to Business Credit Applicants
The regulation provides for exceptions from certain notification
and record retention requirements for business credit if the business
had gross revenues in excess of $1 million in its preceding fiscal
year, or if the business requested an extension of trade credit, credit
incident to a factoring agreement, or other similar types of business
credit. The Board is required periodically to review the exceptions to
determine whether they should be retained. The Act provides that the
Board may extend an exception if the Board determines, after making an
express finding, ``that the application of [the Act] or any provision
of [the Act] of such transaction would not contribute substantially to
effecting the purposes of [the Act].'' (See 15 U.S.C. 1691b.)
The Advance Notice of Proposed Rulemaking requested comment on
whether the limited exceptions are still appropriate. Some commenters
stated that the exceptions should be eliminated; they believe business
applicants, like consumer applicants, need adverse action notices to
ensure that they have been treated fairly and not denied credit on a
prohibited basis. Most commenters, however, favored retaining the
current exceptions. These commenters stated that business applicants
tend to be more sophisticated than consumer applicants and, therefore,
generally do not need the same protections as consumers. Some
commenters suggested changing the test for when the exceptions apply;
some commenters suggested lowering the $1 million threshold. Others
suggested using the amount of the credit request rather than the size
of the business.
The Board believes that applying the rules in full or changing the
current test, which is based on a $1 million gross revenue threshold,
would not contribute substantially to effectuating the purposes of the
ECOA. Accordingly, the Board believes the exceptions based on the
current threshold are still appropriate and should be extended. The $1
million threshold is consistent with the legislative history of the
Women's Business Ownership Act of 1988 (Pub. L. No. 100-533, 102 Stat.
2692), which amended the ECOA. That history suggests that the
amendments were intended primarily to apply to small businesses. When
the rule was adopted in 1989, 86 percent of all businesses had gross
revenues of $1 million or less a year. Retaining the $1
[[Page 44588]]
million threshold would provide nearly the same percentage of all
businesses (currently 85 percent) with the additional protections. In
addition, the Board believes that a gross revenue test is easier for
creditors to administer than other suggested tests, such as basing the
exceptions on the sophistication of the applicant.
Section 202.9(a)(3)(ii) would be revised to require that creditors
disclose, to businesses with gross revenues in excess of $1 million in
the preceding fiscal year, the right to a written statement of reasons
for adverse action. Currently, creditors must provide a written
statement of reasons for adverse action if the applicant requests the
statement within 60 days of being notified of adverse action. Requiring
disclosure of the right should not significantly increase burden for
creditors, and will benefit applicants who may not be aware of their
right to the written statement of reasons.
9(b) Form of ECOA Notice and Statement of Specific Reasons
9(b)(2) Statement of Specific Reasons
Section 202.9(b)(2) would be revised to clarify that whether a
creditor's denial of credit is based on the creditworthiness of the
applicant, a joint applicant, or guarantor, the reasons for adverse
action must be specific. For example, a general statement that ``the
joint applicant did not meet the creditor's standards of
creditworthiness'' is insufficient.
Section 202.10--Furnishing of Credit Information
No revisions are proposed in this section.
Section 202.11--Relation to State Law
Technical revisions would be made in this section.
Section 202.12--Record Retention
Revisions are proposed in Sec. 202.12(b). Proposed
Sec. 202.12(b)(7) provides the record retention requirements for
preapproved credit solicitations. (See detailed discussion in
Sec. 202.4.)
12(b) Preservation of Records
Section 703(a)(4) of the Act requires creditors to retain records
or other data related to business loans ``as may be necessary'' to
evidence compliance with the Act. These records must be retained no
less than one year, unless otherwise excepted. Currently,
Sec. 202.12(b) requires creditors to retain credit applications and
other records for 12 months for business credit. Under the proposal, a
25-month record retention period would apply to credit applications
involving businesses with gross revenues of $1 million or less; the
rule would remain unchanged for credit applications involving other
businesses.
The Board believes that increasing the record retention period
would assist the federal financial regulatory agencies, in particular,
in monitoring and enforcing compliance with the Act, given the
relatively low volume of business loans on a yearly basis for some
institutions, and given the agencies' reduction of examination
frequency (from 18 to 24 months, and in some instances to 36 months).
Sections 202.12(b)(1), (2), (3), and (4) would be revised accordingly.
In 1989, the Board proposed to establish a 25-month record retention
period. Creditors expressed concern about the space required to store
documents and the costs associated with longer storage, and the Board
adopted the 12-month record retention period. The Board believes these
concerns may no longer be compelling given technological advances and
the use of electronic storage. The Board seeks specific comment on the
potential burden associated with retaining information for the
additional period.
12(b)(7) Preapplication Marketing Information
A new paragraph 202.12(b)(7) would be added to the regulation to
include the record retention requirements for certain preapplication
marketing information.
Section 202.13--Information for Monitoring Purposes
No revisions are proposed in this section.
Section 202.14--Enforcement, Penalties and Liabilities
Revisions are proposed in Sec. 202.14(c). Technical revisions would
be made in Sec. 202.14(b).
14(c) Failure of Compliance
Section 202.14(c) would be revised to reflect the Board's proposal
to remove the prohibition in Regulation B against the collection of
certain information.
Section 202.15--Incentives for Self-Testing and Self-Correction
Minor revisions are proposed in Sec. 202.15(d)(1).
15(d)(1) Scope of Privilege
Section 202.15(d)(1)(ii) would be revised, consistent with proposed
changes to Secs. 202.4 and 202.5(a).
Appendix A to Part 202--Federal Enforcement Agencies
Revisions are proposed in Appendix A to reflect changes in the
names and addresses of some agencies.
Appendix B to Part 202--Model Application Forms
Appendix B would be revised to reflect proposed revisions to
Sec. 202.5. Technical revisions would also be made for clarity.
The ``Residential loan application'' model form would be replaced
with an updated ``Uniform residential loan application'' form (FHLMC
65/FNMA 1003). The Board solicits specific comment on whether revisions
should be made to the other model application forms.
Appendix C--Sample Notification Forms
Appendix C would be revised to reflect proposed revisions to
Sec. 202.5. A new model form C-10 would be added to provide the
disclosure requirements for creditors who request information
voluntarily on applicant characteristics. Also, the Board solicits
specific comment on whether revisions should be made to the existing
sample notification forms.
IV. Discussion of Proposed Revisions to the Official Staff
Commentary
The following discussion covers the proposed revisions to the
official staff commentary section-by-section. Such revisions include
clarifying: the definition of adverse action (Sec. 202.2(c)); the
definition of application in regard to certain preapprovals
(Sec. 202.2(f)); the disclosure requirement if a creditor asks for
applicant characteristics (Sec. 202.5(a)); and the nonapplicability of
the self-testing privilege to information requested voluntarily about
applicant characteristics (Sec. 202.15(b)).
Section 202.1--Authority, Scope, and Purpose
No revisions are proposed in this section of the commentary.
Section 202.2--Definitions
Revisions are proposed in comments to Secs. 202.2(c)(1) and (c)(2),
202.2(f), 202.2(l), and 202.2(z).
2(c) Adverse Action
2(c)(1)
Counteroffers in connection with credit solicitations--Proposed
comment 2(c)(1)(i)-2 addresses credit solicitations. The comment would
clarify that where a consumer who receives a solicitation requests a
specific
[[Page 44589]]
amount of credit and the creditor offers a different amount, the
creditor's action constitutes a counteroffer.
Adverse action on a class of accounts--Proposed comment
2(c)(1)(ii)-1 would clarify the terms ``substantially all'' and ``class
of accounts.'' Existing comments 2(c)(1)(ii)-1 and -2 would be
renumbered.
2(c)(2)
Express agreement--Proposed comment 2(c)(2)(i)-1 would clarify when
an adverse action notice is required for a change in the terms of an
account. This comment solely addresses when a creditor is required to
provide an adverse action notice; it does not affect a creditor's
ability to change the terms under its agreement with the consumer.
Current delinquency or default--An adverse action notice is not
required if a creditor takes action on an account due to a current
delinquency or default on that account. Comment 2(c)(2)(ii)-2 would be
revised, and an example would be added, to clarify this interpretation.
Activity on a different account--Proposed comment 2(c)(2)(ii)-3
would clarify that an adverse action notice is required if a creditor
treats an account as delinquent or in default due to activity on
another account. This comment solely addresses when a creditor is
required to provide an adverse action notice; it does not address what
activity constitutes a delinquency or default under the agreement
between the parties.
2(f) Application
Inquiries about or applications for credit
In the Advance Notice, the Board solicited comment on whether it
should provide additional guidance to further clarify the current
distinction between an inquiry about credit and an application for
credit. Specifically, the Board asked whether it should devise a
different test for determining when a discussion becomes an application
and, if so, what should be the test.
The ECOA requires creditors to provide notice of action taken
within certain time frames following the creditor's receipt of a
completed application. Regulation B defines an application as ``an oral
or written request for an extension of credit that is made in
accordance with procedures established by the creditor for the type of
credit requested.'' This enables the creditor to establish as formal or
informal a process as it wishes.
The official staff commentary, through examples, encourages
creditors to provide consumers with information that will assist them
in the credit shopping process. The flexibility provided allows
creditors to give information without entering into a formal
application process, and thus to avoid triggering the notice and
recordkeeping rules. To deter creditors from discouraging prospective
applicants on a prohibited basis, however, the rule deems a creditor's
negative response to an inquiry to represent the denial of an
application for credit. That is, a credit inquiry can be deemed an
application if, in giving credit information to a potential applicant,
the creditor evaluates information about the individual, decides that
the individual does not meet the creditor's criteria for
creditworthiness, and informs the individual accordingly. In that case,
an adverse action notice is required and records are retained.
Many industry commenters expressed concern that the current test is
difficult to apply because when a creditor has ``declined'' a request
is not always clear. According to these commenters, it is often unclear
when a creditor's discussion of negative factors, such as a person's
poor payment history on loans, triggers an adverse action notice. Some
commenters noted that, due to this lack of clarity, they often provide
an adverse action notice to consumers to whom they give negative
information--a procedure they view as burdensome and not necessarily
helpful to many consumers. They believe the notice may discourage some
consumers from later applying for credit, especially if those consumers
initially were only seeking information.
Other commenters supported the current test; they believe that the
test provides the flexibility they need. These commenters expressed
reservations about changing a rule that creditors are already familiar
with. They also expressed concern that a change in the rule could
require creditors to change the way they conduct business. Some
commenters, including industry and consumer representatives, stated
that adverse action notices should be given whenever consumers are
informed that they are ineligible or lack the qualifications for
credit, regardless of the stage in the credit process.
In response to commenters' concerns about when an adverse action
notice is required, the Board considered whether a different test is
appropriate. The Board focused on creditors' use of new delivery
channels for loan products and information (such as the Internet), and
growth in credit counseling and prequalification programs. Many of
these developments result in consumers asking for and receiving
information about credit products--and about their own
creditworthiness--prior to submitting an application for credit.
The Board solicited comment on a number of issues concerning the
definition of ``application.'' The Board asked whether a ``bright-
line'' test would best distinguish between an inquiry and an
application (for example, whether obtaining a credit report should
always trigger an application). Some commenters believed that such a
test could eliminate confusion and inconsistent treatment among
lenders. Others opposed a bright-line test, stating that any proposed
test needs to have sufficient flexibility to accommodate evolving
approaches to lending (such as prequalification requests) and
homeownership and small business loan counseling. Commenters noted that
given rapid changes in lending practices and technology, today's
bright-line test might not be appropriate in the future.
The Board also asked whether it would be desirable or possible to
apply the current notification rules to homeownership counseling
programs that engage in credit evaluations; often, a credit report is
obtained to determine the consumer's financial circumstances and to
assist in an ongoing counseling process. Most commenters did not
believe the current rules should be applied to such programs. They
generally supported a rule that would encourage counseling without
imposing burdensome notification requirements.
Finally, the Board solicited comment on whether the issue of
distinguishing an inquiry from an application also arises in
nonmortgage credit, such as credit card, automobile, and small business
lending. Most commenters believed the issues were similar, and that
there was nothing unique about nonmortgage credit that requires a
different test; they generally believed that, for purposes of
consistency, all credit should be subject to the same test.
Given changes in technology, and creditors' use of varying
procedures and mechanisms to deliver their credit products, on balance
the Board believes that retaining the flexibility of the current test
is appropriate. Comment 2(f)-3 would clarify that prequalifications are
subject to the test currently applicable to inquiries. Under that test,
a creditor provides an adverse action notice if the creditor
communicates a denial. Proposed comment 2(f)-5 gives an example of
preapprovals that are treated as applications, in keeping with the
[[Page 44590]]
proposed addition to Sec. 202.2(f) of the regulation. Existing comment
2(f)-5 would be redesignated.
2(l) Creditor
The ECOA and Regulation B prohibit a creditor from discriminating
against an applicant on a prohibited basis regarding any aspect of a
credit transaction. The ECOA's definition of creditor includes anyone
who ``regularly extends'' or ``regularly arranges for'' the extension
of credit, as well as any assignee of an original creditor who
``participates in the decision'' to extend credit. Regulation B
combines these concepts and defines a creditor as a person who, in the
ordinary course of business, regularly participates in the decision of
whether or not to extend credit, including persons such as a potential
purchaser of an obligation who influences the creditor's decision.
Brokers or others who regularly refer applicants to creditors (or who
select or offer to select creditors to whom applications can be made)
are creditors for purposes of Secs. 202.4 and 202.5(a) (the
prohibitions against discrimination and discouragement) which are
Secs. 202.4(a) and (b), respectively, under the proposed rule.
Regulation B also provides that a person (who may otherwise be a
creditor) is not a ``creditor'' with respect to a violation of the ECOA
or the regulation committed by another creditor unless the creditor
``knew or had reasonable notice of'' the act, practice, or policy that
constituted the violation before becoming involved in the credit
transaction.
In the Advance Notice of Proposed Rulemaking, the Board requested
comment on the definition of the term ``creditor.'' The Board noted
that creditors'' distribution systems for lending services and products
have expanded over the years, and that creditors have increasingly
asked for guidance about how the term applies when a lender acts in
conjunction with other creditors and discrimination occurs.
