[Federal Register Volume 76, Number 245 (Wednesday, December 21, 2011)]
[Rules and Regulations]
[Pages 79442-79483]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31714]
[[Page 79441]]
Vol. 76
Wednesday,
No. 245
December 21, 2011
Part VI
Bureau of Consumer Financial Protection
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12 CFR Part 1002
Equal Credit Opportunity (Regulation B); Interim Final Rule
Federal Register / Vol. 76 , No. 245 / Wednesday, December 21, 2011 /
Rules and Regulations
[[Page 79442]]
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BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1002
[Docket No. CFPB-2011-0019]
RIN 3170-AA06
Equal Credit Opportunity (Regulation B)
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Interim final rule with request for public comment.
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SUMMARY: Title X of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act) transferred rulemaking authority for a
number of consumer financial protection laws from seven Federal
agencies to the Bureau of Consumer Financial Protection (Bureau) as of
July 21, 2011. The Bureau is in the process of republishing the
regulations implementing those laws with technical and conforming
changes to reflect the transfer of authority and certain other changes
made by the Dodd-Frank Act. In light of the transfer of the Board of
Governors of the Federal Reserve System's (Board's) rulemaking
authority for the Equal Credit Opportunity Act (ECOA) to the Bureau,
the Bureau is publishing for public comment an interim final rule
establishing a new Regulation B (Equal Credit Opportunity). This
interim final rule does not impose any new substantive obligations on
persons subject to the existing Regulation B, previously published by
the Board.
DATES: This interim final rule is effective December 30, 2011. Comments
must be received on or before February 21, 2012.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2011-
0019 or RIN 3170-AA06, by any of the following methods:
Electronic: http://www.regulations.gov. Follow the
instructions for submitting comments.
Mail: Monica Jackson, Office of the Executive Secretary,
Bureau of Consumer Financial Protection, 1500 Pennsylvania Avenue NW.,
(Attn: 1801 L Street), Washington, DC 20220.
Hand Delivery/Courier in Lieu of Mail: Monica Jackson,
Office of the Executive Secretary, Bureau of Consumer Financial
Protection, 1700 G Street NW., Washington, DC 20006.
All submissions must include the agency name and docket number or
Regulatory Information Number (RIN) for this rulemaking. In general,
all comments received will be posted without change to http://www.regulations.gov. In addition, comments will be available for public
inspection and copying at 1700 G Street NW., Washington, DC 20006, on
official business days between the hours of 10 a.m. and 5 p.m. Eastern
Time. You can make an appointment to inspect the documents by
telephoning (202) 435-7275.
All comments, including attachments and other supporting materials,
will become part of the public record and subject to public disclosure.
Sensitive personal information, such as account numbers or Social
Security numbers, should not be included. Comments will not be edited
to remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: Bill Matchneer or Paul Mondor, Office
of Regulations, at (202) 435-7700.
SUPPLEMENTARY INFORMATION:
I. Background
The Equal Credit Opportunity Act (ECOA), 15 U.S.C. 1691 et seq.,
makes it unlawful for creditors to discriminate in any aspect of a
credit transaction on the basis of sex, race, color, religion, national
origin, marital status, or age (provided the applicant has the capacity
to contract), because all or part of an applicant's income derives from
public assistance, or because an applicant has in good faith exercised
any right under the Consumer Credit Protection Act. Historically, ECOA
has been implemented in Regulation B of the Board of Governors of the
Federal Reserve System (Board), 12 CFR part 202. The Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank Act) \1\ amended
a number of consumer financial protection laws, including ECOA. In
addition to various substantive amendments, the Dodd-Frank Act
transferred rulemaking authority for ECOA to the Bureau of Consumer
Financial Protection (Bureau), effective July 21, 2011.\2\ See sections
1061 and 1085 of the Dodd-Frank Act. Pursuant to the Dodd-Frank Act and
ECOA, as amended, the Bureau is publishing for public comment an
interim final rule establishing a new Regulation B (Equal Credit
Opportunity), 12 CFR Part 1002, implementing ECOA (except with respect
to persons excluded from the Bureau's rulemaking authority by section
1029 of the Dodd-Frank Act).
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\1\ Public Law 111-203,124 Stat. 1376 (2010).
\2\ Dodd-Frank section 1029 generally excludes from this
transfer of authority, subject to certain exceptions, any rulemaking
authority over a motor vehicle dealer that is predominantly engaged
in the sale and servicing of motor vehicles, the leasing and
servicing of motor vehicles, or both.
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II. Summary of the Interim Final Rule
A. General
The interim final rule substantially duplicates the Board's
Regulation B as the Bureau's new Regulation B, 12 CFR Part 1002, making
only certain non-substantive, technical, formatting, and stylistic
changes. To minimize any potential confusion, the Bureau is preserving
the numbering systems of the Board's Regulation B, other than the new
part number. While this interim final rule generally incorporates the
Board's existing regulatory text, appendices (including model forms and
clauses), and supplements, as amended,\3\ the rule has been edited as
necessary to reflect nomenclature and other technical amendments
required by the Dodd-Frank Act. Notably this interim final rule does
not impose any new substantive obligations on regulated entities. In
future rulemakings, the Bureau expects to amend Regulation B to
implement certain other changes to ECOA made by the Dodd-Frank Act,
such as the addition of small business loan data collection and changes
to consumers' right to a copy of an appraisal, as well as possibly
increasing the duration of Regulation B's record-keeping requirement in
light of the expansion of the statute of limitations under the Dodd-
Frank Act from two to five years.
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\3\ See 76 FR 41590 (July 15, 2011).
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B. Specific Changes
The Bureau has made certain nomenclature and other non-substantive
changes consistently throughout Regulation B. References to the Board
and its administrative structure have been replaced with references to
the Bureau. Conforming edits have been made to internal cross-
references and addresses for filing applications and notices.
Conforming edits have also been made to reflect the scope of the
Bureau's authority pursuant to ECOA, as amended by the Dodd-Frank Act.
Historical references that are no longer applicable, and references to
effective dates that have passed, have been removed as appropriate. In
addition, certain changes have been made to the text of the Board's
Regulation B to conform to current codification standards of the Code
of Federal Regulations. For example, footnotes have been eliminated and
their substance moved to the body of the regulation as appropriate.
Finally, Sec. 1002.16(b)(2), as adopted by this
[[Page 79443]]
interim final rule, reflects the five-year statute of limitations for
civil actions under ECOA or Regulation B, as increased from the
previous two years by the Dodd-Frank Act.
The Board's Appendix A has been revised in this interim final rule
to update the Federal agencies that should be listed by particular
categories of creditors in adverse action notices pursuant to Sec.
1002.9(b)(1). Thus, the list has been revised to reflect the
elimination of the Office of Thrift Supervision and the grant of
enforcement authority under ECOA to the Bureau for depository
institutions and credit unions with total assets of more than $10
billion and their affiliates.\4\
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\4\ See Public Law 111-203, section 1025.
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With regard to nonbank creditors (other than affiliates of large
depository institutions and credit unions), the interim final rule has
left the language of Appendix A to the Board's Regulation B, 12 CFR
Part 202, unchanged for the time being. The Dodd-Frank Act assigned the
Bureau enforcement authority with respect to such nonbank entities
generally and created an Office of Fair Lending and Equal Opportunity
within the Bureau to focus on fair, equitable, and nondiscriminatory
access to credit.\5\ The interim rule's Appendix A has been adjusted to
focus on the Federal agencies that should be identified in adverse
action notices pursuant to Sec. 1002.9(b)(1). As revised, Appendix A
is therefore not intended to describe the allocation of enforcement
authority for ECOA and Regulation B following Dodd-Frank, but rather to
specify efficient points of contact. The Bureau expects that agencies
that receive ECOA complaints or inquiries will share that information
with other agencies as appropriate. The Bureau intends to work closely
with other relevant Federal agencies regarding the optimal intake and
routing of fair lending complaints and inquiries for nonbank entities.
Thus, the Bureau has delayed making additional updates to Appendix A
pending this interagency coordination.
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\5\ The FTC retains the ECOA enforcement authority that it
possessed prior to the Dodd-Frank Act. See 15 U.S.C. 1691c(c);
Public Law 111-203, section 1061(b)(5)(C)(i).
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III. Legal Authority
A. Rulemaking Authority
The Bureau is issuing this interim final rule pursuant to its
authority under ECOA and the Dodd-Frank Act. Effective July 21, 2011,
section 1061 of the Dodd-Frank Act transferred to the Bureau the
``consumer financial protection functions'' previously vested in
certain other Federal agencies. The term ``consumer financial
protection functions'' is defined to include ``all authority to
prescribe rules or issue orders or guidelines pursuant to any Federal
consumer financial law, including performing appropriate functions to
promulgate and review such rules, orders, and guidelines.'' \6\ The
ECOA is a Federal consumer financial law.\7\ Accordingly, effective
July 21, 2011, except with respect to persons excluded from the
Bureau's rulemaking authority by section 1029 of the Dodd-Frank Act,
the authority of the Board to issue regulations pursuant to ECOA
transferred to the Bureau.\8\
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\6\ Public Law 111-203, section 1061(a)(1). Effective on the
designated transfer date, July 21, 2011, the Bureau was also granted
``all powers and duties'' vested in each of the Federal agencies,
relating to the consumer financial protection functions, on the day
before the designated transfer date. Until this and other interim
final rules take effect, existing regulations for which rulemaking
authority transferred to the Bureau continue to govern persons
covered by this rule. See 76 FR 43569 (July 21, 2011).
\7\ Public Law 111-203, section 1002(14) (defining ``Federal
consumer financial law'' to include the ``enumerated consumer
laws''); id. Section 1002(12) (defining ``enumerated consumer laws''
to include ECOA).
\8\ Section 1066 of the Dodd-Frank Act grants the Secretary of
the Treasury interim authority to perform certain functions of the
Bureau. Pursuant to that authority, Treasury is publishing this
interim final rule on behalf of the Bureau.