Specifically, the Board solicited comment on whether it is feasible for
the regulation to provide more specific guidance given that most issues
will depend on the facts of a particular case. A slight majority of
commenters asked the Board to provide more specific guidance. Some of
these commenters requested that the Board provide a clearer description
of the conduct that triggers liability. Other commenters requested that
the Board expressly state the types of persons that are considered to
be creditors under the regulation. Some commenters opposed more
specific guidance on the belief that whether the definition applies
must be determined on a case-by-case basis.
The Board also solicited comment on whether the current test--which
relies on whether a person knew or had reasonable notice of an act of
discrimination--should be modified. Some commenters believed that the
test should be modified to clarify that a creditor is not responsible
for the acts of another creditor where the creditor does not have
control over the other creditor's activities. Some commenters stated
that the Board should change the test to ``actual'' notice. Other
commenters were concerned that the Board may change the test to impose
a stricter standard; these commenters believed that a stricter standard
could force creditors to discontinue many types of credit programs.
Some consumer advocates expressed concern that the current test
encourages creditors to pass on the ultimate underwriting
responsibilities to avoid knowledge of another creditor's activities.
Most commenters believed the current test should not be modified. Some
of these commenters stated that the Board should clarify through the
staff commentary what constitutes ``reasonable notice.''
Finally, comment was solicited on whether the regulation should
address under what circumstances a creditor must monitor the pricing or
other credit terms when another creditor (for example, a loan broker)
participates in the transactions and sets the terms. Some commenters
believed the regulation should address monitoring to explicitly state
that there is no such requirement. Some of these commenters stated that
creditors would not have sufficient information to evaluate another
creditor's practices and policies. Other commenters stated that
monitoring could force creditors to restrict the third parties with
whom they do business based on the size and capability of their
monitoring systems. Some commenters believed that the regulation should
explicitly state that there is a monitoring requirement implicit in the
``reasonable notice'' test. A slight majority of commenters opposed the
regulation's addressing whether a creditor must monitor the acts of
other creditors.
The Board considered whether, given the wide variety of ways that
creditors conduct business involving more than one creditor, a new test
could provide clearer guidance. While the application of the current
test is subject to interpretation, the Board believes that it is not
possible to specify with particularity by regulation the circumstances
under which a creditor may--or may not--be liable for a violation
committed by another creditor. Accordingly, Regulation B retains the
``reasonable notice'' standard for when a creditor may be responsible
for the discriminatory acts of other creditors.
The Board believes that, depending on the circumstances, the
``reasonable notice'' standard may carry with it the need for a
creditor to exercise some degree of diligence with respect to third-
parties' involvement in credit transactions, such as brokers or the
originators of loans. The Board also believes, however, that it is not
feasible to specify by regulatory interpretation the degree of care
that a court of law may find to be required in specific cases.
Comment 2(l)-2 would be revised to clarify the type of creditors
subject only to the general prohibitions against discrimination and
discouragement.
2(z) Prohibited Basis
A technical revision would be made to comment 2(z)-1 for clarity.
Comment 2(z)-3 reflects the change in the name of the Aid to Families
with Dependent Children program.
Section 202.3--Limited Exceptions for Certain Classes of Transactions
A technical revision would be made to comment 3-1 for clarity.
Section 202.4--General Rule Prohibiting Discrimination
Substantial revisions are proposed in comments to Sec. 202.4.
Former comment 4(a)-1 would be divided into two comments 4(a)-1 and
2. Additional examples of disparate treatment would be included in
comment 4(a)-2. Proposed comments 4(b)-1 and 2 are existing comments
5(a)-1 and 2, respectively, with minor revisions. References to
``potential'' applicants in existing comment 5(a)-1, which is comment
4(b)-1 under the proposal, would be changed to ``prospective''
applicants with no substantive change intended. Proposed comments 4(c)-
1, 2, and 3 are existing comments 5(e)-1, 2, and 3, respectively.
Proposed comment 4(d)-1 is new and would clarify the clear and
conspicuous requirement.
Section 202.5--Rules Concerning Taking of Applications
Substantial revisions are proposed in comments to Sec. 202.5.
Comments 5(a)-1 and 2 would be moved to proposed comments 4(b)-1
and 2, respectively, consistent with proposed changes to the
regulation. Comments 5(b)(2)-1, 2, and 3 would be removed, consistent
with proposed
[[Page 44591]]
changes to the regulation. Comments 5(d)(1)-1 and 5(d)(2)-1, 2, and 3
would be redesignated. Comments 5(e)-1, 2, and 3 would be removed and
transferred to Sec. 202.4(c) of the commentary.
Section 202.5a--Rules on Providing Appraisal Reports
No revisions are proposed in this section of the commentary.
Section 202.6--Rules Concerning Evaluation of Applications
Revisions are proposed in comments to Secs. 202.6(b)(1), (b)(2),
(b)(5), and (b)(8).
6(b)(1)
Comment 6(b)(1)-1 would be removed. The portion of the comment
related to the consideration of marital status for the purpose of
ascertaining the creditor's rights and remedies would be moved to
comment 6(b)(8)-1 in light of proposed changes to the regulation. Other
portions of comment 6(b)(1)-1 related to evaluating married and
unmarried applicants by the same standards would be moved to
Sec. 202.6(b)(8) of the regulation. Comment 6(b)(1)-2 would be
renumbered.
6(b)(2)
Technical revisions would be made to comment 6(b)(2)-3 with no
substantive change intended. Also, a technical amendment to comment
6(b)(2)-6 reflects the change in the name of the Aid to Families with
Dependent Children program.
6(b)(5)
Comments 6(b)(5)-1 and 6(b)(5)-4 would be revised for further
clarity and to remove references to ``protected income.'' No
substantive change is intended.
6(b)(8)
The Board is proposing to add a new Sec. 202.6(b)(8) to the
regulation to clarify that a creditor may not evaluate married and
unmarried applicants by different standards. New comment 6(b)(8)-1
would be added to incorporate part of the language from existing
comment 6(b)(1)-1 related to the consideration of marital status for
the purpose of ascertaining the creditor's rights and remedies.
Section 202.7--Rules Concerning Extensions of Credit
Revisions are proposed in comments to Sec. 202.7(d)(1).
7(d) Signature of Spouse or Other Person
A new comment 7(d)(1)-1 would clarify that when an applicant is
individually creditworthy, a creditor may not require the signature of
any person besides the applicant on a credit instrument. Existing
comment 7(d)(1)-1 would be redesignated as comment 7(d)(1)-2. Comment
7(d)(1)-3 would be added to provide guidance on how creditors may
document that applicants have requested joint credit.
Section 202.8--Special Purpose Credit Programs
Minor revisions are proposed in comments to Secs. 202.8(a),
202.8(c), and 202.8(d).
8(a) Standards for Programs
Comment 8(a)-5 would be revised to clarify how creditors can
determine the need for a special-purpose credit program.
8(c) Special Rule Concerning Requests and Use of Information
Comments 8(c)-1 and 2 would be revised to conform with the Board's
proposal to remove the prohibition in Regulation B against the
collection of certain information; no substantive change is intended.
8(d) Special Rule in the Case of Financial Need
Comment 8(d)-1 would be revised to conform with the Board's
proposal to remove the prohibition in Regulation B against the
collection of certain information; no substantive change is intended.
Section 202.9--Notifications
Revisions are proposed in comments to Secs. 202.9, 202.9(b)(2), and
202.9(g). Minor revisions would be made to comment 9-5 concerning
prequalifications. Also, the discussion of preapprovals would be
removed. Certain preapprovals are included in the proposed definition
of ``application'' in Sec. 202.2(f) of the regulation.
9(b) Form of ECOA Notice and Statement of Specific Reasons
9(b)(2)
Comment 9(b)(2)-7 would clarify the rules on providing reasons for
adverse action in a combined credit scoring and judgmental system.
9(g) Applications Submitted Through a Third Party
Comment 9(g)-1 would be revised to clarify the information that
must be included in an adverse action notice provided on behalf of more
than one creditor, with minor revisions made for clarity.
Section 202.10--Furnishing of Credit Information
No revisions are proposed in comments to Sec. 202.10.
Section 202.11--Relation to State Law
No revisions are proposed in comments to Sec. 202.11.
Section 202.12--Record Retention
Revisions are proposed in comments to Sec. 202.12(b), consistent
with a proposed change to the regulation concerning retention of
certain preapplication marketing information.
12(b)(7) Preapplication Marketing Information
Three new comments to proposed Sec. 202.12(b)(7) would be added to
clarify the record retention requirements for certain preapplication
marketing information. (See detailed discussion in ``Part III.
Discussion of Proposed Revisions to the Regulation'' under Sec. 202.4.)
Section 202.13--Information for Monitoring Purposes
Revisions are proposed in comments to Secs. 202.13(a) and (b).
13(a) Information To Be Requested
Comment 13(a)-7 would be removed, consistent with proposed
revisions to the regulation.
13(b) Obtaining of Information
Comment 13(b)-4 would be revised to make the treatment of
applications received electronically consistent with comment
203.4(a)(7)-5 of Regulation C (Home Mortgage Disclosure), 12 CFR part
203, for the purpose of collecting monitoring information.
Comment 13(b)-7 would be deleted to reflect the Board's proposal to
remove the prohibition in Regulation B against the collection of
certain information.
Section 202.14--Enforcement, Penalties, and Liabilities
No revisions are proposed in comments to Sec. 202.14.
Section 202.15--Incentives for self-testing and self-correction
Revisions are proposed in comments to Sec. 202.15(b)(3).
15(b)(3)
As discussed earlier, the Board proposes to remove the prohibition
in Regulation B against the notation of information about an
applicant's race, national origin, religion, color, or sex in
connection with nonmortgage credit products. The Board has received
questions about whether the self-testing
[[Page 44592]]
provisions of Sec. 202.15 would apply to the voluntary collection of
this information.
A self-test is defined as a program, practice, or study that is
designed and used specifically to determine compliance with the ECOA
and Regulation B, and creates data or factual information that is not
available and cannot be derived from loan application files or other
records related to credit transactions. If a self-test meets this
definition, the results are privileged and cannot be obtained by a
government agency in any examination or investigation, or by an agency
or an applicant in any proceeding or civil action alleging a violation
of Regulation B. The privilege may be lost or waived, however, under
certain circumstances.
Creditors that elect to collect information about credit
applicants' race or ethnicity, for example, will likely do so on the
application form or in the application process. The Board believes that
such collection of data in connection with nonmortgage credit, even
though voluntary on the part of the creditor, is not a self-test
privileged under the ECOA. The collection of information about an
applicant's characteristics, standing alone or in combination with
other information obtained or derived from loan application files or
other records, does not qualify for the privilege. Comment
15(b)(3)(ii)-2 would be added to clarify this point.
Appendix B to Part 202--Model Application Forms
Comments 1 and 2 to Appendix B would be revised to reflect the
Board's proposal to remove the prohibition in Regulation B against the
collection of certain information.
Appendix C--Sample Notification Forms
No revisions are proposed in comments to Appendix C.
V. Form of Comment Letters
Comment letters should refer to Docket No. R-1008, and, when
possible, should use a standard typeface with a type size of 10 or 12
characters per inch. This will enable the Board to convert the text to
machine-readable form through electronic scanning, and will facilitate
automated retrieval of comments for review. Also, if accompanied by an
original document in paper form, comments may be submitted on 3\1/2\
inch computer diskettes in any IBM-compatible DOS- or Windows-based
format.
VI. Paperwork Reduction Act
In accordance with section 3506 of the Paperwork Reduction Act of
1995 (44 U.S.C. Ch. 35; 5 CFR 1320 Appendix A.1), the Board reviewed
the proposed revisions under the authority delegated to the Board by
the Office of Management and Budget.
The collections of information that are proposed for revision by
this rulemaking are found in 12 CFR Part 202. This information is
mandatory to evidence compliance with the requirements of 15 U.S.C.
1691b(a)(1) and Public Law 104-208, Sec. 2302(a), and also to ensure
that credit is made available to all creditworthy customers without
discrimination on the basis of race, color, religion, national origin,
sex, marital status, age (provided the applicant has the capacity to
contract), receipt of public assistance, or the fact that the applicant
has in good faith exercised any right under the Consumer Credit
Protection Act (15 U.S.C. 1600 et. seq.). The respondent/recordkeepers
are for-profit financial institutions, including small businesses.
Creditors are required to retain records for twelve to twenty-five
months as evidence of compliance.
The Federal Reserve may not conduct or sponsor, and an organization
is not required to respond to, this information collection unless it
displays a currently valid OMB number. The OMB control number is 7100-
0201.
The current estimated total burden for this information collection
is 123,892 hours; about 95 percent of this burden arises from
disclosures to credit applicants, both consumers and businesses, and 5
percent arises from recordkeeping requirements. This amount reflects
the burden estimate of the Federal Reserve System for the 988 state
member banks under its supervision. This regulation applies to all
types of creditors, not just state member banks. Under Paperwork
Reduction Act regulations, however, the Federal Reserve accounts for
the burden of the paperwork associated with the regulation only for
state member banks. Other agencies account for the paperwork burden for
the institutions they supervise.
It is believed that the paperwork burden will increase slightly due
to the three proposed additions to the recordkeeping requirements:
retaining certain information related to preapproved credit
solicitations; keeping records associated with the proposal removing
the general prohibition against obtaining information about
characteristics of applicants for nonmortgage credit; and extending the
retention period for most business credit applications from twelve to
twenty-five months. In particular, the Federal Reserve solicits comment
on (1) the incremental burden associated with retaining certain
information on preapproved credit solicitations beyond the records
creditors already retain under the FCRA or for business purposes, and
(2) the number of institutions that will collect the proposed
permissible information on characteristics of applicants for
nonmortgage credit and the amount of burden this voluntary information
collection will impose.
The Federal Reserve estimates that there will be no additional
burden imposed by the requirement to disclose to credit applicants that
providing applicant characteristic information is optional and that
creditors will not take the information into account in any aspect of
the credit transaction; the Federal Reserve has provided a proposed
model notice to help alleviate the burden on creditors. The Federal
Reserve also estimates that there will be no additional burden imposed
by the requirement to notify businesses with gross revenues in excess
of $1 million of their right to a written statement of reasons for
adverse action.
Since the Federal Reserve does not collect any information, no
issue of confidentiality normally arises. Any information collected by
the respondents, however, may be protected from disclosure under
exemptions (b)(4), (6), and (8) of the Freedom of Information Act (5
U.S.C. 522(b)). The adverse action disclosure is confidential between
the institution and the consumer involved.
Comments are invited on: (a) whether the proposed revised
collection of information is necessary for the proper performance of
the Federal Reserve's functions, including whether the information has
practical utility; (b) the accuracy of the Federal Reserve's estimate
of the burden of the proposed revised information collection, including
the cost of compliance; (c) ways to enhance the quality, utility, and
clarity of the information to be collected; and (d) ways to minimize
the burden of information collection on respondents, including through
the use of automated collection techniques or other forms of
information technology. Comments on the collection of information
should be sent to the Office of Management and Budget, Paperwork
Reduction Project (7100-0201), Washington, DC 20503, with copies of
such comments to be sent to Mary M. West, Chief, Financial Reports
Section, Division of Research and Statistics, Mail
[[Page 44593]]
Stop 97, Board of Governors of the Federal Reserve System, Washington,
DC 20551.
VII. Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5 U.S.C. 603) requires an agency to
publish an initial regulatory flexibility analysis with any notice of
proposed rulemaking. Two of the requirements of an initial regulatory
flexibility analysis--a description of the reasons why action by the
agency is being considered and a statement of the objectives of, and
legal basis for, the proposed rule--are addressed in the supplementary
material above.
Some provisions in the proposal should reduce burden. For example,
creditors are not required to provide a notice of action taken for
incidental credit. By broadening the definition of incidental credit to
cover incidental business credit, fewer notices would be required.
The proposal to lift the prohibition against data notation for
nonmortgage products should not impose any burden on institutions,
because data notation would be voluntary. However, to the extent
creditors collect this data, the proposal would require a disclosure to
be given to applicants. This would impose a new requirement for
creditors that request data. The Board has sought to minimize burden by
proposing a model form.
Creditors would be required to retain certain records in connection
with preapproved credit solicitations. This would impose a new
requirement. However, the Board has sought to minimize burden by
tracking existing legal requirements and current business practices.
For example, users of consumer reports are required to retain some
prescreening information under the Fair Credit Reporting Act. The
proposal parallels this requirement. In addition, many lenders retain
part or much of the solicitation information for business purposes,
such as to evaluate marketing plans.
Creditors would be required to retain records for a longer period
of time for certain types of business credit. Creditors would be
required to retain records for 25 months rather than 12 months. This
approach would track the record retention rules for consumer credit and
could simplify compliance. Burden should be minimized in light of the
variety of methods that could be used to retain these records.
In light of the purposes of the Equal Credit Opportunity Act, the
Board believes it is not feasible to create different rules for large
and small creditors; and therefore, except as discussed above,
alternatives for small creditors are not provided. A final regulatory
flexibility analysis will be conducted after consideration of comments
received during the public comment period.
List of Subjects in 12 CFR Part 202
Aged, Banks, banking, Civil rights, Consumer protections, Credit,
Discrimination, Federal Reserve System, Marital status discrimination,
Penalties, Religious discrimination, Reporting and recordkeeping
requirements, Sex discrimination.
Certain conventions have been used to highlight the proposed
revisions to the text of the regulation and the staff commentary. New
language is shown inside bold-faced arrows, while language that would
be deleted is set off with bold-faced brackets. Paragraphs are numbered
to comply with Federal Register publication rules.
For the reasons set forth in the preamble, 12 CFR part 202 is
proposed to be revised as follows:
PART 202--EQUAL CREDIT OPPORTUNITY ACT (REGULATION B)
Regulation B (Equal Credit Opportunity)
Sec.
202.1 Authority, scope and purpose.
202.2 Definitions.
202.3 Limited exceptions for certain classes of transactions.
202.4 General [rule] rules [prohibiting
discrimination].
202.5 Rules concerning [taking of applications] requests
for information.
202.5a Rules on providing appraisal reports.
202.6 Rules concerning evaluation of applications.
202.7 Rules concerning extensions of credit.
202.8 Special purpose credit programs.
202.9 Notifications.
202.10 Furnishing of credit information.
202.11 Relation to state law.
202.12 Record retention.
202.13Information for monitoring purposes.
202.14 Enforcement, penalties and liabilities.
202.15 Incentives for self-testing and self-correction.
Appendix A to Part 202--Federal Enforcement Agencies
Appendix B to Part 202--Model Application Forms
Appendix C to Part 202--Sample Notification Forms
Appendix D to Part 202--Issuance of Staff Interpretations
Supplement I to Part 202--Official Staff Interpretations
Authority: 15 U.S.C. 1691-1691f.
Sec. 202.1 Authority, scope and purpose.
(a) Authority and scope. This regulation is issued by the Board of
Governors of the Federal Reserve System pursuant to title VII (Equal
Credit Opportunity Act) of the Consumer Credit Protection Act, as
amended (15 U.S.C. 1601 et seq.). Except as otherwise provided herein,
the regulation applies to all persons who are creditors, as defined in
Sec. 202.2(l). Information collection requirements contained in this
regulation have been approved by the Office of Management and Budget
under the provisions of 44 U.S.C. 3501 et seq. and have been assigned
OMB No. 7100-0201.
(b) Purpose. The purpose of this regulation is to promote the
availability of credit to all creditworthy applicants without regard to
race, color, religion, national origin, sex, marital status, or age
(provided the applicant has the capacity to contract); to the fact that
all or part of the applicant's income derives from a public assistance
program; or to the fact that the applicant has in good faith exercised
any right under the Consumer Credit Protection Act. The regulation
prohibits creditor practices that discriminate on the basis of any of
these factors. The regulation also requires creditors to notify
applicants of action taken on their applications; to report credit
history in the names of both spouses on an account; to retain records
of credit applications; to collect information about the applicant's
race and other personal characteristics in applications for certain
dwelling-related loans; and to provide applicants with copies of
appraisal reports used in connection with credit transactions.
Sec. 202.2 Definitions.
For the purposes of this regulation, unless the context indicates
otherwise, the following definitions apply.
(a) Account means an extension of credit. When employed in relation
to an account, the word use refers only to open-end credit.
(b) Act means the Equal Credit Opportunity Act (title VII of the
Consumer Credit Protection Act).
(c) Adverse action. (1) The term means:
(i) A refusal to grant credit in substantially the amount or on
substantially the terms requested in an application unless the creditor
makes a counteroffer (to grant credit in a different amount or on other
terms) and the applicant uses or expressly accepts the credit offered;
(ii) A termination of an account or an unfavorable change in the
terms of an account that does not affect all or [a
[[Page 44594]]
substantial portion] substantially all of a class
of the creditor's accounts; or
(iii) A refusal to increase the amount of credit available to an
applicant who has made an application for an increase.
(2) The term does not include:
(i) A change in the terms of an account expressly agreed to by an
applicant.
(ii) Any action or forbearance relating to an account taken in
connection with inactivity, default, or delinquency as to that
[account] account;
(iii) A refusal or failure to authorize an account transaction at a
point of sale or loan, except when the refusal is a termination or an
unfavorable change in the terms of an account that does not affect all
or [a substantial portion] substantially all of a
class of the creditor's accounts, or when the refusal is a denial of an
application for an increase in the amount of credit available under the
account;
(iv) A refusal to extend credit because applicable law prohibits
the creditor from extending the credit requested; or
(v) A refusal to extend credit because the creditor does not offer
the type of credit or credit plan requested.
(3) An action that falls within the definition of both paragraphs
(c)(1) and (c)(2) of this section is governed by paragraph (c)(2) of
this section.
(d) Age refers only to the age of natural persons and means the
number of fully elapsed years from the date of an applicant's birth.
Applicant means any person who requests or who has received an
extension of credit from a creditor, and includes any person who is or
may become contractually liable regarding an extension of credit. For
purposes of Sec. 202.7(d), the term includes guarantors, sureties,
endorsers and similar parties.
(f) Application means an oral or written request for an extension
of credit that is made in accordance with procedures [established]
used by a creditor for the type of credit
requested. The term includes a request for a preapproval
under procedures in which a creditor will issue to creditworthy persons
a written commitment for credit up to a specified amount that is valid
for a designated period of time, even if the commitment is
conditional. The term application does
not include the use of an account or line of credit to obtain an amount
of credit that is within a previously established credit limit. A
completed application means an application in connection with which a
creditor has received all the information that the creditor regularly
obtains and considers in evaluating applications for the amount and
type of credit requested (including, but not limited to, credit
reports, any additional information requested from the applicant, and
any approvals or reports by governmental agencies or other persons that
are necessary to guarantee, insure, or provide security for the credit
or collateral). The creditor shall exercise reasonable diligence in
obtaining such information.
(g) Business credit refers to extensions of credit primarily for
business or commercial (including agricultural) purposes, but excluding
extensions of credit of the types described in Secs. 202.3(a), (b), and
(d).
(h) Consumer credit means credit extended to a natural person
primarily for personal, family, or household purposes.
(i) Contractually liable means expressly obligated to repay all
debts arising on an account by reason of an agreement to that effect.
(j) Credit means the right granted by a creditor to an applicant to
defer payment of a debt, incur debt and defer its payment, or purchase
property or services and defer payment therefor.
(k) Credit card means any card, plate, coupon book, or other single
credit device that may be used from time to time to obtain money,
property, or services on credit.
(l) Creditor means a person who, in the ordinary course of
business, regularly participates in [the decision of whether or not to
extend credit] a credit decision. The term
includes a creditor's assignee, transferee, or subrogee who so
participates. For purposes of Secs. 202.4(a) and
(b) [202.5(a)], the term also includes a person
who, in the ordinary course of business, regularly refers applicants or
prospective applicants to creditors, or selects or offers to select
creditors to whom requests for credit may be made. A person is not a
creditor regarding any violation of the Act or this regulation
committed by another creditor unless the person knew or had reasonable
notice of the act, policy, or practice that constituted the violation
before becoming involved in the credit transaction. The term does not
include a person whose only participation in a credit transaction
involves honoring a credit card.
(m) Credit transaction means every aspect of an applicant's
dealings with a creditor regarding an application for credit or an
existing extension of credit (including, but not limited to,
information requirements; investigation procedures; standards of
creditworthiness; terms of credit; furnishing of credit information;
revocation, alteration, or termination of credit; and collection
procedures).
(n) Discriminate against an applicant means to treat an applicant
less favorably than other applicants.
(o) Elderly means age 62 or older.
(p) Empirically derived and other credit scoring systems--(1) A
credit scoring system is a system that evaluates an applicant's
creditworthiness mechanically, based on key attributes of the applicant
and aspects of the transaction, and that determines, alone or in
conjunction with an evaluation of additional information about the
applicant, whether an applicant is deemed creditworthy. To qualify as
an empirically derived, demonstrably and statistically sound, credit
scoring system, the system must be:
(i) Based on data that are derived from an empirical comparison of
sample groups or the population of creditworthy and noncreditworthy
applicants who applied for credit within a reasonable preceding period
of time;
(ii) Developed for the purpose of evaluating the creditworthiness
of applicants with respect to the legitimate business interests of the
creditor utilizing the system (including, but not limited to,
minimizing bad debt losses and operating expenses in accordance with
the creditor's business judgment);
(iii) Developed and validated using accepted statistical principles
and methodology; and
(iv) Periodically revalidated by the use of appropriate statistical
principles and methodology and adjusted as necessary to maintain
predictive ability.
(2) A creditor may use an empirically derived, demonstrably and
statistically sound, credit scoring system obtained from another person
or may obtain credit experience from which to develop such a system.
Any such system must satisfy the criteria set forth in paragraph
(p)(1)(i) through (iv) of this section; if the creditor is unable
during the development process to validate the system based on its own
credit experience in accordance with paragraph (p)(1) of this section,
the system must be validated when sufficient credit experience becomes
available. A system that fails this validity test is no longer an
empirically derived, demonstrably and statistically sound, credit
scoring system for that creditor.
(q) Extend credit and extension of credit mean the granting of
credit in any form (including, but not limited to, credit granted in
addition to any existing credit or credit limit; credit granted
pursuant to an open-end credit plan; the refinancing or other renewal
of credit, including the issuance of a new
[[Page 44595]]
credit card in place of an expiring credit card or in substitution for
an existing credit card; the consolidation of two or more obligations;
or the continuance of existing credit without any special effort to
collect at or after maturity).
(r) Good faith means honesty in fact in the conduct or transaction.
(s) Inadvertent error means a mechanical, electronic, or clerical
error that a creditor demonstrates was not intentional and occurred
notwithstanding the maintenance of procedures reasonably adapted to
avoid such errors.
(t) Judgmental system of evaluating applicants means any system for
evaluating the creditworthiness of an applicant other than an
empirically derived, demonstrably and statistically sound, credit
scoring system.
(u) Marital status means the state of being unmarried, married, or
separated, as defined by applicable state law. The term ``unmarried''
includes persons who are single, divorced, or widowed.
(v) Negative factor or value, in relation to the age of elderly
applicants, means utilizing a factor, value, or weight that is less
favorable regarding elderly applicants than the creditor's experience
warrants or is less favorable than the factor, value, or weight
assigned to the class of applicants that are not classified as elderly
and are most favored by a creditor on the basis of age.
(w) Open-end credit means credit extended under a plan under which
a creditor may permit an applicant to make purchases or obtain loans
from time to time directly from the creditor or indirectly by use of a
credit card, check, or other device.
(x) Person means a natural person, corporation, government or
governmental subdivision or agency, trust, estate, partnership,
cooperative, or association.
(y) Pertinent element of creditworthiness, in relation to a
judgmental system of evaluating applicants, means any information about
applicants that a creditor obtains and considers and that has a
demonstrable relationship to a determination of creditworthiness.
(z) Prohibited basis means race, color, religion, national origin,
sex, marital status, or age (provided that the applicant has the
capacity to enter into a binding contract); the fact that all or part
of the applicant's income derives from any public assistance program;
or the fact that the applicant has in good faith exercised any right
under the Consumer Credit Protection Act or any state law upon which an
exemption has been granted by the Board.
(aa) State means any state, the District of Columbia, the
Commonwealth of Puerto Rico, or any territory or possession of the
United States.
Sec. 202.3 Limited exceptions for certain classes of transactions.
(a) Public-utilities credit--(1) Definition. Public-utilities
credit refers to extensions of credit that involve public-utility
services provided through pipe, wire, or other connected facilities, or
radio or similar transmission (including extensions of such
facilities), if the charges for service, delayed payment, and any
discount for prompt payment are filed with or regulated by a government
unit.