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The ECOA, as amended, authorizes the Bureau to issue regulations to
carry out the provisions of ECOA.\9\ These regulations may contain such
classifications, differentiations, or other provisions, and may provide
for such adjustments and exceptions for any class of transactions, that
in the Bureau's judgment are necessary or proper to effectuate the
purpose of ECOA, to prevent circumvention or evasion of ECOA, or to
facilitate or substantiate compliance with ECOA.\10\ In its existing
regulation, the Board used this ECOA authority to establish extensive
rules concerning the taking and evaluation of credit applications,
procedures and notices for credit denials and other adverse action, and
the treatment of persons other than the applicant on credit
documents.\11\
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\9\ Id. Section 1085; 15 U.S.C. 1691b.
\10\ Id.
\11\ See the Board's Regulation B, 12 CFR part 202.
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B. Authority To Issue an Interim Final Rule Without Prior Notice and
Comment
The Administrative Procedure Act (APA) \12\ generally requires
public notice and an opportunity to comment before promulgation of
regulations.\13\ The APA provides exceptions to notice-and-comment
procedures, however, where an agency for good cause finds that such
procedures are impracticable, unnecessary, or contrary to the public
interest or when a rulemaking relates to agency organization,
procedure, and practice.\14\ The Bureau finds that there is good cause
to conclude that providing notice and opportunity for comment would be
unnecessary and contrary to the public interest under these
circumstances. In addition, substantially all the changes made by this
interim final rule, which were necessitated by the Dodd-Frank Act's
transfer of ECOA authority from the Board to the Bureau, relate to
agency organization, procedure, and practice and are thus exempt from
the APA's notice-and-comment requirements.
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\12\ 5 U.S.C. 551 et seq.
\13\ 5 U.S.C. 553(b), (c).
\14\ 5 U.S.C. 553(b)(3)(A), (B).
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The Bureau's good cause findings are based on the following
considerations. As an initial matter, the Board's existing regulation
was a result of notice-and-comment rulemaking to the extent required.
Moreover, the interim final rule published today does not impose any
new, substantive obligations on regulated entities. Rather, the interim
final rule makes only non-substantive, technical changes to the
existing text of the regulation, such as renumbering, changing internal
cross-references, replacing appropriate nomenclature to reflect the
transfer of authority to the Bureau, updating the statute of
limitations for civil actions to conform with the amendments of ECOA,
and changing the addresses of the Federal agencies identified in
adverse action notices. Given the technical nature of these changes,
and the fact that the interim final rule does not impose any additional
substantive requirements on covered entities, an opportunity for prior
public comment is unnecessary. In addition, recodifying the Board's
regulations to reflect the transfer of authority to the Bureau will
help facilitate compliance with ECOA and its implementing regulations
and will help reduce uncertainty regarding the applicable regulatory
framework. Using notice-and-comment procedures would delay this process
and thus be contrary to the public interest.
The APA generally requires that rules be published not less than 30
days before their effective dates. See 5 U.S.C. 553(d). As with the
notice and comment requirement, however, the APA allows an exception
when ``otherwise provided by the agency for good cause found and
published with the rule.'' 5 U.S.C. 553(d)(3). The Bureau finds that
there is good cause for providing less than 30
[[Page 79444]]
days notice here. A delayed effective date would harm consumers and
regulated entities by needlessly perpetuating discrepancies between the
amended statutory text and the implementing regulation, thereby
hindering compliance and prolonging uncertainty regarding the
applicable regulatory framework.\15\
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\15\ This interim final rule is one of 14 companion rulemakings
that together restate and recodify the implementing regulations
under 14 existing consumer financial laws (part III.C, below, lists
the 14 laws involved). In the interest of proper coordination of
this overall regulatory framework, which includes numerous cross-
references among some of the regulations, the Bureau is establishing
the same effective date of December 30, 2011 for those rules
published on or before that date and making those published
thereafter (if any) effective immediately.
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In addition, delaying the effective date of the interim final rule
for 30 days would provide no practical benefit to regulated entities in
this context and in fact could operate to their detriment. As discussed
above, the interim final rule published today does not impose any new,
substantive obligations on regulated entities. Instead, the rule makes
only non-substantive, technical changes to the existing text of the
regulation. Thus, regulated entities that are already in compliance
with the existing rules will not need to modify business practices as a
result of this rule. To the extent that one-time modifications to forms
are required, the Bureau has provided an ample implementation period to
allow appropriate advance notice and facilitate compliance without
suspending the benefits of the interim final rule during the
intervening period.
C. Section 1022(b)(2) of the Dodd-Frank Act
In developing the interim final rule, the Bureau has conducted an
analysis of potential benefits, costs, and impacts.\16\ The Bureau
believes that the interim final rule will benefit consumers and covered
persons by updating and recodifying Regulation B to reflect the
transfer of authority to the Bureau and certain other changes mandated
by the Dodd-Frank Act. This will help facilitate compliance with ECOA
and its implementing regulations and help reduce any uncertainty
regarding the applicable regulatory framework. Although the interim
final rule will require the modification of forms to reflect the
transfer of authority to the Bureau, as discussed below, the interim
final rule will not impose any new substantive obligations on consumers
or covered persons and is not expected to have any impact on consumers'
access to consumer financial products and services.
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\16\ Section 1022(b)(2)(A) of the Dodd-Frank Act addresses the
consideration of the potential benefits and costs of regulation to
consumers and covered persons, including the potential reduction of
access by consumers to consumer financial products or services; the
impact on depository institutions and credit unions with $10 billion
or less in total assets as described in section 1026 of the Dodd-
Frank Act; and the impact on consumers in rural areas. Section
1022(b)(2)(B) requires that the Bureau ``consult with the
appropriate prudential regulators or other Federal agencies prior to
proposing a rule and during the comment process regarding
consistency with prudential, market, or systemic objectives
administered by such agencies.'' The manner and extent to which
these provisions apply to interim final rules and to benefits,
costs, and impacts that are compelled by statutory changes rather
than discretionary Bureau action is unclear. Nevertheless, to inform
this rulemaking more fully, the Bureau performed the described
analyses and consultations.
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As a general matter, this interim final rule does not impose
additional reporting, disclosure or other requirements beyond those
previously in existence. As discussed above in part II of this
SUPPLEMENTARY INFORMATION, consistent with the existing regulation, the
Bureau's Sec. 1002.9(b)(1) requires creditors to provide a statement
of an applicant's rights under ECOA when adverse action is taken, and
this statement must include the name and address of the appropriate
Federal agency or agencies identified in Appendix A. The Bureau's new
Appendix A adds the Bureau and makes other changes to reflect the
elimination of the Office of Thrift Supervision, consistent with the
transfer of authority under the Dodd-Frank Act. To afford creditors
sufficient time to modify their existing forms, section 1002.9(b)(1)
provides creditors the option of including the Federal agency as
identified in the Board's existing Appendix A until January 1, 2013.
Thus, by January 1, 2013, certain categories of creditors will need
to make one-time revisions to their adverse action forms. The Bureau
estimates that these changes will take four hours per form, per
creditor; the precise number of form changes varies with the type of
affected creditor. The Bureau thus estimates that these changes will
impose a total cost of roughly $148,000 spread across approximately
1,000 creditors. These costs may be overstated to the extent that
multiple creditors use the same software vendors, who are able to
spread any costs over all of their affected clients. These estimates
may also be overstated because the Bureau is giving affected creditors
one year to effect the changes, thus allowing affected creditors to
include the changes in routine, scheduled systems updates during the
next year. These one-time changes to the affected disclosures
ultimately will provide ongoing benefits to consumers by providing them
with accurate information on appropriate agencies to contact with
complaints or inquiries regarding potential ECOA violations.
Although not required by the interim final rule, affected creditors
may incur some costs in updating compliance manuals and related
materials to reflect the new numbering and other technical changes
reflected in the new Regulation B. The Bureau has worked to reduce any
such burden by preserving the existing numbering to the extent
possible, and believes that such costs will likely be minimal. These
changes could be handled in the short term by providing a short,
standalone summary alerting users to the changes and in the long term
could be combined with other systems updates at the creditor's
convenience. The Bureau intends to continue investigating the possible
costs to affected entities of updating manuals and related materials to
reflect these changes and solicits comments on this and other issues
discussed in this section.
The interim final rule will have no unique impact on depository
institutions or credit unions with $10 billion or less in assets as
described in section 1026(a) of the Dodd-Frank Act. Also, the interim
final rule will have no unique impact on rural consumers.
In undertaking the process of recodifying Regulation B, as well as
regulations implementing thirteen other existing consumer financial
laws,\17\ the Bureau consulted the Federal Deposit Insurance
Corporation, the Office of the Comptroller of the Currency, the
National Credit Union Administration, the Board of Governors of the
Federal Reserve System, the Federal Trade Commission, and the
Department of Housing and Urban Development, including with respect to
consistency with any prudential, market, or systemic objectives that
may be administered by such agencies.\18\ The Bureau also has
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consulted with the Office of Management and Budget for technical
assistance. The Bureau expects to have further consultations with the
appropriate Federal agencies during the comment period.
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\17\ The fourteen laws implemented by this and its companion
rulemakings are: The Consumer Leasing Act, the Electronic Fund
Transfer Act (except with respect to section 920 of that Act), the
Equal Credit Opportunity Act, the Fair Credit Reporting Act (except
with respect to sections 615(e) and 628 of that act), the Fair Debt
Collection Practices Act, Subsections (b) through (f) of section 43
of the Federal Deposit Insurance Act, sections 502 through 509 of
the Gramm-Leach-Bliley Act (except for section 505 as it applies to
section 501(b)), the Home Mortgage Disclosure Act, the Real Estate
Settlement Procedures Act, the S.A.F.E. Mortgage Licensing Act, the
Truth in Lending Act, the Truth in Savings Act, section 626 of the
Omnibus Appropriations Act, 2009, and the Interstate Land Sales Full
Disclosure Act.
\18\ In light of the technical but voluminous nature of this
recodification project, the Bureau focused the consultation process
on a representative sample of the recodified regulations, while
making information on the other regulations available. The Bureau
expects to conduct differently its future consultations regarding
substantive rulemakings.
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IV. Request for Comment
Although notice and comment rulemaking procedures are not required,
the Bureau invites comments on this notice. Commenters are specifically
encouraged to identify any technical issues raised by the rule. The
Bureau is also seeking comment in response to a notice published at 76
FR 75825 (Dec. 5, 2011) concerning its efforts to identify priorities
for streamlining regulations that it has inherited from other Federal
agencies to address provisions that are outdated, unduly burdensome, or
unnecessary.
V. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996, requires each
agency to consider the potential impact of its regulations on small
entities, including small businesses, small governmental units, and
small not-for-profit organizations.\19\ The RFA generally requires an
agency to conduct an initial regulatory flexibility analysis (IRFA) and
a final regulatory flexibility analysis (FRFA) of any rule subject to
notice-and-comment rulemaking requirements, unless the agency certifies
that the rule will not have a significant economic impact on a
substantial number of small entities.\20\ The Bureau also is subject to
certain additional procedures under the RFA involving the convening of
a panel to consult with small business representatives prior to
proposing a rule for which an IRFA is required.\21\
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\19\ 5 U.S.C. 601 et seq.
\20\ 5 U.S.C. 603, 604.
\21\ 5 U.S.C. 609.
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The IRFA and FRFA requirements described above apply only where a
notice of proposed rulemaking is required,\22\ and the panel
requirement applies only when a rulemaking requires an IRFA.\23\ As
discussed above in part III, a notice of proposed rulemaking is not
required for this rulemaking.
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\22\ 5 U.S.C. 603(a), 604(a); 5 U.S.C. 553(b)(B).
\23\ 5 U.S.C. 609(b).
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In addition, as discussed above, this interim final rule has only a
minor impact on entities subject to Regulation B. Accordingly, the
undersigned certifies that this interim final rule will not have a
significant economic impact on a substantial number of small entities.
The rule imposes no new, substantive obligations on covered entities
and will require only minor, one-time adjustments to certain model
forms, as discussed in part III above. Moreover, as noted, the per-
creditor cost estimate discussed above may be overstated to the extent
that multiple creditors use the same software vendors, who are able to
spread costs over all of their affected clients. Small entities, in
particular, are especially likely to rely on outside vendors for
disclosure compliance systems and therefore may have even less burden
in complying with the one-time changes required by this interim final
rule.
VI. Paperwork Reduction Act
The Bureau may not conduct or sponsor, and a respondent is not
required to respond to, an information collection unless it displays a
currently valid Office of Management and Budget (OMB) control number.
This rule contains information collection requirements under the
Paperwork Reduction Act (PRA), which have been previously approved by
OMB, and the ongoing PRA burden for which is unchanged by this rule.
There are no new information collection requirements in this interim
final rule. The Bureau's OMB control number for this information
collection is: 3170-0013.
List of Subjects in 12 CFR Part 1002
Aged, Banks, Banking, Civil rights, Consumer protection, Credit,
Credit unions, Discrimination, Fair lending, Marital status
discrimination, National banks, National origin discrimination,
Penalties, Race discrimination, Religious discrimination, Reporting and
recordkeeping requirements, Savings associations, Sex discrimination.
Authority and Issuance
For the reasons set forth above, the Bureau of Consumer Financial
Protection adds Part 1002 to Chapter X in Title 12 of the Code of
Federal Regulations to read as follows:
PART 1002--EQUAL CREDIT OPPORTUNITY ACT (REGULATION B)
Sec.
1002.1 Authority, scope and purpose.
1002.2 Definitions.
1002.3 Limited exceptions for certain classes of transactions.
1002.4 General rules.
1002.5 Rules concerning requests for information.
1002.6 Rules concerning evaluation of applications.
1002.7 Rules concerning extensions of credit.
1002.8 Special purpose credit programs.
1002.9 Notifications.
1002.10 Furnishing of credit information.
1002.11 Relation to state law.
1002.12 Record retention.
1002.13 Information for monitoring purposes.
1002.14 Rules on providing appraisal reports.
1002.15 Incentives for self-testing and self-correction.
1002.16 Enforcement, penalties and liabilities.
Appendix A to Part 1002--Federal Agencies To Be Listed in Adverse
Action Notices
Appendix B to Part 1002--Model Application Forms
Appendix C to Part 1002--Sample Notification Forms
Appendix D to Part 1002--Issuance of Official Interpretations
Supplement I to Part 1002--Official Interpretations
Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1691b.
Sec. 1002.1 Authority, scope and purpose.
(a) Authority and scope. This part, known as Regulation B, is
issued by the Bureau of Consumer Financial Protection (Bureau) 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, this part applies to all persons who are
creditors, as defined in Sec. 1002.2(l), other than a person excluded
from coverage of this part by section 1029 of the Consumer Financial
Protection Act of 2010, Title X of the Dodd-Frank Wall Street Reform
and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376.
Information collection requirements contained in this part 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. 3170-0013.
(b) Purpose. The purpose of this part 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
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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. 1002.2 Definitions.
For the purposes of this part, 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 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;
(iii) A refusal or failure to authorize an account transaction at
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 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.
(e) 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. 1002.7(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 used by a creditor
for the type of credit requested. 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 Sec. Sec. 1002.3(a)-
(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 a credit decision, including
setting the terms of the credit. The term creditor includes a
creditor's assignee, transferee, or subrogee who so participates. For
purposes of Sec. Sec. 1002.4(a) and (b), the term creditor 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
part 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 non-creditworthy
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
[[Page 79447]]
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 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 in 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 Bureau.
(aa) State means any state, the District of Columbia, the
Commonwealth of Puerto Rico, or any territory or possession of the
United States.
Sec. 1002.3 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 part do not apply
to public utilities credit:
(i) Section 1002.5(d)(1) concerning information about marital
status; and
(ii) Section 1002.12(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 part do not apply
to securities credit:
(i) Section 1002.5(b) concerning information about the sex of an
applicant;
(ii) Section 1002.5(c) concerning information about a spouse or
former spouse;
(iii) Section 1002.5(d)(1) concerning information about marital
status;
(iv) Section 1002.7(b) relating to designation of name to the
extent necessary to comply with rules regarding an account in which a
broker or dealer has an interest, or rules regarding the aggregation of
accounts of spouses to determine controlling interests, beneficial
interests, beneficial ownership, or purchase limitations and
restrictions;
(v) Section 1002.7(c) relating to action concerning open-end
accounts, to the extent the action taken is on the basis of a change of
name or marital status;
(vi) Section 1002.7(d) relating to the signature of a spouse or
other person;
(vii) Section 1002.10 relating to furnishing of credit information;
and
(viii) Section 1002.12(b) relating to record retention.
(c) Incidental credit. (1) Definition. Incidental credit refers to
extensions of consumer credit other than 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 1026.4); and
(iii) That are not payable by agreement in more than four
installments.
(2) Exceptions. The following provisions of this part do not apply
to incidental credit:
(i) Section 1002.5(b) concerning information about the sex of an
applicant, but only to the extent necessary for medical records or
similar purposes;
(ii) Section 1002.5(c) concerning information about a spouse or
former spouse;
(iii) Section 1002.5(d)(1) concerning information about marital
status;
(iv) Section 1002.5(d)(2) concerning information about income
derived from alimony, child support, or separate maintenance payments;
(v) Section 1002.7(d) relating to the signature of a spouse or
other person;
(vi) Section 1002.9 relating to notifications;
(vii) Section 1002.10 relating to furnishing of credit information;
and
(viii) Section 1002.12(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. 1002.4(a), the
general rule against discrimination on a prohibited basis, the
requirements of this part do not apply to government credit.
Sec. 1002.4 General rules.
(a) Discrimination. A creditor shall not discriminate against an
applicant on
[[Page 79448]]
a prohibited basis regarding any aspect of a credit transaction.
(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.
1002.13(a).
(d) Form of disclosures. (1) General rule. A creditor that provides
in writing any disclosures or information required by this part must
provide the disclosures in a clear and conspicuous manner and, except
for the disclosures required by Sec. Sec. 1002.5 and 1002.13, in a
form the applicant may retain.
(2) Disclosures in electronic form. The disclosures required by
this part that are required to be given in writing may be provided to
the applicant in electronic form, subject to compliance with the
consumer consent and other applicable provisions of the Electronic
Signatures in Global and National Commerce Act (E-Sign Act) (15 U.S.C.
7001 et seq.). Where the disclosures under Sec. Sec. 1002.5(b)(1),
1002.5(b)(2), 1002.5(d)(1), 1002.5(d)(2), 1002.13, and 1002.14(a)(2)(i)
accompany an application accessed by the applicant in electronic form,
these disclosures may be provided to the applicant in electronic form
on or with the application form, without regard to the consumer consent
or other provisions of the E-Sign Act.
(e) Foreign-language disclosures. Disclosures may be made in
languages other than English, provided they are available in English
upon request.
Sec. 1002.5 Rules concerning requests for information.
(a) General rules. (1) Requests for information. Except as provided
in paragraphs (b) through (d) of this section, a creditor may request
any information in connection with a credit transaction. 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) through (d) of this section, a creditor shall request information
for monitoring purposes as required by Sec. 1002.13 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 part, or other Federal
or state statutes or regulations.
(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. Sec. 1002.8(b), (c), and (d).
(b) Limitation on information about race, color, religion, national
origin, or sex. A creditor shall not inquire about the race, color,
religion, national origin, or sex of an applicant or any other person
in connection with a credit transaction, except as provided in
paragraphs (b)(1) and (b)(2) of this section.
(1) Self-test. A creditor may inquire about the race, color,
religion, national origin, or sex of an applicant or any other person
in connection with a credit transaction for the purpose of conducting a
self-test that meets the requirements of Sec. 1002.15. A creditor that
makes such an inquiry shall disclose orally or in writing, at the time
the information is requested, that:
(i) The applicant will not be required to provide the information;
(ii) The creditor is requesting the information to monitor its
compliance with the Federal Equal Credit Opportunity Act;
(iii) Federal law prohibits the creditor from discriminating on the
basis of this information, or on the basis of an applicant's decision
not to furnish the information; and
(iv) If applicable, certain information will be collected based on
visual observation or surname if not provided by the applicant or other
person.