(2) Exceptions. [The following provisions of this regulation]
Section 202.12(b) relating to record retention
[do]does not apply to public-utilities
credit[:].
[(i) Section 202.5(d)(1) concerning information about marital
status;
(ii) Section 202.10 relating to furnishing of credit information;
and
(iii) Section 202.12(b) relating to record retention.]
(b) Securities credit--(1) Definition. Securities credit refers to
extensions of credit subject to regulation under section 7 of the
Securities Exchange Act of 1934 or extensions of credit by a broker or
dealer subject to regulation as a broker or dealer under the Securities
Exchange Act of 1934.
(2) Exceptions. The following provisions of this regulation do not
apply to securities credit:
(i) Section 202.5(b) [202.5(c)] concerning
information about a spouse or former spouse;
(ii) Section 202.5(c)(1) [202.5(d)(1)]
concerning information about marital status;
[(iii) Section 202.5(d)(3) concerning information about the sex of
an applicant;]
[(vi)](iii) Section 202.7(b) relating to
designation of name[, but only] to the extent necessary to [prevent
violation of] comply with rules regarding an
account in which a broker or dealer has an interest, or rules
[necessitating] regarding the aggregation of
accounts of spouses [for the purpose of determining] to
determine controlling interests, beneficial interests,
beneficial ownership, or purchase limitations and restrictions;
[(v)](iv) Section 202.7(c) relating to action
concerning open-end accounts, [but only] to the extent the action taken
is on the basis of a change of name or marital status;
[(vi)] (v) Section 202.7(d) relating to the
signature of a spouse or other person;
[(vii)] (vi) Section 202.10 relating to
furnishing of credit information; and [(viii)]
(vii) Section 202.12(b) relating to record
retention.
(c) Incidental credit[.]--(1) Definition.
Incidental credit refers to extensions of consumer and
business credit other than [credit of] the types described
in paragraphs (a) and (b) of this section:
(i) That are not made pursuant to the terms of a credit card
account;
(ii) That are not subject to a finance charge (as defined in
Regulation Z, 12 CFR 226.4) for consumer credit, or not
subject to interest charges or fees for business credit; and
(iii) That are not payable by agreement in more than four
installments.
(2) Exceptions. The following provisions of this regulation do not
apply to incidental credit:
(i) Section 202.5(b) [202.5(c)] concerning
information about a spouse or former spouse;
(ii) Section 202.5(c)(1) [202.5(d)(1)]
concerning information about marital status;
(iii) Section 202.5(c)(2) [202.5(d)(2)]
concerning information about income derived from alimony, child
support, or separate maintenance payments;
[(iv) Section 202.5(d)(3) concerning information about the sex of
an applicant, but only to the extent necessary for medical records or
similar purposes;]
[(v)] (iv) Section 202.7(d) relating to the
signature of a spouse or other person;
[(vi)] (v) Section 202.9 relating to
notifications;
[(vii)] (vi) Section 202.10 relating to
furnishing of credit information; and
[(viii)] (vii) Section 202.12(b) relating to
record retention.
(d) Government credit--(1) Definition. Government credit refers to
extensions of credit made to governments or governmental subdivisions,
agencies, or instrumentalities.
(2) Applicability of regulation. Except for
Sec. 202.4(a), the general rule prohibiting
discrimination on a prohibited basis, the requirements of this
regulation do not apply to government credit.
Sec. 202.4 General rules [prohibiting
discrimination].
(a) Discrimination. A creditor shall not
discriminate against an applicant on a prohibited basis regarding any
aspect of a credit transaction.
[[Page 44596]]
(b) Discouragement. A creditor shall not make any oral
or written statement, in advertising or otherwise, to applicants or
prospective applicants that would discourage on a prohibited basis a
reasonable person from making or pursuing an application.
(c) Written applications. A creditor shall take written
applications for the dwelling-related types of credit covered by
Sec. 202.13(a).
(d) Disclosures and other required information. A creditor shall
provide the disclosures and information required to be in writing by
Secs. 202.5, 202.5a, 202.9, and 202.13(c), in a clear and conspicuous
manner and in a form the person may retain.
Sec. 202.5 Rules concerning [taking of applications]
requests for information.
[(a) Discouraging applications. A creditor shall not make any oral
or written statement, in advertising or otherwise, to applicants or
prospective applicants that would discourage on a prohibited basis a
reasonable person from making or pursuing an application.]
[(b)] (a) General rules concerning requests
for information[.]--(1) Except as provided in
paragraphs (b) and (c) [and (d)] of this section,
a creditor may request any information in connection with an
application.1
---------------------------------------------------------------------------
\1\ This paragraph does not limit or abrogate any federal or
state law regarding privacy, privileged information, credit
reporting limitations, or similar restrictions on obtainable
information.
---------------------------------------------------------------------------
(2) Required collection of information. Notwithstanding paragraphs
(b) and (c) [and (d)] of this section, a creditor
shall request information for monitoring purposes as required by
Sec. 202.13 for credit secured by the applicant's dwelling. In
addition, a creditor may obtain information required by a regulation,
order, or agreement issued by, or entered into with, a court or an
enforcement agency (including the Attorney General of the United States
or a similar state official) to monitor or enforce compliance with the
Act, this regulation, or other federal or state statute or regulation.
(3) Special-purpose credit. A creditor may obtain information that
is otherwise restricted to determine eligibility for a special purpose
credit program, as provided in Sec. 202.8(b),
(c), and (d).
(4) Obtaining information. Except as otherwise permitted
or required by law, a creditor shall not require an applicant to supply
information about race, color, religion, national origin, or sex in
connection with a credit transaction. A creditor that requests
information on applicant characteristics shall disclose, orally or in
writing, at the time the information is requested, that:
(i) Providing the information is optional; and
(ii) That the information (or the applicant's decision not to
provide the information) will not be taken into account in any aspect
of the credit transaction.
[(c)] (b) Information about a spouse or
former spouse[.] (1) Except as permitted in this paragraph, a creditor
may not request any information concerning the spouse or former spouse
of an applicant.
(2) Permissible inquiries. A creditor may request any information
concerning an applicant's spouse (or former spouse under paragraph
(b)(2)(v) [(c)(2)(v)] of this section) that may
be requested about the applicant if:
(i) The spouse will be permitted to use the account;
(ii) The spouse will be contractually liable on the account;
(iii) The applicant is relying on the spouse's income as a basis
for repayment of the credit requested;
(iv) The applicant resides in a community property state or
property on which the applicant is relying as a basis for repayment of
the credit requested is located in such a state; or
(v) The applicant is relying on alimony, child support, or separate
maintenance payments from a spouse or former spouse as a basis for
repayment of the credit requested.
(3) Other accounts of the applicant. A creditor may request an
applicant to list any account [upon] on which the
applicant is liable and to provide the name and address [in which]
of the person in whose name the account is
[carried] held. A creditor may also ask
an applicant to list the names in which [an]
the applicant has previously received credit.
[(d)] (c) Other limitations on information
requests--(1) Marital status. If an applicant applies for individual
unsecured credit, a creditor shall not inquire about the applicant's
marital status unless the applicant resides in a community property
state or is relying on property located in such a state as a basis for
repayment of the credit requested. If an application is for other than
individual unsecured credit, a creditor may inquire about the
applicant's marital status, but shall use only the terms married,
unmarried, and separated. A creditor may explain that the category
unmarried includes single, divorced, and widowed persons.
(2) Disclosure about income from alimony, child support, or
separate maintenance. A creditor shall not inquire whether income
stated in an application is derived from alimony, child support, or
separate maintenance payments unless the creditor discloses to the
applicant that such income need not be revealed if the applicant does
not want the creditor to consider it in determining the applicant's
creditworthiness.
(3) Sex. [A creditor shall not inquire about the sex of an
applicant.] An applicant may be requested to designate a title on an
application form (such as Ms., Miss, Mr., or Mrs.) if the form
discloses that the designation of a title is optional. An application
form shall otherwise use only terms that are neutral as to sex.
(4) Childbearing, childrearing. A creditor shall not inquire about
birth control practices, intentions concerning the bearing or rearing
of children, or capability to bear children. A creditor may inquire
about the number and ages of an applicant's dependents or about
dependent-related financial obligations or expenditures, provided such
information is requested without regard to sex, marital status, or any
other prohibited basis.
[(5) Race, color, religion, national origin. A creditor shall not
inquire about the race, color, religion, or national origin of an
applicant or any other person in connection with a credit transaction.
A creditor may inquire about an applicant's permanent residency and
immigration status.]
(5) Permanent residency, immigration status. A creditor
may inquire about an applicant's permanent residency and immigration
status in connection with a credit transaction.
[(e) Written applications. A creditor shall take written
applications for the types of credit covered by Sec. 202.13(a) but need
not take written applications for other types of credit.]
Sec. 202.5a Rules on providing appraisal reports.
(a) Providing appraisals. A creditor shall provide a copy of the
appraisal report used in connection with an application for credit that
is to be secured by a lien on a dwelling. A creditor shall comply with
either paragraph (a)(1) or (a)(2) of this section.
(1) Routine delivery. A creditor may routinely provide a copy of
the appraisal report to an applicant (whether credit is granted or
denied or the application is withdrawn).
(2) Upon request. A creditor that does not routinely provide
appraisal reports shall provide a copy upon an applicant's written
request.
(i) Notice. A creditor that provides appraisal reports only upon
request
[[Page 44597]]
shall notify an applicant in writing of the right to receive a copy of
an appraisal report. The notice may be given at any time during the
application process but no later than when the creditor provides notice
of action taken under Sec. 202.9 of this part. The notice shall specify
that the applicant's request must be in writing, give the creditor's
mailing address, and state the time for making the request as provided
in paragraph (a)(2)(ii) of this section.
(ii) Delivery. A creditor shall mail or deliver a copy of the
appraisal report promptly (generally within 30 days) after the creditor
receives an applicant's request, receives the report, or receives
reimbursement from the applicant for the report, whichever is last to
occur. A creditor need not provide a copy when the applicant's request
is received more than 90 days after the creditor has provided notice of
action taken on the application under Sec. 202.9 of this part or 90
days after the application is withdrawn.
(b) Credit unions. A creditor that is subject to the regulations of
the National Credit Union Administration on making copies of appraisals
available is not subject to this section.
(c) Definitions. For purposes of paragraph (a) of this section, the
term dwelling means a residential structure that contains one to four
units whether or not that structure is attached to real property. The
term includes, but is not limited to, an individual condominium or
cooperative unit, and a mobile or other manufactured home. The term
appraisal report means the document(s) relied upon by a creditor in
evaluating the value of the dwelling.
Sec. 202.6 Rules concerning evaluation of applications.
(a) General rule concerning use of information. Except as otherwise
provided in the Act and this regulation, a creditor may consider any
information obtained, so long as the information is not used to
discriminate against an applicant on a prohibited basis.2
---------------------------------------------------------------------------
\2\ The legislative history of the Act indicates that the
Congress intended an ``effects test'' concept, as outlined in the
employment field by the Supreme Court in the cases of Griggs v. Duke
Power Co., 401 U.S. 424 (1971), and Albemarle Paper Co. v. Moody,
422 U.S. 405 (1975), to be applicable to a creditor's determination
of creditworthiness.
---------------------------------------------------------------------------
(b) Specific rules concerning use of information. (1) Except as
provided in the Act and this regulation, a creditor shall not take a
prohibited basis into account in any system of evaluating the
creditworthiness of applicants.
(2) Age, receipt of public assistance. (i) Except as permitted in
this paragraph (b)(2), a creditor shall not take into account an
applicant's age (provided that the applicant has the capacity to enter
into a binding contract) or whether an applicant's income derives from
any public assistance program.
(ii) In an empirically derived, demonstrably and statistically
sound, credit scoring system, a creditor may use an applicant's age as
a predictive variable, provided that the age of an elderly applicant is
not assigned a negative factor or value.
(iii) In a judgmental system of evaluating creditworthiness, a
creditor may consider an applicant's age or whether an applicant's
income derives from any public assistance program only for the purpose
of determining a pertinent element of creditworthiness.
(iv) In any system of evaluating creditworthiness, a creditor may
consider the age of an elderly applicant when such age is used to favor
the elderly applicant in extending credit.
(3) Childbearing, childrearing. In evaluating creditworthiness, a
creditor shall not use assumptions or aggregate statistics relating to
the likelihood that any group of persons will bear or rear children or
will, for that reason, receive diminished or interrupted income in the
future.
(4) Telephone listing. A creditor shall not take into account
whether there is a telephone listing in the name of an applicant for
consumer credit but may take into account whether there is a telephone
in the applicant's residence.
(5) Income. A creditor shall not discount or exclude from
consideration the income of an applicant or the spouse of an applicant
because of a prohibited basis or because the income is derived from
part-time employment or is an annuity, pension, or other retirement
benefit; a creditor may consider the amount and probable continuance of
any income in evaluating an applicant's creditworthiness. When an
applicant relies on alimony, child support, or separate maintenance
payments in applying for credit, the creditor shall consider such
payments as income to the extent that they are likely to be
consistently made.
(6) Credit history. To the extent that a creditor considers credit
history in evaluating the creditworthiness of similarly qualified
applicants for a similar type and amount of credit, in evaluating an
applicant's creditworthiness a creditor shall consider:
(i) The credit history, when available, of accounts designated as
accounts that the applicant and the applicant's spouse are permitted to
use or for which both are contractually liable;
(ii) On the applicant's request, any information the applicant may
present that tends to indicate that the credit history being considered
by the creditor does not accurately reflect the applicant's
creditworthiness; and
(iii) On the applicant's request, the credit history, when
available, of any account reported in the name of the applicant's
spouse or former spouse that the applicant can demonstrate accurately
reflects the applicant's creditworthiness.
(7) Immigration status. A creditor may consider whether an
applicant is a permanent resident of the United States, the applicant's
immigration status, and any additional information that may be
necessary to ascertain the creditor's rights and remedies regarding
repayment.
(8) Marital status. Except as otherwise permitted or
required by law, a creditor shall evaluate married and unmarried
applicants by the same standards; and in evaluating joint applicants, a
creditor shall not treat applicants differently based on the existence,
absence, or likelihood of a marital relationship between the parties.
(9) Race, color, religion, national origin, sex. Except as
otherwise permitted or required by law, a creditor shall not consider
race, color, religion, national origin, or sex (or an applicant's
decision not to provide the information) in any aspect of a credit
transaction.