(2) Sex. 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.
(c) Information about a spouse or former spouse. (1) General rule.
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
(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 is
relying on property located in such a state as a basis for repayment of
the credit requested; 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 that an
applicant list any account on which the applicant is contractually
liable and to provide the name and address of the person in whose name
the account is held. A creditor may also ask an applicant to list the
names in which the applicant has previously received credit.
(d) 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) 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.
(e) Permanent residency and immigration status. A creditor may
inquire about the permanent residency and immigration status of an
applicant or any other person in connection with a credit transaction.
[[Page 79449]]
Sec. 1002.6 Rules concerning evaluation of applications.
(a) General rule concerning use of information. Except as otherwise
provided in the Act and this part, a creditor may consider any
information obtained, so long as the information is not used to
discriminate against an applicant on a prohibited basis. 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 part, 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, 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 make assumptions or use aggregate statistics
relating to the likelihood that any category 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 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 the applicant's
immigration status or status as a permanent resident of the United
States, 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 or
other person'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 part.
Sec. 1002.7 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 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
[[Page 79450]]
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 applicant is relying on property 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 credit
requested under the creditor's standards of creditworthiness; and
(ii) The applicant does not have sufficient separate property to
qualify for the 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 credit requested, a creditor may request a
cosigner, guarantor, endorser, or similar party. 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. 1002.8 Special purpose credit programs.
(a) Standards for programs. Subject to the provisions of paragraph
(b) of this section, the Act and this part 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 the
provisions of this part apply to each of the special purpose credit
programs described in paragraph (a) of this section except as 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 part.
(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 credit 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 credit program if the
signature is required by Federal or state law.
Sec. 1002.9 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:
(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 on 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 the applicant's written request for confirmation.
(3) Notification to business credit applicants. For business
credit, a creditor shall comply with the notification requirements of
this section in the following manner:
[[Page 79451]]
(i) With regard to a business that had gross revenues of $1 million
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) of this section, 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 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 entirely by telephone, a creditor
satisfies the requirements of paragraph (a)(3)(i) of this section 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 million 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) Notify the applicant, within a reasonable time, orally or in
writing, of the action taken; 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
the creditor's notification.
(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 or agencies listed in Appendix A of this part]. Until January 1,
2013, a creditor may comply with this paragraph (b)(1) and paragraph
(a)(2) of this section by including in the notice the name and address
as specified by the appropriate agency in Appendix A to 12 CFR Part
202, as in effect on October 1, 2011.
(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 a 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. 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. In the case of a
creditor that did not receive more than 150 applications during the
preceding calendar year, the requirements of this section (including
statements of specific reasons) are satisfied by oral notifications.
(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 the credit offered, each creditor
taking adverse action must comply with this section, 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. 1002.10 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. 1002.11 Relation to state law.
(a) Inconsistent state laws. Except as otherwise provided in this
section, this part alters, affects, or preempts only those state laws
that are inconsistent with the Act and this part and then only
[[Page 79452]]
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 part 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 part;
(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 part;
(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
special purpose credit program as defined by Sec. 1002.8.
(2) A creditor, state, or other interested party may request that
the Bureau determine whether a state law is inconsistent with the
requirements of the Act and this part.
(c) Laws on finance charges, loan ceilings. If married applicants
voluntarily apply for and obtain 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 Bureau for an exemption from the requirements of
the Act and this part for any class of credit transactions within the
state. The Bureau will grant such an exemption if the Bureau determines
that:
(i) The class of credit transactions is subject to state law
requirements substantially similar to those of the Act and this part 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 of the Act 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 part.
Sec. 1002.12 Record retention.
(a) Retention of prohibited information. A creditor may retain in
its files information that is prohibited by the Act or this part for
use in evaluating applications, without violating the Act or this part,
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 part or
other Federal or state statutes or regulations.
(b) Preservation of records. (1) Applications. For 25 months (12
months for business credit, except as provided in paragraph (b)(5) of
this section) after the date that a creditor notifies an applicant of
action taken on an application or of incompleteness, 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 part 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 part.
(2) Existing accounts. For 25 months (12 months for business
credit, except as provided in paragraph (b)(5) of this section) after
the date that a creditor notifies an applicant of adverse action
regarding an existing account, 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 part.
(3) Other applications. For 25 months (12 months for business
credit, except as provided in paragraph (b)(5) of this section) after
the date that a creditor receives an application for which the creditor
is not required to comply with the notification requirements of Sec.
1002.9, 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 months for business credit,
except as provided in paragraph (b)(5) of this section) if 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
part, 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 part, or if it has been served with notice of an action filed
pursuant to section 706 of the Act and Sec. 1002.16 of this part. 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 that had gross revenues in excess of $1 million 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. 1002.15) 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) Prescreened solicitations. For 25 months after the date on
which an offer
[[Page 79453]]
of credit is made to potential customers (12 months for business
credit, except as provided in paragraph (b)(5) of this section), the
creditor shall retain in original form or a copy thereof:
(i) The text of any prescreened solicitation;
(ii) The list of criteria the creditor used to select potential
recipients of the solicitation; and
(iii) Any correspondence related to complaints (formal or informal)
about the solicitation.
Sec. 1002.13 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):
(i) Ethnicity, using the categories Hispanic or Latino, and not
Hispanic or Latino; and race, using the categories American Indian or
Alaska Native, Asian, Black or African American, Native Hawaiian or
Other Pacific Islander, and White;
(ii) Sex;
(iii) Marital status, using the categories married, unmarried, and
separated; and
(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 information. Questions regarding ethnicity, race,
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 ethnicity, race, 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 ethnicity, race, 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 ethnicity, race 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. 1002.14 Rules on providing appraisal reports.
(a) Providing appraisals. A creditor shall provide a copy of an
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 an
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 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. 1002.9 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. 1002.9 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 appraisal
reports 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. 1002.15 Incentives for self-testing and self-correction.
(a) General rules. (1) Voluntary self-testing and correction. The
report or results of a 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 part; 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 the information 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
[[Page 79454]]
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) Scope of privilege. (1) General rule. 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 part; or
(ii) By a government agency or an applicant (including a
prospective applicant who alleges a violation of Sec. 1002.4(b)) in
any proceeding or civil action in which a violation of the Act or this
part 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.
1002.12(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. 1002.12.
(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 part 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 paragraph (d)(3)
remains privileged under paragraph (d)(1) of this section.
Sec. 1002.16 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
part 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, National Credit
Union Administration, Surface Transportation Board, Civil Aeronautics
Board, Secretary of Agriculture, Farm Credit Administration, Securities
and Exchange Commission, Small Business Administration, Secretary of
Transportation, and Bureau of Consumer Financial Protection.
(2) Except to the extent that administrative enforcement is
specifically assigned to some government agency other than the Bureau,
and subject to subtitle B of the Consumer Financial Protection Act of
2010, the Federal Trade Commission is authorized to enforce the
requirements imposed under the Act and this part.
(b) Penalties and liabilities. (1) Sections 702(g) and 706(a) and
(b) of the Act provide that any creditor that fails to comply with a
requirement imposed by the Act or this part is subject to civil
liability for actual and punitive damages in individual or class
actions. Pursuant to sections 702(g) and 704(b), (c), and (d) of the
Act, violations of the Act or this part also constitute violations of
other Federal laws. Liability for punitive damages can apply only 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) of the Act, a civil action under
the Act or this part 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 five 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 five
years after the alleged violation.
(3) If an agency responsible for administrative enforcement is
unable to obtain compliance with the Act or this part, it may refer the
matter to the Attorney General of the United States. If the Bureau, the
Comptroller of the Currency, the Federal Deposit Insurance Corporation,
the Board of Governors of the Federal Reserve System, or the National
Credit Union Administration has reason to believe that one or more
creditors have engaged in a pattern or practice of discouraging or
denying applications in violation of the Act or this part, the agency
shall refer the matter to the Attorney General. If the agency has
reason to believe that one or more creditors violated section 701(a) of
the Act, the agency may refer a matter to the Attorney General.
(4) On referral, or whenever the Attorney General has reason to
believe that one or more creditors have engaged in a pattern or
practice in violation of the Act or this 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 Comptroller of the Currency, the Federal Deposit
Insurance Corporation, the Board of Governors of the Federal Reserve
System, or the National Credit Union Administration has reason to
believe (as a result of a consumer complaint, a consumer compliance
examination, or some other basis) that a violation of the Act or this
part 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:
(i) Notify the Secretary of Housing and Urban Development; and
(ii) Inform the applicant that the Secretary of Housing and Urban
Development has been notified and that remedies may be available under
the Fair Housing Act.
(c) Failure of compliance. A creditor's failure to comply with
Sec. Sec. 1002.6(b)(6), 1002.9, 1002.10, 1002.12 or 1002.13 is not a
violation if it results from an
[[Page 79455]]
inadvertent error. On discovering an error under Sec. Sec. 1002.9 and
1002.10, the creditor shall correct it as soon as possible. If a
creditor inadvertently obtains the monitoring information regarding the
ethnicity, race, and sex of the applicant in a dwelling-related
transaction not covered by Sec. 1002.13, the creditor may retain
information and act on the application without violating the
regulation.
Appendix A to Part 1002--Federal Agencies To Be Listed in Adverse
Action Notices
The following list indicates the Federal agency or agencies that
should be listed in notices provided by creditors pursuant to Sec.
1002.9(b)(1). Any questions concerning a particular creditor may be
directed to such agencies. This list is not intended to describe
agencies' enforcement authority for ECOA and Regulation B. 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).