(c) State property laws. A creditor's consideration or application
of state property laws directly or indirectly affecting
creditworthiness does not constitute unlawful discrimination for the
purposes of the Act or this regulation.
Sec. 202.7 Rules concerning extensions of credit.
(a) Individual accounts. A creditor shall not refuse to grant an
individual account to a creditworthy applicant on the basis of sex,
marital status, or any other prohibited basis.
(b) Designation of name. A creditor shall not refuse to allow an
applicant to open or maintain an account in a birth-given first name
and a surname that is the applicant's birth-given surname, the spouse's
surname, or a combined surname.
(c) Action concerning existing open-end accounts--(1) Limitations.
In the absence of evidence of the applicant's inability or
unwillingness to repay, a creditor shall not take any of the following
actions regarding an applicant who is contractually liable on an
existing open-end account on the basis of the applicant's reaching a
certain age or retiring or on the basis of a change
[[Page 44598]]
in the applicant's name or marital status:
(i) Require a reapplication, except as provided in paragraph (c)(2)
of this section;
(ii) Change the terms of the account; or
(iii) Terminate the account.
(2) Requiring reapplication. A creditor may require a reapplication
for an open-end account on the basis of a change in the marital status
of an applicant who is contractually liable if the credit granted was
based in whole or in part on income of the applicant's spouse and if
information available to the creditor indicates that the applicant's
income may not support the amount of credit currently available.
(d) Signature of spouse or other person--(1) Rule for qualified
applicant. Except as provided in this paragraph, a creditor shall not
require the signature of an applicant's spouse or other person, other
than a joint applicant, on any credit instrument if the applicant
qualifies under the creditor's standards of creditworthiness for the
amount and terms of the credit requested. A creditor shall
not deem the submission of a joint financial statement or other
evidence of jointly held assets as an application for joint
credit.
(2) Unsecured credit. If an applicant requests unsecured credit and
relies in part upon property that the applicant owns jointly with
another person to satisfy the creditor's standards of creditworthiness,
the creditor may require the signature of the other person only on the
instrument(s) necessary, or reasonably believed by the creditor to be
necessary, under the law of the state in which the property is located,
to enable the creditor to reach the property being relied upon in the
event of the death or default of the applicant.
(3) Unsecured credit-community property states. If a married
applicant requests unsecured credit and resides in a community property
state, or if the property upon which the applicant is relying is
located in such a state, a creditor may require the signature of the
spouse on any instrument necessary, or reasonably believed by the
creditor to be necessary, under applicable state law to make the
community property available to satisfy the debt in the event of
default if:
(i) Applicable state law denies the applicant power to manage or
control sufficient community property to qualify for the amount of
credit requested under the creditor's standards of creditworthiness;
and
(ii) The applicant does not have sufficient separate property to
qualify for the amount of credit requested without regard to community
property.
(4) Secured credit. If an applicant requests secured credit, a
creditor may require the signature of the applicant's spouse or other
person on any instrument necessary, or reasonably believed by the
creditor to be necessary, under applicable state law to make the
property being offered as security available to satisfy the debt in the
event of default, for example, an instrument to create a valid lien,
pass clear title, waive inchoate rights, or assign earnings.
(5) Additional parties. If, under a creditor's standards of
creditworthiness, the personal liability of an additional party is
necessary to support the extension of the credit requested, a creditor
may request a cosigner, guarantor, or the like. The applicant's spouse
may serve as an additional party, but the creditor shall not require
that the spouse be the additional party.
(6) Rights of additional parties. A creditor shall not impose
requirements upon an additional party that the creditor is prohibited
from imposing upon an applicant under this section.
(e) Insurance. A creditor shall not refuse to extend credit and
shall not terminate an account because credit life, health, accident,
disability, or other credit-related insurance is not available on the
basis of the applicant's age.
Sec. 202.8 Special purpose credit programs.
(a) Standards for programs. Subject to the provisions of paragraph
(b) of this section, the Act and this regulation permit a creditor to
extend special purpose credit to applicants who meet eligibility
requirements under the following types of credit programs:
(1) Any credit assistance program expressly authorized by federal
or state law for the benefit of an economically disadvantaged class of
persons;
(2) Any credit assistance program offered by a not-for-profit
organization, as defined under section 501(c) of the Internal Revenue
Code of 1954, as amended, for the benefit of its members or for the
benefit of an economically disadvantaged class of persons; or
(3) Any special purpose credit program offered by a for-profit
organization or in which such an organization participates [to meet
special social needs], if:
(i) The program is established and administered pursuant to a
written plan that identifies the class of persons that the program is
designed to benefit and sets forth the procedures and standards for
extending credit pursuant to the program; and
(ii) The program is established and administered to extend credit
to a class of persons who, under the organization's customary standards
of creditworthiness, probably would not receive such credit or would
receive it on less favorable terms than are ordinarily available to
other applicants applying to the organization for a similar type and
amount of credit.
(b) Rules in other sections[.]--(1) General
applicability. All of the provisions of this regulation apply to each
of the special purpose credit programs described in paragraph (a) of
this section unless modified by this section.
(2) Common characteristics. A program described in paragraph (a)(2)
or (a)(3) of this section qualifies as a special purpose credit program
only if it was established and is administered so as not to
discriminate against an applicant on any prohibited basis; however, all
program participants may be required to share one or more common
characteristics (for example, race, national origin, or sex) so long as
the program was not established and is not administered with the
purpose of evading the requirements of the Act or this regulation.
(c) Special rule concerning requests and use of information. If
participants in a special purpose credit program described in paragraph
(a) of this section are required to possess one or more common
characteristics (for example, race, national origin, or sex) and if the
program otherwise satisfies the requirements of paragraph (a) of this
section, a creditor may request and consider information regarding the
common characteristic(s) in determining the applicant's eligibility for
the program.
(d) Special rule in the case of financial need. If financial need
is one of the criteria under a special purpose program described in
paragraph (a) of this section, the creditor may request and consider,
in determining an applicant's eligibility for the program, information
regarding the applicant's marital status; alimony, child support, and
separate maintenance income; and the spouse's financial resources. In
addition, a creditor may obtain the signature of an applicant's spouse
or other person on an application or credit instrument relating to a
special purpose program if the signature is required by federal or
state law.
Sec. 202.9 Notifications.
(a) Notification of action taken, ECOA notice, and statement of
specific reasons--(1) When notification is required. A creditor shall
notify an applicant of action taken within:
[[Page 44599]]
(i) 30 days after receiving a completed application concerning the
creditor's approval of, counteroffer to, or adverse action on the
application;
(ii) 30 days after taking adverse action on an incomplete
application, unless notice is provided in accordance with paragraph (c)
of this section;
(iii) 30 days after taking adverse action of an existing account;
or
(iv) 90 days after notifying the applicant of a counteroffer if the
applicant does not expressly accept or use the credit offered.
(2) Content of notification when adverse action is taken. A
notification given to an applicant when adverse action is taken shall
be in writing and shall contain: a statement of the action taken; the
name and address of the creditor; a statement of the provisions of
section 701(a) of the Act; the name and address of the federal agency
that administers compliance with respect to the creditor; and either:
(i) A statement of specific reasons for the action taken; or
(ii) A disclosure of the applicant's right to a statement of
specific reasons within 30 days, if the statement is requested within
60 days of the creditor's notification. The disclosure shall include
the name, address, and telephone number of the person or office from
which the statement of reasons can be obtained. If the creditor chooses
to provide the reasons orally, the creditor shall also disclose the
applicant's right to have them confirmed in writing within 30 days of
receiving a written request for confirmation from the applicant.
(3) Notification to business credit applicants. For business
credit, a creditor shall comply with the requirements of this paragraph
in the following manner:
(i) With regard to a business that had gross revenues of $1,000,000
or less in its preceding fiscal year (other than an extension of trade
credit, credit incident to a factoring agreement, or other similar
types of business credit), a creditor shall comply with paragraphs
(a)(1) and (2), except that:
(A) The statement of the action taken may be given orally or in
writing, when adverse action is taken;
(B) Disclosure of an applicant's right to a statement of reasons
may be given at the time of application, instead of when adverse action
is taken, provided the disclosure is in a form the applicant may retain
and contains the information required by paragraph (a)(2)(ii) of this
section and the ECOA notice specified in paragraph (b)(1) of this
section;
(C) For an application made solely by telephone, a creditor
satisfies the requirements of this paragraph by an oral statement of
the action taken and of the applicant's right to a statement of reasons
for adverse action.
(ii) With regard to a business that had gross revenues in excess of
$1,000,000 in its preceding fiscal year or an extension of trade
credit, credit incident to a factoring agreement, or other similar
types of business credit, a creditor shall:
(A) Within a reasonable time of the action
taken, [Notify] notify the applicant,
orally or in writing, [within a reasonable time] of the action taken
and of the applicant's right to a written statement of
reasons; and
(B) Provide a written statement of the reasons for adverse action
and the ECOA notice specified in paragraph (b)(1) of this section if
the applicant makes a written request for the reasons within 60 days of
being notified of the adverse action.
(b) Form of ECOA notice and statement of specific reasons--(1) ECOA
notice. To satisfy the disclosure requirements of paragraph (a)(2) of
this section regarding section 701(a) of the Act, the creditor shall
provide a notice that is substantially similar to the following: The
federal Equal Credit Opportunity Act prohibits creditors from
discriminating against credit applicants on the basis of race, color,
religion, national origin, sex, marital status, age (provided the
applicant has the capacity to enter into a binding contract); because
all or part of the applicant's income derives from any public
assistance program; or because the applicant has in good faith
exercised any right under the Consumer Credit Protection Act. The
federal agency that administers compliance with this law concerning
this creditor is (name and address as specified by the appropriate
agency listed in appendix A of this regulation).
(2) Statement of specific reasons. The statement of reasons for
adverse action required by paragraph (a)(2)(i) of this section must be
specific and indicate the principal reason(s) for the adverse action.
Statements that the adverse action was based on the creditor's internal
standards or policies or that the applicant, joint
applicant, or similar party failed to achieve the qualifying
score on the creditor's credit scoring system are insufficient.
(c) Incomplete applications--(1) Notice alternatives. Within 30
days after receiving an application that is incomplete regarding
matters that an applicant can complete, the creditor shall notify the
applicant either:
(i) Of action taken, in accordance with paragraph (a) of this
section; or
(ii) Of the incompleteness, in accordance with paragraph (c)(2) of
this section.
(2) Notice of incompleteness. If additional information is needed
from an applicant, the creditor shall send a written notice to the
applicant specifying the information needed, designating a reasonable
period of time for the applicant to provide the information, and
informing the applicant that failure to provide the information
requested will result in no further consideration being given to the
application. The creditor shall have no further obligation under this
section if the applicant fails to respond within the designated time
period. If the applicant supplies the requested information within the
designated time period, the creditor shall take action on the
application and notify the applicant in accordance with paragraph (a)
of this section.
(3) Oral request for information. At its option, a creditor may
inform the applicant orally of the need for additional information; but
if the application remains incomplete the creditor shall send a notice
in accordance with paragraph (c)(1) of this section.
(d) Oral notifications by small-volume creditors. The requirements
of this section (including statements of specific reasons) are
satisfied by oral notifications in the case of any creditor that did
not receive more than 150 applications during the preceding calendar
year.
(e) Withdrawal of approved application. When an applicant submits
an application and the parties contemplate that the applicant will
inquire about its status, if the creditor approves the application and
the applicant has not inquired within 30 days after applying, the
creditor may treat the application as withdrawn and need not comply
with paragraph (a)(1) of this section.
(f) Multiple applicants. When an application involves more than one
applicant, notification need only be given to one of them but must be
given to the primary applicant where one is readily apparent.
(g) Applications submitted through a third party. When an
application is made on behalf of an applicant to more than one creditor
and the applicant expressly accepts or uses credit offered by one of
the creditors, notification of action taken by any of the other
creditors is not required. If no credit is offered or if the applicant
does not expressly accept or use any credit offered, each creditor
taking adverse action must comply with this section,
[[Page 44600]]
directly or through a third party. A notice given by a third party
shall disclose the identity of each creditor on whose behalf the notice
is given.
Sec. 202.10 Furnishing of credit information.
(a) Designation of accounts. A creditor that furnishes credit
information shall designate:
(1) Any new account to reflect the participation of both spouses if
the applicant's spouse is permitted to use or is contractually liable
on the account (other than as a guarantor, surety, endorser, or similar
party); and
(2) Any existing account to reflect such participation, within 90
days after receiving a written request to do so from one of the
spouses.
(b) Routine reports to consumer reporting agency. If a creditor
furnishes credit information to a consumer reporting agency concerning
an account designated to reflect the participation of both spouses, the
creditor shall furnish the information in a manner that will enable the
agency to provide access to the information in the name of each spouse.
(c) Reporting in response to inquiry. If a creditor furnishes
credit information in response to an inquiry concerning an account
designated to reflect the participation of both spouses, the creditor
shall furnish the information in the name of the spouse about whom the
information is requested.
Sec. 202.11 Relation to state law.
(a) Inconsistent state laws. Except as otherwise provided in this
section, this regulation alters, affects, or preempts only those state
laws that are inconsistent with the Act and this regulation and then
only to the extent of the inconsistency. A state law is not
inconsistent if it is more protective of an applicant.
(b) Preempted provisions of state law. (1) A state law is deemed to
be inconsistent with the requirements of the Act and this regulation
and less protective of an applicant within the meaning of section
705(f) of the Act to the extent that the law:
(i) Requires or permits a practice or act prohibited by the Act or
this regulation;
(ii) Prohibits the individual extension of consumer credit to both
parties to a marriage if each spouse individually and voluntarily
applies for such credit;
(iii) Prohibits inquiries or collection of data required to comply
with the Act or this regulation;
(iv) Prohibits asking about or considering
age in an empirically derived, demonstrably and statistically sound,
credit scoring system to determine a pertinent element of
creditworthiness, or to favor an elderly applicant; or
(v) Prohibits inquiries necessary to establish or administer
a [as] special purpose credit program as defined
by Sec. 202.8.
(2) A creditor, state, or other interested party may request the
Board to determine whether a state law is inconsistent with the
requirements of the Act and this regulation.
(c) Laws on finance charges, loan ceilings. If married applicants
voluntarily apply for and obtain [obtained]
individual accounts with the same creditor, the accounts shall not be
aggregated or otherwise combined for purposes of determining
permissible finance charges or loan ceilings under any federal or state
law. Permissible loan ceiling laws shall be construed to permit each
spouse to become individually liable up to the amount of the loan
ceilings, less the amount for which the applicant is jointly liable.
(d) State and federal laws not affected. This section does not
alter or annul any provision of state property laws, laws relating to
the disposition of decedents' estates, or federal or state banking
regulations directed only toward insuring the solvency of financial
institutions.
(e) Exemption for state-regulated transactions--(1) Applications. A
state may apply to the Board for an exemption from the requirements of
the Act and this regulation for any class of credit transactions within
the state. The Board will grant such an exemption if the Board
determines that:
(i) The class of credit transactions is subject to state law
requirements substantially similar to the Act and this regulation or
that applicants are afforded greater protection under state law; and
(ii) There is adequate provision for state enforcement.
(2) Liability and enforcement. (i) No exemption will extend to the
civil-liability provisions of section 706 or the administrative-
enforcement provisions of section 704 of the Act.
(ii) After an exemption has been granted, the requirements of the
applicable state law (except for additional requirements not imposed by
federal law) will constitute the requirements of the Act and this
regulation.
Sec. 202.12 Record retention.
(a) Retention of prohibited information. A creditor may retain in
its files information that is prohibited by the Act or this regulation
in evaluating applications, without violating the Act or this
regulation, if the information was obtained:
(1) From any source prior to March 23, 1977;
(2) From consumer reporting agencies, an applicant, or others
without the specific request of the creditor; or
(3) As required to monitor compliance with the Act and this
regulation or other federal or state statutes or regulations.
(b) Preservation of records--(1) Applications. For 25 months [(12
months for business credit)] after the date that a creditor notifies an
applicant of action taken on an application or of incompleteness
(except as provided in paragraph (b)(5) of this
section), the creditor shall retain in original form or a
copy thereof:
(i) Any application that it receives, any information required to
be obtained concerning characteristics of the applicant to monitor
compliance with the Act and this regulation or other similar law, and
any other written or recorded information used in evaluating the
application and not returned to the applicant at the applicant's
request;
(ii) A copy of the following documents if furnished to the
applicant in written form (or, if furnished orally, any notation or
memorandum made by the creditor):
(A) The notification of action taken; and
(B) The statement of specific reasons for adverse action; and
(iii) Any written statement submitted by the applicant alleging a
violation of the Act or this regulation.
(2) Existing accounts. For 25 months [(12 months for business
credit)] after the date that a creditor notifies an applicant of
adverse action regarding an existing account (except as
provided in paragraph (b)(5) of this section), the creditor
shall retain as to that account, in original form or a copy thereof:
(i) Any written or recorded information concerning the adverse
action; and
(ii) Any written statement submitted by the applicant alleging a
violation of the Act or this regulation.
(3) Other applications. For 25 months [(12 months for business
credit)] after the date that a creditor receives an application for
which the creditor is not required to comply with the notification
requirements of Sec. 202.9 (except as provided in paragraph
(b)(5) of this section), the creditor shall retain all
written or recorded information in its possession concerning the
applicant, including any notation of action taken.
(4) Enforcement proceedings and investigations. A creditor shall
retain the information beyond 25 months [(12
[[Page 44601]]
months for business credit)] (except as provided in
paragraph (b)(5) of this section) if [it] the
creditor has actual notice that it is under investigation or
is subject to an enforcement proceeding for an alleged violation of the
Act or this regulation by the Attorney General of the United States or
by an enforcement agency charged with monitoring that creditor's
compliance with the Act and this regulation, or if it has been served
with notice of an action filed pursuant to section 706 of the Act and
Sec. 202.14 of this regulation. The creditor shall retain the
information until final disposition of the matter, unless an earlier
time is allowed by order of the agency or court.
(5) Special rule for certain business credit applications. With
regard to a business with gross revenues in excess of $1,000,000 in its
preceding fiscal year, or an extension of trade credit, credit incident
to a factoring agreement or other similar types of business credit, the
creditor shall retain records for at least 60 days after notifying the
applicant of the action taken. If within that time period the applicant
requests in writing the reasons for adverse action or that records be
retained, the creditor shall retain records for 12 months.
(6) Self-tests. For 25 months after a self-test (as defined in
Sec. 202.15) has been completed, the creditor shall retain all written
or recorded information about the self-test. A creditor shall retain
information beyond 25 months if it has actual notice that it is under
investigation or is subject to an enforcement proceeding for an alleged
violation, or if it has been served with notice of a civil action. In
such cases, the creditor shall retain the information until final
disposition of the matter, unless an earlier time is allowed by the
appropriate agency or court order.
(7) Preapplication marketing information. For 25 months
after the date that a creditor solicits potential customers for credit
(12 months for business credit subject to paragraph (b)(5) of this
section), the creditor shall retain in original form or a copy thereof:
(i) Any preapproved credit solicitation, the list of criteria the
creditor used to select potential recipients of the solicitation, any
correspondence (to and from the selected recipients) related to
complaints about the solicitation; and
(ii) Any component of a marketing plan to which such solicitation
relates.
Sec. 202.13 Information for monitoring purposes.
(a) Information to be requested. (1) A
creditor that receives an application for credit primarily for the
purchase or refinancing of a dwelling occupied or to be occupied by the
applicant as a principal residence, where the extension of credit will
be secured by the dwelling, shall request as part of the application
the following information regarding the applicant(s):
[(1)] i. Race or national origin, using the
categories American Indian or Alaskan Native; Asian or Pacific
Islander; Black; White; Hispanic; Other (Specify);
[(2)] ii. Sex;
[(3)] iii. Marital status, using the
categories married, unmarried, and separated; and
[(4)] iv. Age.
(2) Dwelling means a residential structure
that contains one to four units, whether or not that structure is
attached to real property. The term includes, but is not limited to, an
individual condominium or cooperative unit, and a mobile or other
manufactured home.
(b) Obtaining [of] information. Questions regarding race or
national origin, sex, marital status, and age may be listed, at the
creditor's option, on the application form or on a separate form that
refers to the application. The applicant(s) shall be asked but not
required to supply the requested information. If the applicant(s)
chooses not to provide the information or any part of it, that fact
shall be noted on the form. The creditor shall then also note on the
form, to the extent possible, the race or national origin and sex of
the applicant(s) on the basis of visual observation or surname.
(c) Disclosure to applicant(s). The creditor shall inform the
applicant(s) that the information regarding race or national origin,
sex, marital status, and age is being requested by the federal
government for the purpose of monitoring compliance with federal
statutes that prohibit creditors from discriminating against applicants
on those bases. The creditor shall also inform the applicant(s) that if
the applicant(s) chooses not to provide the information, the creditor
is required to note the race or national origin and sex on the basis of
visual observation or surname.
(d) Substitute monitoring program. A monitoring program required by
an agency charged with administrative enforcement under section 704 of
the Act may be substituted for the requirements contained in paragraphs
(a), (b), and (c) of this section.
Sec. 202.14 Enforcement, penalties and liabilities.
(a) Administrative enforcement[.] (1) As set forth more fully in
section 704 of the Act, administrative enforcement of the Act and this
regulation regarding certain creditors is assigned to the Comptroller
of the Currency, Board of Governors of the Federal Reserve System,
Board of Directors of the Federal Deposit Insurance Corporation, Office
of Thrift Supervision, National Credit Union Administration, Interstate
Commerce Commission, Secretary of Agriculture, Farm Credit
Administration, Securities and Exchange Commission, Small Business
Administration, and Secretary of Transportation.
(2) Except to the extent that administrative enforcement is
specifically assigned to other authorities, compliance with the
requirements imposed under the Act and this regulation is enforced by
the Federal Trade Commission.
(b) Penalties and liabilities[.] (1) Sections 706(a) and (b) and
702(g) of the Act provide that any creditor that fails to comply with a
requirement imposed by the Act or this regulation is subject to civil
liability for actual and punitive damages in individual or class
actions. Pursuant to sections 704(b), (c), and (d) and 702(g) of the
Act, violations of the Act or this regulation
[regulations] also constitute violations of other federal laws.
Liability for punitive damages is restricted to nongovernmental
entities and is limited to $10,000 in individual actions and the lesser
of $500,000 or 1 percent of the creditor's net worth in class actions.
Section 706(c) provides for equitable and declaratory relief and
section 706(d) authorizes the awarding of costs and reasonable
attorney's fees to an aggrieved applicant in a successful action.
(2) As provided in section 706(f), a civil action under the Act or
this regulation may be brought in the appropriate United States
district court without regard to the amount in controversy or in any
other court of competent jurisdiction within two years after the date
of the occurrence of the violation, or within one year after the
commencement of an administrative enforcement proceeding or of a civil
action brought by the Attorney General of the United States within two
years after the alleged violation.
(3) If an agency responsible for administrative enforcement is
unable to obtain compliance with the Act or this
regulation [part], it may refer the matter to the
Attorney General of the United States. In addition, if the Board, the
Comptroller of the Currency, the Federal Deposit Insurance Corporation,
the Office of Thrift Supervision, or the National Credit Union
Administration
[[Page 44602]]
has reason to believe that one or more creditors engaged in a pattern
or practice of discouraging or denying applications in violation of the
Act or this regulation, the agency shall refer the matter to the
Attorney General. Furthermore, the agency may refer a matter to the
Attorney General if the agency has reason to believe that one or more
creditors violated section 701(a) of the Act.
(4) On referral, or whenever the Attorney General has reason to
believe that one or more creditors engaged in a pattern or practice in
violation of the Act or this regulation [part],
the Attorney General may bring a civil action for such relief as may be
appropriate, including actual and punitive damages and injunctive
relief.
(5) If the Board, the Comptroller of the Currency, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision, or the
National Credit Union Administration has reason to believe (as a result
of a consumer complaint, conducting a consumer compliance examination,
or otherwise) that a violation of the Act or this regulation has
occurred which is also a violation of the Fair Housing Act, and the
matter is not referred to the Attorney General, the agency shall
notify:
(i) The Secretary of Housing and Urban Development; and
(ii) The applicant that the Secretary of Housing and Urban
Development has been notified and that remedies for the violation may
be available under the Fair Housing Act.
(c) Failure of compliance. A creditor's failure to comply with
Secs. 202.6(b)(6), 202.9, 202.10, 202.12 or 202.13 is not a violation
if it results from an inadvertent error. On discovering an error under
Secs. 202.9 and 202.10, the creditor shall correct it as soon as
possible. [If a creditor inadvertently obtains the monitoring
information regarding the race or national origin and sex of the
applicant in a dwelling-related transaction not covered by Sec. 202.13,
the creditor may act on and retain the application without violating
the regulation.]
Sec. 202.15 Incentives for self-testing and self-correction.
(a) General rules--(1) Voluntary self-testing and correction. The
report or results of the self-test that a creditor voluntarily conducts
(or authorizes) are privileged as provided in this section. Data
collection required by law or by any governmental authority is not a
voluntary self-test.
(2) Corrective action required. The privilege in this section
applies only if the creditor has taken or is taking appropriate
corrective action.
(3) Other privileges. The privilege created by this section does
not preclude the assertion of any other privilege that may also apply.
(b) Self-test defined--(1) Definition. A self-test is any program,
practice, or study that:
(i) Is designed and used specifically to determine the extent or
effectiveness of a creditor's compliance with the Act or this
regulation; and
(ii) Creates data or factual information that is not available and
cannot be derived from loan or application files or other records
related to credit transactions.
(2) Types of information privileged. The privilege under this
section applies to the report or results of the self-test, data or
factual information created by the self-test, and any analysis,
opinions, and conclusions pertaining to the self-test report or
results. The privilege covers workpapers or draft documents as well as
final documents.
(3) Types of information not privileged. The privilege under this
section does not apply to:
(i) Information about whether a creditor conducted a self-test, the
methodology used or the scope of the self-test, the time period covered
by the self-test, or the dates it was conducted; or
(ii) Loan and application files or other business records related
to credit transactions, and information derived from such files and
records, even if it has been aggregated, summarized, or reorganized to
facilitate analysis.
(c) Appropriate corrective action--(1) General requirement. For the
privilege in this section to apply, appropriate corrective action is
required when the self-test shows that it is more likely than not that
a violation occurred, even though no violation has been formally
adjudicated.
(2) Determining the scope of appropriate corrective action. A
creditor must take corrective action that is reasonably likely to
remedy the cause and effect of a likely violation by:
(i) Identifying the policies or practices that are the likely cause
of the violation; and
(ii) Assessing the extent and scope of any violation.
(3) Types of relief. Appropriate corrective action may include both
prospective and remedial relief, except that to establish a privilege
under this section:
(i) A creditor is not required to provide remedial relief to a
tester used in a self-test;
(ii) A creditor is only required to provide remedial relief to an
applicant identified by the self-test as one whose rights were more
likely than not violated; and
(iii) A creditor is not required to provide remedial relief to a
particular applicant if the statute of limitations applicable to the
violation expired before the creditor obtained the results of the self-
test or the applicant is otherwise ineligible for such relief.
(4) No admission of violation. Taking corrective action is not an
admission that a violation occurred.
(d)[(1)] Scope of privilege[.]--(1) Use of privileged
self-test. The report or results of a privileged self-test
may not be obtained or used:
(i) By a government agency in any examination or investigation
relating to compliance with the Act or this regulation; or
(ii) By a government agency or an applicant (including a
prospective applicant who alleges a violation of
Sec. 202.4(b) [202.5(a)]) in any proceeding or
civil action in which a violation of the Act or this regulation is
alleged.
(2) Loss of privilege. The report or results of a self-test are not
privileged under paragraph (d)(1) of this section if the creditor or a
person with lawful access to the report or results:
(i) Voluntarily discloses any part of the report or results, or any
other information privileged under this section, to an applicant or
government agency or to the public;
(ii) Discloses any part of the report or results, or any other
information privileged under this section, as a defense to charges that
the creditor has violated the Act or regulation; or
(iii) Fails or is unable to produce written or recorded information
about the self-test that is required to be retained under
Sec. 202.12(b)(6) when the information is needed to determine whether
the privilege applies. This paragraph does not limit any other penalty
or remedy that may be available for a violation of Sec. 202.12.