1. Banks, savings associations, and credit unions with total
assets of over $10 billion and their affiliates: Bureau of Consumer
Financial Protection, 1700 G Street NW., Washington DC 20006. Such
affiliates that are not banks, savings associations, or credit
unions also should list, in addition to the Bureau: FTC Regional
Office for region in which the creditor operates or Federal Trade
Commission, Equal Credit Opportunity, Washington, DC 20580.
2. To the extent not included in item 1 above:
a. National banks, Federal savings associations, and Federal
branches and Federal agencies of foreign banks: Office of the
Comptroller of the Currency, Customer Assistance Group, 1301
McKinney Street, Suite 3450, Houston, TX 77010-9050
b. 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
Consumer Help Center, P.O. Box 1200, Minneapolis, MN 55480.
c. Nonmember Insured Banks, Insured State Branches of Foreign
Banks, and Insured State Savings Associations: FDIC Consumer
Response Center, 1100 Walnut Street, Box 11, Kansas City,
MO 64106.
d. Federal Credit Unions: National Credit Union Administration,
Office of Consumer Protection (OCP), Division of Consumer Compliance
and Outreach (DCCO), 1775 Duke Street, Alexandria, VA 22314.
3. Air carriers: Assistant General Counsel for Aviation
Enforcement and Proceedings, Department of Transportation, 400
Seventh Street SW., Washington, DC 20590.
4. Creditors Subject to Surface Transportation Board: Office of
Proceedings, Surface Transportation Board, Department of
Transportation, 1925 K Street NW., Washington, DC 20423.
5. Creditors Subject to Packers and Stockyards Act: Nearest
Packers and Stockyards Administration area supervisor.
6. Small Business Investment Companies: Associate Deputy
Administrator for Capital Access, United States Small Business
Administration, 409 Third Street SW., 8th Floor, Washington, DC
20416.
7. Brokers and Dealers: Securities and Exchange Commission,
Washington, DC 20549.
8. 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.
9. 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 1002--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 which contains a model disclosure for use in complying
with Sec. 1002.13 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. 1002.5; 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), (c) and (d) of Sec. 1002.5 of this
part.
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Appendix C to Part 1002--Sample Notification Forms
1. This Appendix contains ten 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
Sec. Sec. 1002.9(a)(1) and (2)(i) of this part. Form C-5 is a
notice of disclosure of the right to request specific reasons for
adverse action under Sec. Sec. 1002.9(a)(1) and (2)(ii). Form C-6
is designed for use in notifying an applicant, under Sec.
1002.9(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. 1002.9(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. 1002.14. Form C-10 is designed for use in
notifying an applicant for nonmortgage credit that the creditor is
requesting applicant characteristic information.
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 was
considered in the credit decision). A creditor must provide the
section 615(a) disclosure when adverse action is taken against a
consumer based on information from a consumer reporting agency. A
creditor must provide the section 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 section 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 section 615(a) or section 615(b) disclosure.
Optional language in Forms C-1 through C-5 may be used to direct the
consumer to the entity that provided the credit score for any
questions about the credit score, along with the entity's contact
information. Creditors may use or not use this additional language
without losing the safe harbor, since the language is optional.
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.
1002.9(a)(2)(i). Proper use of Forms C-5 and C-6 constitutes full
compliance with Sec. Sec. 1002.9(a)(2)(ii) and 1002.9(c)(2),
respectively. Proper use of Forms C-7 and C-8 will satisfy the
requirements of Sec. Sec. 1002.9(a)(2)(i) and (ii), respectively,
for applications for business credit. Proper use of Form C-9 will
satisfy the requirements of Sec. 1002.14 of this part. Proper use
of Form C-10 will satisfy the requirements of Sec. 1002.5(b)(1).
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
----Collection action or judgment
----Garnishment or attachment
----Foreclosure or repossession
----Bankruptcy
----Number of recent inquiries on credit bureau report
----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:------------------------------------------
[We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score is
a number that reflects the information in your consumer report. Your
credit score can change, depending on how the information in your
consumer report changes.
Your credit score:-----------------------------------------------------
Date:------------------------------------------------------------------
Scores range from a low of -------- to a high of --------.
Key factors that adversely affected your credit score:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you should
contact [entity that provided the credit score] at:
Address:---------------------------------------------------------------
[[Toll-free] Telephone number: --------]
----Our credit decision was based in whole or in part on information
[[Page 79469]]
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):
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 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 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].
[We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score is
a number that reflects the information in your consumer report. Your
credit score can change, depending on how the information in your
consumer report changes.
Your credit score:-----------------------------------------------------
Date:------------------------------------------------------------------
Scores range from a low of -------- to a high of --------.
Key factors that adversely affected your credit score:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you should
contact [entity that provided the credit score] at:
Address:---------------------------------------------------------------
[[Toll-free] 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.
[Reasons for Denial of Credit]
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
Number of recent inquiries on credit bureau report
[Your Right to Get Your Consumer Report]
In evaluating your application the consumer reporting agency listed
below provided us with information that in whole or in part influenced
our decision. The consumer 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. 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.
[Information about Your Credit Score]
[Information about Your Credit Score]
We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score is
a number that reflects the information in your consumer report. Your
credit score can change, depending on how the information in your
consumer report changes.
Your credit score:-----------------------------------------------------
Date:------------------------------------------------------------------
Scores range from a low of -------- to a high of --------.
[[Page 79470]]
Key factors that adversely affected your credit score:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you should
contact [entity that provided the credit score] at:
Address:---------------------------------------------------------------
[Toll-free] Telephone number: --------]
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.
[We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score is
a number that reflects the information in your consumer report. Your
credit score can change, depending on how the information in your
consumer report changes.
Your credit score:-----------------------------------------------------
Date:------------------------------------------------------------------
Scores range from a low of -------- to a high of --------.
Key factors that adversely affected your credit score:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you should
contact [entity that provided the credit score] at:
Address:---------------------------------------------------------------
[Toll-free] Telephone number:--------]
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 received 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
[We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score is
a number that reflects the information in your consumer report. Your
credit score can change, depending on how the information in your
consumer report changes.
Your credit score:-----------------------------------------------------
Date:------------------------------------------------------------------
Scores range from a low of -------- to a high of --------.
Key factors that adversely affected your credit score:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you should
contact [entity that provided the credit score] at:
Address:---------------------------------------------------------------
[Toll-free] Telephone number: --------]
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
[[Page 79471]]
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, which
prohibits unlawful discrimination. You are not required to provide this
information. We will not take this information (or your decision not to
provide this information) into account in connection with your
application or credit transaction. The law provides that a creditor may
not discriminate based on this information, or based on whether or not
you choose to provide it. [If you choose not to provide the
information, we will note it by visual observation or surname].
Appendix D to Part 1002--Issuance of Official Interpretations
1.Official Interpretations. Interpretations of this part issued by
officials of the Bureau 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 Interpretations. A request for
an official interpretation should be in writing and addressed to the
Assistant Director, Office of Regulations, Division of Research,
Markets, and Regulations, Bureau of Consumer Financial Protection, 1700
G Street, NW., Washington, DC 20006. 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 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 1002--Official Interpretations
Following is an official interpretation of Regulation B (12 CFR
Part 1002) issued by the Bureau of Consumer Financial Protection.
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 Bureau. This commentary
is the means by which the Bureau of Consumer Financial Protection
issues official 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 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 interpretations will be issued only by means
of this commentary.
3. 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. 1002.2(c) are further divided by
subparagraph, such as comment 2(c)(1)(ii)-1 and comment 2(c)(2)(ii-
1.
Section 1002.1--Authority, Scope, and Purpose
1(a) Authority and scope.
[[Page 79472]]
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, except for an
entity excluded from coverage of this part (but not the Act) by
section 1029 of the Consumer Financial Protection Act of 2010 (12
U.S.C. 5519). 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 1026). Further, the definition of 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. Bureau. The term Bureau, as used in this part, means the
Bureau of Consumer Financial Protection.
Section 1002.2--Definitions
2(c) Adverse action.
Paragraph 2(c)(1)(i).
1. Application for credit. If the applicant applied in
accordance with the creditor's procedures, a refusal to refinance or
extend the term of a business or other loan is adverse action.
Paragraph 2(c)(1)(ii).
1. 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 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.
1002.9.
2. 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. 1002.9.
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 an account when the
accountholder is currently in default or delinquent on that account.
Notification in accordance with Sec. 1002.9 of the regulation
generally is required, however, if the creditor's action is based on
a past delinquency or default on the account.
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 that fraud is involved.
iv. The authorization facilities are not functioning.
v. Billing statements have been returned to the creditor for
lack of a forwarding address.
2. Application for increase in available credit. A refusal or
failure to authorize an account transaction at the point of sale or
loan is not adverse action except when the refusal is a denial of an
application, submitted in accordance with the creditor's procedures,
for an increase in the amount of credit.
Paragraph 2(c)(2)(v).
1. Terms of credit versus type of credit offered. When an
applicant applies for credit and the creditor does not offer the
credit terms requested by the applicant (for example, the interest
rate, length of maturity, collateral, or amount of downpayment), a
denial of the application for that reason is adverse action (unless
the creditor makes a counteroffer that is accepted by the applicant)
and the applicant is entitled to notification under Sec. 1002.9.
2(e) Applicant.
1. Request to assume loan. If a mortgagor sells or transfers the
mortgaged property and the buyer makes an application to the
creditor to assume the mortgage loan, the mortgagee must treat the
buyer as an applicant unless its policy is not to permit
assumptions.
2(f) Application.
1. General. A creditor has the latitude under the regulation to
establish its own application process and to decide the type and
amount of information it will require from credit applicants.
2. Procedures used. The term ``procedures'' refers to the actual
practices followed by a creditor for making credit decisions as well
as its stated application procedures. For example, if a creditor's
stated policy is to require all applications to be in writing on the
creditor's application form, but the creditor also makes credit
decisions based on oral requests, the creditor's procedures are to
accept both oral and written applications.
3. When an inquiry or prequalification request becomes an
application. A creditor is encouraged to provide consumers with
information about loan terms. However, if in giving information to
the consumer the creditor also evaluates information about the
consumer, decides to decline the request, and communicates this to
the consumer, the creditor has treated the inquiry or
prequalification request as an application and must then comply with
the notification requirements under Sec. 1002.9. Whether the
inquiry or prequalification request becomes an application depends
on how the creditor responds to the consumer, not on what the
consumer says or asks. (See comment 9-5 for further discussion of
prequalification requests; see comment 2(f)-5 for a discussion of
preapproval requests.)
4. Examples of inquiries that are not applications. The
following examples illustrate situations in which only an inquiry
has taken place:
i. A consumer calls to ask about loan terms and an employee
explains the creditor's basic loan terms, such as interest rates,
loan-to-value ratio, and debt-to-income ratio.
ii. A consumer calls to ask about interest rates for car loans,
and, in order to quote the appropriate rate, the loan officer asks
for the make and sales price of the car and the amount of the
downpayment, then gives the consumer the rate.
iii. A consumer asks about terms for a loan to purchase a home
and tells the loan officer her income and intended downpayment, but
the loan officer only explains the creditor's loan-to-value ratio
policy and other basic lending policies, without telling the
consumer whether she qualifies for the loan.
iv. A consumer calls to ask about terms for a loan to purchase
vacant land and states his income and the sales price of the
property to be financed, and asks whether he qualifies for a loan;
the employee responds by describing the general lending policies,
explaining that he would need to look at all of the consumer's
qualifications before making a decision, and offering to send an
application form to the consumer.
5. Examples of an application. An application for credit
includes the following situations:
i. A person asks a financial institution to ``preapprove'' her
for a loan (for example, to finance a house or a vehicle she plans
to buy) and the institution reviews the request under a program in
which the institution, after a comprehensive analysis of her
creditworthiness, issues a written commitment valid for a designated
period of time to extend a loan up to a specified amount. The
written commitment may not be subject to conditions other than
conditions that require the identification of adequate collateral,
conditions that require no material change in the applicant's
financial condition or creditworthiness prior to funding the loan,
and limited conditions that are not related to the financial
condition or creditworthiness of the applicant that the lender
ordinarily attaches to a traditional application (such as
certification of a clear termite inspection for a home purchase
loan, or a maximum mileage requirement for a used car loan). But if
the creditor's program does not provide for giving written
commitments, requests for preapprovals are treated as
prequalification requests for purposes of the regulation.
ii. Under the same facts as above, the financial institution
evaluates the person's creditworthiness and determines that she does
not qualify for a preapproval.
6. Completed application--diligence requirement. The regulation
defines a completed application in terms that give a
[[Page 79473]]
creditor the latitude to establish its own information requirements.
Nevertheless, the creditor must act with reasonable diligence to
collect information needed to complete the application. For example,
the creditor should request information from third parties, such as
a credit report, promptly after receiving the application. If
additional information is needed from the applicant, such as an
address or a telephone number to verify employment, the creditor
should contact the applicant promptly. (But see comment 9(a)(1)-3,
which discusses the creditor's option to deny an application on the
basis of incompleteness.)
2(g) Business credit.
1. Definition. The test for deciding whether a transaction
qualifies as business credit is one of primary purpose. For example,
an open-end credit account used for both personal and business
purposes is not business credit unless the primary purpose of the
account is business-related. A creditor may rely on an applicant's
statement of the purpose for the credit requested.
2(j) Credit.
1. General. Regulation B covers a wider range of credit
transactions than Regulation Z (Truth in Lending). Under Regulation
B, a transaction is credit if there is a right to defer payment of a
debt--regardless of whether the credit is for personal or commercial
purposes, the number of installments required for repayment, or
whether the transaction is subject to a finance charge.
2(l) Creditor.
1. Assignees. The term creditor includes all persons
participating in the credit decision. This may include an assignee
or a potential purchaser of the obligation who influences the credit
decision by indicating whether or not it will purchase the
obligation if the transaction is consummated.
2. Referrals to creditors. For certain purposes, the term
creditor includes persons such as real estate brokers, automobile
dealers, home builders, and home-improvement contractors who do not
participate in credit decisions but who only accept applications and
refer applicants to creditors, or select or offer to select
creditors to whom credit requests can be made. These persons must
comply with Sec. 1002.4(a), the general rule prohibiting
discrimination, and with Sec. 1002.4(b), the general rule against
discouraging applications.
2(p) Empirically derived and other credit scoring systems.
1. Purpose of definition. The definition under Sec. Sec.
1002.2(p)(1)(i) through (iv) sets the criteria that a credit system
must meet in order to use age as a predictive factor. Credit systems
that do not meet these criteria are judgmental systems and may
consider age only for the purpose of determining a ``pertinent
element of creditworthiness.'' (Both types of systems may favor an
elderly applicant. See Sec. 1002.6(b)(2).)
2. Periodic revalidation. The regulation does not specify how
often credit scoring systems must be revalidated. The credit scoring
system must be revalidated frequently enough to ensure that it
continues to meet recognized professional statistical standards for
statistical soundness. To ensure that predictive ability is being
maintained, the creditor must periodically review the performance of
the system. This could be done, for example, by analyzing the loan
portfolio to determine the delinquency rate for each score interval,
or by analyzing population stability over time to detect deviations
of recent applications from the applicant population used to
validate the system. If this analysis indicates that the system no
longer predicts risk with statistical soundness, the system must be
adjusted as necessary to reestablish its predictive ability. A
creditor is responsible for ensuring its system is validated and
revalidated based on the creditor's own data.
3. Pooled data scoring systems. A scoring system or the data
from which to develop such a system may be obtained from either a
single credit grantor or multiple credit grantors. The resulting
system will qualify as an empirically derived, demonstrably and
statistically sound, credit scoring system provided the criteria set
forth in paragraph (p)(1)(i) through (iv) of this section are met. A
creditor is responsible for ensuring its system is validated and
revalidated based on the creditor's own data when it becomes
available.
4. Effects test and disparate treatment. An empirically derived,
demonstrably and statistically sound, credit scoring system may
include age as a predictive factor (provided that the age of an
elderly applicant is not assigned a negative factor or value).
Besides age, no other prohibited basis may be used as a variable.
Generally, credit scoring systems treat all applicants objectively
and thus avoid problems of disparate treatment. In cases where a
credit scoring system is used in conjunction with individual
discretion, disparate treatment could conceivably occur in the
evaluation process. In addition, neutral factors used in credit
scoring systems could nonetheless be subject to challenge under the
effects test. (See comment 6(a)-2 for a discussion of the effects
test).
2(w) Open-end credit.
1. Open-end real estate mortgages. The term ``open-end credit''
does not include negotiated advances under an open-end real estate
mortgage or a letter of credit.
2(z) Prohibited basis.
1. Persons associated with applicant. As used in this part,
prohibited basis refers not only to characteristics--the race,
color, religion, national origin, sex, marital status, or age--of an
applicant (or officers of an applicant in the case of a corporation)
but also to the characteristics of individuals with whom an
applicant is affiliated or with whom the applicant associates. This
means, for example, that under the general rule stated in Sec.
1002.4(a), a creditor may not discriminate against an applicant
because of that person's personal or business dealings with members
of a certain religion, because of the national origin of any persons
associated with the extension of credit (such as the tenants in the
apartment complex being financed), or because of the race of other
residents in the neighborhood where the property offered as
collateral is located.
2. National origin. A creditor may not refuse to grant credit
because an applicant comes from a particular country but may take
the applicant's immigration status into account. A creditor may also
take into account any applicable law, regulation, or executive order
restricting dealings with citizens (or the government) of a
particular country or imposing limitations regarding credit extended
for their use.
3. Public assistance program. Any Federal, state, or local
governmental assistance program that provides a continuing, periodic
income supplement, whether premised on entitlement or need, is
``public assistance'' for purposes of the regulation. The term
includes (but is not limited to) Temporary Aid to Needy Families,
food stamps, rent and mortgage supplement or assistance programs,
social security and supplemental security income, and unemployment
compensation. Only physicians, hospitals, and others to whom the
benefits are payable need consider Medicare and Medicaid as public
assistance.
Section 1002.3--Limited Exceptions for Certain Classes of
Transactions
1. Scope. Under this section, procedural requirements of the
regulation do not apply to certain types of credit. All classes of
transactions remain subject to Sec. 1002.4(a), the general rule
barring discrimination on a prohibited basis, and to any other
provision not specifically excepted.
3(a) Public-utilities credit.
1. Definition. This definition applies only to credit for the
purchase of a utility service, such as electricity, gas, or
telephone service. Credit provided or offered by a public utility
for some other purpose--such as for financing the purchase of a gas
dryer, telephone equipment, or other durable goods, or for
insulation or other home improvements--is not excepted.
2. Security deposits. A utility company is a creditor when it
supplies utility service and bills the user after the service has
been provided. Thus, any credit term (such as a requirement for a
security deposit) is subject to the regulation's bar against
discrimination on a prohibited basis.
3. Telephone companies. A telephone company's credit
transactions qualify for the exceptions provided in Sec.
1002.3(a)(2) only if the company is regulated by a government unit
or files the charges for service, delayed payment, or any discount
for prompt payment with a government unit.
3(c) Incidental credit.
1. Examples. If a service provider (such as a hospital, doctor,
lawyer, or merchant) allows the client or customer to defer the
payment of a bill, this deferral of debt is credit for purposes of
the regulation, even though there is no finance charge and no
agreement for payment in installments. Because of the exceptions
provided by this section, however, these particular credit
extensions are excepted from compliance with certain procedural
requirements as specified in Sec. 1002.3(c).
3(d) Government credit.
1. Credit to governments. The exception relates to credit
extended to (not by) governmental entities. For example, credit
extended to a local government is covered by this exception, but
credit extended to consumers by a Federal or state housing agency
does not qualify for special treatment under this category.
[[Page 79474]]
Section 1002.4--General Rules
Paragraph 4(a).