(3) Limited use of privileged information. Notwithstanding
paragraph (d)(1) of this section, the self-test report or results and
any other information privileged under this section may be obtained and
used by an applicant or government agency solely to determine a penalty
or remedy after a violation of the Act or this regulation has been
adjudicated or admitted. Disclosures for this limited purpose may be
used only for the particular proceeding in which the adjudication or
admission was made. Information disclosed under this
[[Page 44603]]
paragraph (d)(3) remains privileged under paragraph (d)(1) of this
section.
Appendix A to Part 202--Federal Enforcement Agencies
The following list indicates the federal agencies that enforce
Regulation B for particular classes of creditors. Any questions
concerning a particular creditor should be directed to its enforcement
agency. Terms that are not defined in the Federal Deposit Insurance Act
(12 U.S.C. 1813(s)) shall have the meaning given to them in the
International Banking Act of 1978 (12 U.S.C. 3101).
National Banks, and Federal Branches and Federal Agencies of
Foreign Banks
Office of the Comptroller of the Currency, Customer Assistance
Unit, 1301 McKinney Avenue, Suite 3710, Houston, Texas 77010.
State Member Banks, Branches and Agencies of Foreign Banks (other
than federal branches, federal agencies, and insured state branches
of foreign banks), Commercial Lending Companies Owned or Controlled
by Foreign Banks, and Organizations Operating Under Section 25 or
25A of the Federal Reserve Act
Federal Reserve Bank serving the district in which the
institution is located.
Nonmember Insured Banks and Insured State Branches of Foreign Banks
Federal Deposit Insurance Corporation Regional Director for the
region in which the institution is located.
Savings institutions insured under the Savings Association
Insurance Fund of the FDIC and federally chartered
savings banks insured under the Bank
Insurance Fund of the FDIC (but not including state-chartered
savings banks insured under the Bank Insurance Fund)
Office of Thrift Supervision Regional Director for the region in
which the institution is located.
Federal Credit Unions
Regional office of the National Credit Union Administration
serving the area in which the federal credit union is located.
Air Carriers
Assistant General Counsel for Aviation Enforcement and
Proceedings, Department of Transportation, 400 Seventh Street, SW,
Washington, DC 20590.
Creditors Subject to Surface Transportation
Board [Interstate Commerce Commission]
Office of Proceedings, [Interstate Commerce Commission,
Washington, DC 20523] Surface Transportation Board,
Department of Transportation, 1925 K Street NW, Washington, DC
20423
Creditors Subject to Packers and Stockyards Act
Nearest Packers and Stockyards Administration area supervisor.
Small Business Investment Companies
U.S. Small Business Administration, 409 Third Street,
SW, [1441 L Street, NW,] Washington, DC 20416.
Brokers and Dealers
Securities and Exchange Commission, Washington, DC 20549.
Federal Land Banks, Federal Land Bank Associations, Federal
Intermediate Credit Banks, and Production Credit Associations
Farm Credit Administration, 1501 Farm Credit Drive, McLean, VA
22102-5090.
Retailers, Finance Companies, and All Other Creditors Not Listed
Above
FTC Regional Office for region in which the creditor operates or
Federal Trade Commission, Equal Credit Opportunity, Washington, DC
20580.
Appendix B to Part 202--Model Application Forms
1. This appendix contains five model
credit application forms, each designated for use in a particular
type of consumer credit transaction as indicated by the bracketed
caption on each form. The first sample form is intended for use in
open-end, unsecured transactions; the second for closed-end, secured
transactions; the third for closed-end transactions, whether
unsecured or secured; the fourth in transactions involving community
property or occurring in community property states; and the fifth in
residential mortgage transactions[. The appendix also]
which contains a model disclosure for use in
complying with Sec. 202.13 for certain dwelling-related loans. All
forms contained in this appendix are models; their use by creditors
is optional.
2. The use or modification of these forms
is governed by the following instructions. A creditor may change the
forms: by asking for additional information not prohibited by
Sec. 202.5; by deleting any information request; or by rearranging
the format without modifying the substance of the inquiries. In any
of these three instances, however, the appropriate notices regarding
the optional nature of courtesy titles, the option to disclose
alimony, child support, or separate maintenance, and the limitation
concerning marital status inquiries must be included in the
appropriate places if the items to which they relate appear on the
creditor's form.
3. If a creditor uses an appropriate
Appendix B model form, or modifies a form in accordance with the
above instructions, that creditor shall be deemed to be acting in
compliance with the provisions of paragraphs (b)
and (c) [and (d)] of Sec. 202.5 [of this regulation].
BILLING CODE 6210-01-P
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Appendix C to Part 202--Sample Notification Forms
1. This appendix contains nine sample
notification forms. Forms C-1 through C-4 are intended for use in
notifying an applicant that adverse action has been taken on an
application or account under Secs. 202.9(a) (1) and (2)(i) [of this
regulation]. Form C-5 is a notice of disclosure of the right to
request specific reasons for adverse action under Secs. 202.9(a) (1)
and (2)(ii). Form C-6 is designed for use in notifying an applicant,
under Sec. 202.9(c)(2), that an application is incomplete. Forms C-7
and C-8 are intended for use in connection with applications for
business credit under Sec. 202.9(a)(3). Form C-9 is designed for use
in notifying an applicant of the right to receive a copy of an
appraisal under Sec. 202.5a.
2. Form C-1 contains the Fair Credit
Reporting Act disclosure as required by sections 615 (a) and (b) of
that act. Forms C-2 through C-5 contain only the section 615(a)
disclosure (that a creditor obtained information from a consumer
reporting agency that played a part in the credit decision). A
creditor must provide the 615(a) disclosure when adverse action is
taken against a consumer based on information from a consumer
reporting agency. A creditor must provide the 615(b) disclosure when
adverse action is taken based on information from an outside source
other than a consumer reporting agency. In addition, a creditor must
provide the 615(b) disclosure if the creditor obtained information
from an affiliate other than information in a consumer report or
other than information concerning the affiliate's own transactions
or experiences with the consumer. Creditors may comply with the
disclosure requirements for adverse action based on information in a
consumer report obtained from an affiliate by providing either the
615(a) or 615(b) disclosure.
3. The sample forms are illustrative and
may not be appropriate for all creditors. They were designed to
include some of the factors that creditors most commonly consider.
If a creditor chooses to use the checklist of reasons provided in
one of the sample forms in this appendix and if reasons commonly
used by the creditor are not provided on the form, the creditor
should modify the checklist by substituting or adding other reasons.
For example, if ``inadequate down payment'' or ``no deposit
relationship with us'' are common reasons for taking adverse action
on an application, the creditor ought to add or substitute such
reasons for those presently contained on the sample forms.
4. If the reasons listed on the forms are
not the factors actually used, a creditor will not satisfy the
notice requirement by simply checking the closest identifiable
factor listed. For example, some creditors consider only references
from banks or other depository institutions and disregard finance
company references altogether; their statement of reasons should
disclose ``insufficient bank references,'' not ``insufficient credit
references.'' Similarly, a creditor that considers bank references
and other credit references as distinct factors should treat the two
factors separately and disclose them as appropriate. The creditor
should either add such other factors to the form or check ``other''
and include the appropriate explanation. The creditor need not,
however, describe how or why a factor adversely affected the
application. For example, the notice may say ``length of residence''
rather than ``too short a period of residence.''
5. A creditor may design its own
notification forms or use all or a portion of the forms contained in
this appendix. Proper use of Forms C-1 through C-4 will satisfy the
requirement of Sec. 202.9(a)(2)(i). Proper use of Forms C-5 and C-6
constitutes full compliance with Secs. 202.9(a)(2)(ii) and
202.9(c)(2), respectively. Proper use of Forms C-7 and C-8 will
satisfy the requirements of Secs. 202.9(a)(2) (i) and (ii),
respectively, for applications for business credit. Proper use of
Form C-9 will satisfy the requirements of Sec. 202.5a of this part.
Proper use of Form C-10 will satisfy the requirements of
Sec. 202.5(a)(4).
Form C-1--Sample Notice of Action Taken and Statement of Reasons
Statement of Credit Denial, Termination or Change
Date:------------------------------------------------------------------
Applicant's Name:------------------------------------------------------
Applicant's Address:---------------------------------------------------
Description of Account, Transaction, or Requested Credit:
----------------------------------------------------------------------
Description of Action Taken:
----------------------------------------------------------------------
----------------------------------------------------------------------
Part I--Principal Reason(s) for Credit Denial, Termination, or Other
Action Taken Concerning Credit
This section must be completed in all instances.
____Credit application incomplete
____Insufficient number of credit references provided
____Unacceptable type of credit references provided
____Unable to verify credit references
____Temporary or irregular employment
____Unable to verify employment
____Length of employment
____Income insufficient for amount of credit requested
____Excessive obligations in relation to income
____Unable to verify income
____Length of residence
____Temporary residence
____Unable to verify residence
____No credit file
____Limited credit experience
____Poor credit performance with us
____Delinquent past or present credit obligations with others
____Garnishment, attachment, foreclosure, repossession, collection
action, or judgment
____Bankruptcy
____Value or type of collateral not sufficient
____Other, specify: ____________________
Part II--Disclosure of Use of Information Obtained From an Outside
Source
This section should be completed if the credit decision was
based in whole or in part on information that has been obtained from
an outside source.
____Our credit decision was based in whole or in part on information
obtained in a report from the consumer reporting agency listed
below. You have a right under the Fair Credit Reporting Act to know
the information contained in your credit file at the consumer
reporting agency. The reporting agency played no part in our
decision and is unable to supply specific reasons why we have denied
credit to you. You also have a right to a free copy of your report
from the reporting agency, if you request it no later than 60 days
after you receive this notice. In addition, if you find that any
information contained in the report you receive is inaccurate or
incomplete, you have the right to dispute the matter with the
reporting agency.
Name:------------------------------------------------------------------
Address:---------------------------------------------------------------
----------------------------------------------------------------------
[Toll-free] Telephone number: __________________________---------------
____Our credit decision was based in whole or in part on information
obtained from an affiliate or from an outside source other than a
consumer reporting agency. Under the Fair Credit Reporting Act, you
have the right to make a written request, no later than 60 days
after you receive this notice, for disclosure of the nature of this
information.
----------------------------------------------------------------------
If you have any questions regarding this notice, you should contact:
Creditor's name:-------------------------------------------------------
Creditor's address:----------------------------------------------------
Creditor's telephone number:-------------------------------------------
Notice
The federal Equal Credit Opportunity Act prohibits creditors
from discriminating against credit applicants on the basis of race,
color, religion, national origin, sex, marital status, age (provided
the applicant has the capacity to enter into a binding contract);
because all or part of the applicant's income derives from any
public assistance program; or because the applicant has in good
faith exercised any right under the Consumer Credit Protection Act.
The federal agency that administers compliance with this law
concerning this creditor is (name and address as specified by the
appropriate agency listed in appendix A).
Form C-2--Sample Notice of Action Taken and Statement of Reasons
Date:
Dear Applicant: Thank you for your recent application. Your
request for [a loan/a credit card/an increase in your credit limit]
was carefully considered, and we regret that we are unable to
approve your application at this time, for the following reason(s):
[[Page 44617]]
Your Income:
____ is below our minimum requirement.
____ is insufficient to sustain payments on the amount of credit
requested.
____ could not be verified.
Your Employment:
____ is not of sufficient length to qualify.
____ could not be verified.
Your Credit History:
____ of making payments on time was not satisfactory.
____ could not be verified.
Your Application:
____ lacks a sufficient number of credit references.
____ lacks acceptable types of credit references.
____ reveals that current obligations are excessive in relation to
income.
Other:-----------------------------------------------------------------
The consumer reporting agency contacted that provided
information that influenced our decision in whole or in part was
[name, address and [toll-free] telephone number of the reporting
agency]. The reporting agency is unable to supply specific reasons
why we have denied credit to you. You do, however, have a right
under the Fair Credit Reporting Act to know the information
contained in your credit file. You also have a right to a free copy
of your report from the reporting agency, if you request it no later
than 60 days after you receive this notice. In addition, if you find
that any information contained in the report you receive is
inaccurate or incomplete, you have the right to dispute the matter
with the reporting agency. Any questions regarding such information
should be directed to [consumer reporting agency].
If you have any questions regarding this letter, you should
contact us at [creditor's name, address and telephone number].
Notice: The federal Equal Credit Opportunity Act prohibits
creditors from discriminating against credit applicants on the basis
of race, color, religion, national origin, sex, marital status, age
(provided the applicant has the capacity to enter into a binding
contract); because all or part of the applicant's income derives
from any public assistance program; or because the applicant has in
good faith exercised any right under the Consumer Credit Protection
Act. The federal agency that administers compliance with this law
concerning this creditor is (name and address as specified by the
appropriate agency listed in appendix A).
Form C-3--Sample Notice of Action Taken and Statement of Reasons
(Credit Scoring)
Date:
Dear Applicant: Thank you for your recent application for
____________________. We regret that we are unable to approve your
request.
Your application was processed by a credit scoring system that
assigns a numerical value to the various items of information we
consider in evaluating an application. These numerical values are
based upon the results of analyses of repayment histories of large
numbers of customers.
The information you provided in your application did not score a
sufficient number of points for approval of the application. The
reasons you did not score well compared with other applicants were:
Insufficient bank references
Type of occupation
Insufficient credit experience
In evaluating your application the consumer reporting agency
listed below provided us with information that in whole or in part
influenced our decision. The reporting agency played no part in our
decision other than providing us with credit information about you.
Under the Fair Credit Reporting Act, you have a right to know the
information provided to us. It can be obtained by contacting: [name,
address, and [toll-free] telephone number of the consumer reporting
agency]. You also have a right to a free copy of your report from
the reporting agency, if you request it no later than 60 days after
you receive this notice. In addition, if you find that any
information contained in the report you receive is inaccurate or
incomplete, you have the right to dispute the matter with the
reporting agency.
If you have any questions regarding this letter, you should
contact us at:
Creditor's Name:-------------------------------------------------------
Address:---------------------------------------------------------------
----------------------------------------------------------------------
Telephone:-------------------------------------------------------------
Sincerely,
Notice: The federal Equal Credit Opportunity Act prohibits
creditors from discriminating against credit applicants on the basis
of race, color, religion, national origin, sex, marital status, age
(with certain limited exceptions); because all or part of the
applicant's income derives from any public assistance program; or
because the applicant has in good faith exercised any right under
the Consumer Credit Protection Act. The federal agency that
administers compliance with this law concerning this creditor is
(name and address as specified by the appropriate agency listed in
appendix A).