1. Scope of rule. The general rule stated in Sec. 1002.4(a)
covers all dealings, without exception, between an applicant and a
creditor, whether or not addressed by other provisions of the
regulation. Other provisions of the regulation identify specific
practices that the Bureau has decided are impermissible because they
could result in credit discrimination on a basis prohibited by the
Act. The general rule covers, for example, application procedures,
criteria used to evaluate creditworthiness, administration of
accounts, and treatment of delinquent or slow accounts. Thus,
whether or not specifically prohibited elsewhere in the regulation,
a credit practice that treats applicants differently on a prohibited
basis violates the law because it violates the general rule.
Disparate treatment on a prohibited basis is illegal whether or not
it results from a conscious intent to discriminate.
2. Examples.
i. Disparate treatment would exist, for example, in the
following situations:
A. A creditor provides information only on ``subprime'' and
similar products to minority applicants who request information
about the creditor's mortgage products, but provides information on
a wider variety of mortgage products to similarly situated
nonminority applicants.
B. A creditor provides more comprehensive information to men
than to similarly situated women.
C. A creditor requires a minority applicant to provide greater
documentation to obtain a loan than a similarly situated nonminority
applicant.
D. A creditor waives or relaxes credit standards for a
nonminority applicant but not for a similarly situated minority
applicant.
ii. Treating applicants differently on a prohibited basis is
unlawful if the creditor lacks a legitimate nondiscriminatory reason
for its action, or if the asserted reason is found to be a pretext
for discrimination.
Paragraph 4(b).
1. Prospective applicants. Generally, the regulation's
protections apply only to persons who have requested or received an
extension of credit. In keeping with the purpose of the Act--to
promote the availability of credit on a nondiscriminatory basis--
Sec. 1002.4(b) covers acts or practices directed at prospective
applicants that could discourage a reasonable person, on a
prohibited basis, from applying for credit. Practices prohibited by
this section include:
i. A statement that the applicant should not bother to apply,
after the applicant states that he is retired.
ii. The use of words, symbols, models or other forms of
communication in advertising that express, imply, or suggest a
discriminatory preference or a policy of exclusion in violation of
the Act.
iii. The use of interview scripts that discourage applications
on a prohibited basis.
2. Affirmative advertising. A creditor may affirmatively solicit
or encourage members of traditionally disadvantaged groups to apply
for credit, especially groups that might not normally seek credit
from that creditor.
Paragraph 4(c).
1. Requirement for written applications. Model application forms
are provided in Appendix B to the regulation, although use of a
printed form is not required. A creditor will satisfy the
requirement by writing down the information that it normally
considers in making a credit decision. The creditor may complete an
application on behalf of an applicant and need not require the
applicant to sign the application.
2. Telephone applications. A creditor that accepts applications
by telephone for dwelling-related credit covered by Sec. 1002.13
can meet the requirement for written applications by writing down
pertinent information that is provided by the applicant.
3. Computerized entry. Information entered directly into and
retained by a computerized system qualifies as a written application
under this paragraph. (See the commentary to Sec. 1002.13(b),
Applications through electronic media and Applications through
video.)
Paragraph 4(d).
1. Clear and conspicuous. This standard requires that
disclosures be presented in a reasonably understandable format in a
way that does not obscure the required information. No minimum type
size is mandated, but the disclosures must be legible, whether
typewritten, handwritten, or printed by computer.
2. Form of disclosures. Whether the disclosures required to be
on or with an application must be in electronic form depends upon
the following:
i. If an applicant accesses a credit application electronically
(other than as described under ii below), such as online at a home
computer, the creditor must provide the disclosures in electronic
form (such as with the application form on its Web site) in order to
meet the requirement to provide disclosures in a timely manner on or
with the application. If the creditor instead mailed paper
disclosures to the applicant, this requirement would not be met.
ii. In contrast, if an applicant is physically present in the
creditor's office, and accesses a credit application electronically,
such as via a terminal or kiosk (or if the applicant uses a terminal
or kiosk located on the premises of an affiliate or third party that
has arranged with the creditor to provide applications to
consumers), the creditor may provide disclosures in either
electronic or paper form, provided the creditor complies with the
timing, delivery, and retainability requirements of the regulation.
Section 1002.5--Rules Concerning Requests for Information
5(a) General rules.
Paragraph 5(a)(1).
1. Requests for information. This section governs the types of
information that a creditor may gather. Section1002.6 governs how
information may be used.
Paragraph 5(a)(2).
1. Local laws. Information that a creditor is allowed to collect
pursuant to a ``state'' statute or regulation includes information
required by a local statute, regulation, or ordinance.
2. Information required by Regulation C. Regulation C generally
requires creditors covered by the Home Mortgage Disclosure Act
(HMDA) to collect and report information about the race, ethnicity,
and sex of applicants for home-improvement loans and home-purchase
loans, including some types of loans not covered by Sec. 1002.13.
3. Collecting information on behalf of creditors. Persons such
as loan brokers and correspondents do not violate the ECOA or
Regulation B if they collect information that they are otherwise
prohibited from collecting, where the purpose of collecting the
information is to provide it to a creditor that is subject to the
Home Mortgage Disclosure Act or another Federal or state statute or
regulation requiring data collection.
5(d) Other limitations on information requests.
Paragraph 5(d)(1).
1. Indirect disclosure of prohibited information. The fact that
certain credit-related information may indirectly disclose marital
status does not bar a creditor from seeking such information. For
example, the creditor may ask about:
i. The applicant's obligation to pay alimony, child support, or
separate maintenance income.
ii. The source of income to be used as the basis for repaying
the credit requested, which could disclose that it is the income of
a spouse.
iii. Whether any obligation disclosed by the applicant has a co-
obligor, which could disclose that the co-obligor is a spouse or
former spouse.
iv. The ownership of assets, which could disclose the interest
of a spouse.
Paragraph 5(d)(2).
1. Disclosure about income. The sample application forms in
Appendix B to the regulation illustrate how a creditor may inform an
applicant of the right not to disclose alimony, child support, or
separate maintenance income.
2. General inquiry about source of income. Since a general
inquiry about the source of income may lead an applicant to disclose
alimony, child support, or separate maintenance income, a creditor
making such an inquiry on an application form should preface the
request with the disclosure required by this paragraph.
3. Specific inquiry about sources of income. A creditor need not
give the disclosure if the inquiry about income is specific and
worded in a way that is unlikely to lead the applicant to disclose
the fact that income is derived from alimony, child support, or
separate maintenance payments. For example, an application form that
asks about specific types of income such as salary, wages, or
investment income need not include the disclosure.
Section 1002.6--Rules Concerning Evaluation of Applications
6(a) General rule concerning use of information.
1. General. When evaluating an application for credit, a
creditor generally may consider any information obtained. However, a
creditor may not consider in its evaluation of creditworthiness any
information that it is barred by Sec. 1002.5 from obtaining or from
[[Page 79475]]
using for any purpose other than to conduct a self-test under Sec.
1002.15.
2. Effects test. The effects test is a judicial doctrine that
was developed in a series of employment cases decided by the U.S.
Supreme Court under Title VII of the Civil Rights Act of 1964 (42
U.S.C. 2000e et seq.), and the burdens of proof for such employment
cases were codified by Congress in the Civil Rights Act of 1991 (42
U.S.C. 2000e-2). Congressional intent that this doctrine apply to
the credit area is documented in the Senate Report that accompanied
H.R. 6516, No. 94-589, pp. 4-5; and in the House Report that
accompanied H.R. 6516, No. 94-210, p.5. The Act and regulation may
prohibit a creditor practice that is discriminatory in effect
because it has a disproportionately negative impact on a prohibited
basis, even though the creditor has no intent to discriminate and
the practice appears neutral on its face, unless the creditor
practice meets a legitimate business need that cannot reasonably be
achieved as well by means that are less disparate in their impact.
For example, requiring that applicants have income in excess of a
certain amount to qualify for an overdraft line of credit could mean
that women and minority applicants will be rejected at a higher rate
than men and nonminority applicants. If there is a demonstrable
relationship between the income requirement and creditworthiness for
the level of credit involved, however, use of the income standard
would likely be permissible.
6(b) Specific rules concerning use of information.
Paragraph 6(b)(1).
1. Prohibited basis--special purpose credit. In a special
purpose credit program, a creditor may consider a prohibited basis
to determine whether the applicant possesses a characteristic needed
for eligibility. (See Sec. 1002.8.)
Paragraph 6(b)(2).
1. Favoring the elderly. Any system of evaluating
creditworthiness may favor a credit applicant who is age 62 or
older. A credit program that offers more favorable credit terms to
applicants age 62 or older is also permissible; a program that
offers more favorable credit terms to applicants at an age lower
than 62 is permissible only if it meets the special-purpose credit
requirements of Sec. 1002.8.
2. Consideration of age in a credit scoring system. Age may be
taken directly into account in a credit scoring system that is
``demonstrably and statistically sound,'' as defined in Sec.
1002.2(p), with one limitation: Applicants age 62 years or older
must be treated at least as favorably as applicants who are under
age 62. If age is scored by assigning points to an applicant's age
category, elderly applicants must receive the same or a greater
number of points as the most favored class of nonelderly applicants.
i. Age-split scorecards. Some credit systems segment the
population and use different scorecards based on the age of an
applicant. In such a system, one card may cover a narrow age range
(for example, applicants in their twenties or younger) who are
evaluated under attributes predictive for that age group. A second
card may cover all other applicants, who are evaluated under the
attributes predictive for that broader class. When a system uses a
card covering a wide age range that encompasses elderly applicants,
the credit scoring system is not deemed to score age. Thus, the
system does not raise the issue of assigning a negative factor or
value to the age of elderly applicants. But if a system segments the
population by age into multiple scorecards, and includes elderly
applicants in a narrower age range, the credit scoring system does
score age. To comply with the Act and regulation in such a case, the
creditor must ensure that the system does not assign a negative
factor or value to the age of elderly applicants as a class.