Form C-4--Sample Notice of Action Taken, Statement of Reasons and
Counteroffer
Date:
Dear Applicant: Thank you for your application for
____________________. We are unable to offer you credit on the terms
that you requested for the following reason(s):
----------------------------------------------------------------------
We can, however, offer you credit on the
following terms:-------------------------------------------------------
----------------------------------------------------------------------
If this offer is acceptable to you, please notify us within [amount
of time] at the following address: ______________________________.
Our credit decision on your application was based in whole or in
part on information obtained in a report from [name, address and
[toll-free] telephone number of the consumer reporting agency]. You
have a right under the Fair Credit Reporting Act to know the
information contained in your credit file at the consumer reporting
agency. The reporting agency played no part in our decision and is
unable to supply specific reasons why we have denied credit to you.
You also have a right to a free copy of your report from the
reporting agency, if you request it no later than 60 days after you
receive this notice. In addition, if you find that any information
contained in the report you receive is inaccurate or incomplete, you
have the right to dispute the matter with the reporting agency.
You should know that the federal Equal Credit Opportunity Act
prohibits creditors, such as ourselves, from discriminating against
credit applicants on the basis of their race, color, religion,
national origin, sex, marital status, age (provided the
applicant has the capacity to enter into a binding
contract) because they receive income from a public
assistance program, or because they may have exercised their rights
under the Consumer Credit Protection Act. If you believe there has
been discrimination in handling your application you should contact
the [name and address of the appropriate federal enforcement agency
listed in appendix A].
Sincerely,
Form C-5--Sample Disclosure of Right To Request Specific Reasons
for Credit Denial
Date:
Dear Applicant: Thank you for applying to us for
____________________.
After carefully reviewing your application, we are sorry to
advise you that we cannot [open an account for you/grant a loan to
you/increase your credit limit] at this time. If you would like a
statement of specific reasons why your application was denied,
please contact [our credit service manager] shown below within 60
days of the date of this letter. We will provide you with the
statement of reasons within 30 days after receiving your request.
Creditor's Name
Address
Telephone number
If we obtained information from a consumer reporting agency as
part of our consideration of your application, its name, address,
and [toll-free] telephone number is shown below. The reporting
agency played no part in our decision and is unable to supply
specific reasons why we have denied credit to you. [You have a right
under the Fair Credit Reporting Act to know the information
contained in your credit file at the consumer reporting agency.] You
have a right to a free copy of your report from the reporting
agency, if you request it no later than 60 days after you receive
this notice. In addition, if you find that any information contained
in the report you receive is inaccurate or incomplete, you have the
right to dispute the matter with the reporting agency. You can find
out about the information contained in your file (if one was used)
by contacting:
Consumer reporting agency's name
Address [Toll-free]
Telephone number
Sincerely,
Notice
The federal Equal Credit Opportunity Act prohibits creditors
from discriminating
[[Page 44618]]
against credit applicants on the basis of race, color, religion,
national origin, sex, marital status, age (provided the applicant
has the capacity to enter into a binding contract); because all or
part of the applicant's income derives from any public assistance
program; or because the applicant has in good faith exercised any
right under the Consumer Credit Protection Act. The federal agency
that administers compliance with this law concerning this creditor
is (name and address as specified by the appropriate agency listed
in appendix A).
Form C-6--Sample Notice of Incomplete Application and Request for
Additional Information
Creditor's name
Address
Telephone number
Date:
Dear Applicant: Thank you for your application for credit. The
following information is needed to make a decision
on your application:---------------------------------------------------
----------------------------------------------------------------------
We need to receive this information by (date). If we do not receive
it by that date, we will regrettably be unable to give further
consideration to your credit request.
Sincerely,
Form C-7--Sample Notice of Action Taken and Statement of Reasons
(Business Credit)
Creditor's Name
Creditor's address
Date:
Dear Applicant: Thank you for applying to us for credit. We have
given your request careful consideration, and regret that we are
unable to extend credit to you at this time for the following
reasons:
(Insert appropriate reason, such as: Value or
type of collateral not sufficient; Lack of
established earnings record; Slow or past due
in trade or loan payments)
Sincerely,
Notice: The federal Equal Credit Opportunity Act prohibits
creditors from discriminating against credit applicants on the basis
of race, color, religion, national origin, sex, marital status, age
(provided the applicant has the capacity to enter into a binding
contract); because all or part of the applicant's income derives
from any public assistance program; or because the applicant has in
good faith exercised any right under the Consumer Credit Protection
Act. The federal agency that administers compliance with this law
concerning this creditor is [name and address as specified by the
appropriate agency listed in appendix A].
Form C-8--Sample Disclosure of Right To Request Specific Reasons
for Credit Denial Given at Time of Application (Business Credit)
Creditor's name
Creditor's address
If your application for business credit is denied, you have the
right to a written statement of the specific reasons for the denial.
To obtain the statement, please contact [name, address and telephone
number of the person or office from which the statement of reasons
can be obtained] within 60 days from the date you are notified of
our decision. We will send you a written statement of reasons for
the denial within 30 days of receiving your request for the
statement.
Notice: The federal Equal Credit Opportunity Act prohibits
creditors from discriminating against credit applicants on the basis
of race, color, religion, national origin, sex, marital status, age
(provided the applicant has the capacity to enter into a binding
contract); because all or part of the applicant's income derives
from any public assistance program; or because the applicant has in
good faith exercised any right under the Consumer Credit Protection
Act. The federal agency that administers compliance with this law
concerning this creditor is [name and address as specified by the
appropriate agency listed in appendix A].
Form C-9--Sample Disclosure of Right To Receive a Copy of an
Appraisal
You have the right to a copy of the appraisal report used in
connection with your application for credit. If you wish a copy,
please write to us at the mailing address we have provided. We must
hear from you no later than 90 days after we notify you about the
action taken on your credit application or you withdraw your
application.
[In your letter, give us the following information:]
Form C-10--Sample Disclosure About Voluntary Data
Notation
We are requesting the following information [to monitor our
compliance with the federal Equal Credit Opportunity Act]. You are
not required to provide this information. The law provides that a
creditor may not discriminate based on this information, or based on
whether or not you choose to provide it.
Appendix D to Part 202--Issuance of Staff Interpretations
1. Official Staff Interpretations.
Officials in the Board's Division of Consumer and Community Affairs
are authorized to issue official staff interpretations of this
regulation. These interpretations provide the protection afforded
under section 706(e) of the Act. Except in unusual circumstances,
such interpretations will not be issued separately but will be
incorporated in an official commentary to the regulation, which will
be amended periodically.
2. Requests for Issuance of Official Staff
Interpretations. A request for an official staff interpretation
should be in writing and addressed to the Director, Division of
Consumer and Community Affairs, Board of Governors of the Federal
Reserve System, Washington, DC 20551. The request should contain a
complete statement of all relevant facts concerning the issue,
including copies of all pertinent documents.
3. Scope of Interpretations. No staff
interpretations will be issued approving creditors' forms or
statements. This restriction does not apply to forms or statements
whose use is required or sanctioned by a government agency.
Supplement I to Part 202--Official Staff Interpretations
Following is an official staff interpretation of Regulation B
(12 CFR part 202) issued under authority
delegated by the Federal Reserve Board to officials in the Division
of Consumer and Community Affairs. References are to sections of the
regulation or the Equal Credit Opportunity Act (15 U.S.C. 1601 et
seq.).
Introduction
1. Official status. Section 706(e) of the Equal Credit
Opportunity Act protects a creditor from civil liability for any act
done or omitted in good faith in conformity with an interpretation
issued by a duly authorized official of the Federal Reserve Board.
This commentary is the means by which the Division of Consumer and
Community Affairs of the Federal Reserve Board issues official staff
interpretations of Regulation B. Good-faith compliance with this
commentary affords a creditor protection under section 706(e) of the
Act.
2. Issuance of interpretations. Under appendix D to the
regulation, any person may request an official staff interpretation.
Interpretations will be issued at the discretion of designated
officials and incorporated in this commentary following publication
for comment in the Federal Register. Except in unusual
circumstances, official staff interpretations will be issued only by
means of this commentary.
3. Status of previous interpretations. Interpretations of
Regulation B previously issued by the Federal Reserve Board and its
staff have been incorporated into this commentary as appropriate.
All other previous Board and staff interpretations, official and
unofficial, are superseded by this commentary.
4. Footnotes. Footnotes in the regulation have the same legal
effect as the text of the regulation, whether they are explanatory
or illustrative in nature.
5. Comment designations. The comments are designated with as
much specificity as possible according to the particular regulatory
provision addressed. Each comment in the commentary is identified by
a number and the regulatory section or paragraph that it interprets.
For example, comments to Sec. 202.2(c) are further divided by
subparagraph, such as comment 2(c)(1)(ii)-1 and comment 2(c)(2)(ii)-
1.
Section 202.1--Authority, Scope, and Purpose
1(a) Authority and scope.
1. Scope. The Equal Credit Opportunity Act and Regulation B
apply to all credit--commercial as well as personal--without regard
to the nature or type of the credit or the creditor. If a
transaction provides for the deferral of the payment of a debt, it
is credit covered by Regulation B even though it may not be a credit
transaction covered by Regulation Z (Truth in Lending)
(12 CFR part 226). Further, the definition of
[[Page 44619]]
creditor is not restricted to the party or person to whom the
obligation is initially payable, as is the case under Regulation Z.
Moreover, the Act and regulation apply to all methods of credit
evaluation, whether performed judgmentally or by use of a credit
scoring system.
2. Foreign applicability. Regulation B generally does not apply
to lending activities that occur outside the United States. The
regulation does apply to lending activities that take place within
the United States (as well as the Commonwealth of Puerto Rico and
any territory or possession of the United States), whether or not
the applicant is a citizen.
3. Board. The term Board, as used in this regulation, means the
Board of Governors of the Federal Reserve System.
Section 202.2--Definitions
2(c) Adverse action.
Paragraph 2(c)(1)(i)
1. Application for credit. A refusal to refinance or extend the
term of a business or other loan is adverse action if the applicant
applied in accordance with the creditor's procedures.
2. Counteroffer. If an applicant responds to a credit
solicitation by requesting a specific amount of credit and the
creditor provides a different amount, the creditor's action is a
counteroffer--even if the solicitation discloses that the consumer
may not receive the amount of credit requested. An adverse action
notice is required unless the applicant expressly accepts or uses
the credit. For example, assume an applicant receives a credit card
solicitation offering credit ``up to $10,000,'' and responds by
requesting $8,000 in a balance transfer to pay off an existing
credit card account; and that the creditor sends a credit card and
informs the applicant that a $5,000 balance transfer and an
additional $500 of credit has been approved. An adverse action
notice is required unless the applicant uses the credit card or
expressly accepts the credit offered before the balance transfer
occurs.
Paragraph 2(c)(1)(ii)
1. Termination or unfavorable change to substantially
all of a class of the creditor's accounts. If a creditor terminates
or makes an unfavorable change to the terms of all but a small
proportion of a class of accounts, the creditor need not give
adverse action notices to customers affected by the termination or
unfavorable change. Class of accounts is a broad category. For
example, overdraft lines of credit or distinct credit card programs
such as ``secured'' credit cards represent a class of accounts. But
a category designated according to characteristics of customers,
such as by their credit scores, is not a class of
accounts.
[1.] 2. Move from service area. If a
credit card issuer terminates the open-end account of a customer
because the customer has moved out of the card issuer's service
area, the termination is adverse action for purposes of the
regulation unless termination on this ground was explicitly provided
for in the credit agreement between the parties. In cases where
termination is adverse action, notification is required under
Sec. 202.9.
[2.] 3. Termination based on credit limit.
If a creditor terminates credit accounts that have low credit limits
(for example, under $400) but keeps open accounts with higher credit
limits, the termination is adverse action and notification is
required under Sec. 202.9.
Paragraph 2(c)(2)(i)
1. Express agreement. If a creditor changes the terms of an
account pursuant to an express agreement, the creditor need not give
adverse action notices to customers affected by the change. An
express agreement exists where the specific change and the specific
circumstance under which the change will occur are stated in the
agreement. For example, if a credit card agreement provides that the
rate on a consumer's credit card will be increased if the consumer
misses two consecutive payments, and the missed payments occur, an
increase in the rate is not adverse action. However, if a credit
card agreement provides that the rate on a consumer's credit card
will be increased if the consumer's financial circumstances change
or if the creditor deems itself ``insecure,'' imposing a higher rate
is adverse action subject to the notice requirements of
Sec. 202.9.
Paragraph 2(c)(2)(ii)
1. Default--exercise of due-on-sale clause. If a mortgagor sells
or transfers mortgaged property without the consent of the
mortgagee, and the mortgagee exercises its contractual right to
accelerate the mortgage loan, the mortgagee may treat the mortgagor
as being in default. An adverse-action notice need not be given to
the mortgagor or the transferee. (See comment 2(e)-1 for treatment
of a purchaser who requests to assume the loan.)
2. Current delinquency or default. The term adverse action does
not include a creditor's termination of or other action
on an account when the accountholder is currently in
default or delinquent on that account. For example, if a
credit agreement defines default to include the consumer's filing
for bankruptcy, an adverse action notice is not required if the
creditor terminates the consumer's account when the consumer files
for bankruptcy. Notification in accordance with
Sec. 202.9 of the regulation generally is required, however, if the
creditor's action is based not on a current
but on a past delinquency or default on the account.
3. Performance on a different account. If a creditor
takes adverse action on an account because of the consumer's
performance (such as poor payment history) on a different account,
an adverse action notice is required--even if the performance is
defined as a default under the terms of the credit
agreement.
Paragraph 2(c)(2)(iii)
1. Point-of-sale transactions. Denial of credit at point of sale
is not adverse action except under those circumstances specified in
the regulation. For example, denial at point of sale is not adverse
action in the following situations:
[]i. A credit cardholder presents
an expired card or a card that has been reported to the card issuer
as lost or stolen.
[]ii. The amount of a transaction
exceeds a cash advance or credit limit.
[]iii. The circumstances (such as
excessive use of a credit card in a short period of time)
suggest [suggests] that fraud is involved.
[]iv. The authorization facilities
are not functioning.
[]