3. Consideration of age in a judgmental system. In a judgmental
system, defined in Sec. 1002.2(t), a creditor may not decide
whether to extend credit or set the terms and conditions of credit
based on age or information related exclusively to age. Age or age-
related information may be considered only in evaluating other
``pertinent elements of creditworthiness'' that are drawn from the
particular facts and circumstances concerning the applicant. For
example, a creditor may not reject an application or terminate an
account because the applicant is 60 years old. But a creditor that
uses a judgmental system may relate the applicant's age to other
information about the applicant that the creditor considers in
evaluating creditworthiness. As the following examples illustrate,
the evaluation must be made in an individualized, case-by-case
manner:
i. A creditor may consider the applicant's occupation and length
of time to retirement to ascertain whether the applicant's income
(including retirement income) will support the extension of credit
to its maturity.
ii. A creditor may consider the adequacy of any security offered
when the term of the credit extension exceeds the life expectancy of
the applicant and the cost of realizing on the collateral could
exceed the applicant's equity. An elderly applicant might not
qualify for a 5 percent down, 30-year mortgage loan but might
qualify with a larger downpayment or a shorter loan maturity.
iii. A creditor may consider the applicant's age to assess the
significance of length of employment (a young applicant may have
just entered the job market) or length of time at an address (an
elderly applicant may recently have retired and moved from a long-
term residence).
4. Consideration of age in a reverse mortgage. A reverse
mortgage is a home-secured loan in which the borrower receives
payments from the creditor, and does not become obligated to repay
these amounts (other than in the case of default) until the borrower
dies, moves permanently from the home, or transfers title to the
home, or upon a specified maturity date. Disbursements to the
borrower under a reverse mortgage typically are determined by
considering the value of the borrower's home, the current interest
rate, and the borrower's life expectancy. A reverse mortgage program
that requires borrowers to be age 62 or older is permissible under
Sec. 1002.6(b)(2)(iv). In addition, under Sec. 1002.6(b)(2)(iii),
a creditor may consider a borrower's age to evaluate a pertinent
element of creditworthiness, such as the amount of the credit or
monthly payments that the borrower will receive, or the estimated
repayment date.
5. Consideration of age in a combined system. A creditor using a
credit scoring system that qualifies as ``empirically derived''
under Sec. 1002.2(p) may consider other factors (such as a credit
report or the applicant's cash flow) on a judgmental basis. Doing so
will not negate the classification of the credit scoring component
of the combined system as ``demonstrably and statistically sound.''
While age could be used in the credit scoring portion, however, in
the judgmental portion age may not be considered directly. It may be
used only for the purpose of determining a ``pertinent element of
creditworthiness.'' (See comment 6(b)(2)-3.)
6. Consideration of public assistance. When considering income
derived from a public assistance program, a creditor may take into
account, for example:
i. The length of time an applicant will likely remain eligible
to receive such income.
ii. Whether the applicant will continue to qualify for benefits
based on the status of the applicant's dependents (as in the case of
Temporary Aid to Needy Families, or social security payments to a
minor).
iii. Whether the creditor can attach or garnish the income to
assure payment of the debt in the event of default.
Paragraph 6(b)(5).
1. Consideration of an individual applicant. A creditor must
evaluate income derived from part-time employment, alimony, child
support, separate maintenance payments, retirement benefits, or
public assistance on an individual basis, not on the basis of
aggregate statistics; and must assess its reliability or
unreliability by analyzing the applicant's actual circumstances, not
by analyzing statistical measures derived from a group.
2. Payments consistently made. In determining the likelihood of
consistent payments of alimony, child support, or separate
maintenance, a creditor may consider factors such as whether
payments are received pursuant to a written agreement or court
decree; the length of time that the payments have been received;
whether the payments are regularly received by the applicant; the
availability of court or other procedures to compel payment; and the
creditworthiness of the payor, including the credit history of the
payor when it is available to the creditor.
3. Consideration of income.
i. A creditor need not consider income at all in evaluating
creditworthiness. If a creditor does consider income, there are
several acceptable methods, whether in a credit scoring or a
judgmental system:
A. A creditor may score or take into account the total sum of
all income stated by the applicant without taking steps to evaluate
the income for reliability.
B. A creditor may evaluate each component of the applicant's
income, and then score or take into account income determined to be
reliable separately from other income; or the creditor may disregard
that portion of income that is not reliable when it aggregates
reliable income.
[[Page 79476]]
C. A creditor that does not evaluate all income components for
reliability must treat as reliable any component of protected income
that is not evaluated.
ii. In considering the separate components of an applicant's
income, the creditor may not automatically discount or exclude from
consideration any protected income. Any discounting or exclusion
must be based on the applicant's actual circumstances.
4. Part-time employment, sources of income. A creditor may score
or take into account the fact that an applicant has more than one
source of earned income--a full-time and a part-time job or two
part-time jobs. A creditor may also score or treat earned income
from a secondary source differently than earned income from a
primary source. The creditor may not, however, score or otherwise
take into account the number of sources for income such as
retirement income, social security, supplemental security income,
and alimony. Nor may the creditor treat negatively the fact that an
applicant's only earned income is derived from, for example, a part-
time job.
Paragraph 6(b)(6).
1. Types of credit references. A creditor may restrict the types
of credit history and credit references that it will consider,
provided that the restrictions are applied to all credit applicants
without regard to sex, marital status, or any other prohibited
basis. On the applicant's request, however, a creditor must consider
credit information not reported through a credit bureau when the
information relates to the same types of credit references and
history that the creditor would consider if reported through a
credit bureau.
Paragraph 6(b)(7).
1. National origin--immigration status. The applicant's
immigration status and ties to the community (such as employment and
continued residence in the area) could have a bearing on a
creditor's ability to obtain repayment. Accordingly, the creditor
may consider immigration status and differentiate, for example,
between a noncitizen who is a long-time resident with permanent
resident status and a noncitizen who is temporarily in this country
on a student visa.
2. National origin--citizenship. A denial of credit on the
ground that an applicant is not a United States citizen is not per
se discrimination based on national origin.
Paragraph 6(b)(8).
1. Prohibited basis--marital status. A creditor may consider the
marital status of an applicant or joint applicant for the purpose of
ascertaining the creditor's rights and remedies applicable to the
particular extension of credit. For example, in a secured
transaction involving real property, a creditor could take into
account whether state law gives the applicant's spouse an interest
in the property being offered as collateral.
Section 1002.7--Rules Concerning Extensions of Credit
7(a) Individual accounts.
1. Open-end credit--authorized user. A creditor may not require
a creditworthy applicant seeking an individual credit account to
provide additional signatures. But the creditor may condition the
designation of an authorized user by the account holder on the
authorized user's becoming contractually liable for the account, as
long as the creditor does not differentiate on any prohibited basis
in imposing this requirement.
2. Open-end credit--choice of authorized user. A creditor that
permits an account holder to designate an authorized user may not
restrict this designation on a prohibited basis. For example, if the
creditor allows the designation of spouses as authorized users, the
creditor may not refuse to accept a non-spouse as an authorized
user.
3. Overdraft authority on transaction accounts. If a transaction
account (such as a checking account or NOW account) includes an
overdraft line of credit, the creditor may require that all persons
authorized to draw on the transaction account assume liability for
any overdraft.
7(b) Designation of name.
1. Single name on account. A creditor may require that joint
applicants on an account designate a single name for purposes of
administering the account and that a single name be embossed on any
credit cards issued on the account. But the creditor may not require
that the name be the husband's name. (See Sec. 1002.10 for rules
governing the furnishing of credit history on accounts held by
spouses.)
7(c) Action concerning existing open-end accounts.
Paragraph 7(c)(1).
1. Termination coincidental with marital status change. When an
account holder's marital status changes, a creditor generally may
not terminate the account unless it has evidence that the account
holder is now unable or unwilling to repay. But the creditor may
terminate an account on which both spouses are jointly liable, even
if the action coincides with a change in marital status, when one or
both spouses:
i. Repudiate responsibility for future charges on the joint
account.
ii. Request separate accounts in their own names.
iii. Request that the joint account be closed.
2. Updating information. A creditor may periodically request
updated information from applicants but may not use events related
to a prohibited basis--such as an applicant's retirement or reaching
a particular age, or a change in name or marital status--to trigger
such a request.
Paragraph 7(c)(2).
1. Procedure pending reapplication. A creditor may require a
reapplication from an account holder, even when there is no evidence
of unwillingness or inability to repay, if (1) the credit was based
on the qualifications of a person who is no longer available to
support the credit and (2) the creditor has information indicating
that the account holder's income may be insufficient to support the
credit. While a reapplication is pending, the creditor must allow
the account holder full access to the account under the existing
contract terms. The creditor may specify a reasonable time period
within which the account holder must submit the required
information.
7(d) Signature of spouse or other person.
1. Qualified applicant. The signature rules ensure that
qualified applicants are able to obtain credit in their own names.
Thus, when an applicant requests individual credit, a creditor
generally may not require the signature of another person unless the
creditor has first determined that the applicant alone does not
qualify for the credit requested.
2. Unqualified applicant. When an applicant requests individual
credit but does not meet a creditor's standards, the creditor may
require a cosigner, guarantor, endorser, or similar party--but
cannot require that it be the spouse. (See commentary to Sec. Sec.
1002.7(d)(5) and (6).)
Paragraph 7(d)(1).
1. Signature of another person. It is impermissible for a
creditor to require an applicant who is individually creditworthy to
provide a cosigner-even if the creditor applies the requirement
without regard to sex, marital status, or any other prohibited
basis. (But see comment 7(d)(6)-1 concerning guarantors of closely
held corporations.)
2. Joint applicant. The term ``joint applicant'' refers to
someone who applies contemporaneously with the applicant for shared
or joint credit. It does not refer to someone whose signature is
required by the creditor as a condition for granting the credit
requested.
3. Evidence of joint application. A person's intent to be a
joint applicant must be evidenced at the time of application.
Signatures on a promissory note may not be used to show intent to
apply for joint credit. On the other hand, signatures or initials on
a credit application affirming applicants' intent to apply for joint
credit may be used to establish intent to apply for joint credit.
(See Appendix B.) The method used to establish intent must be
distinct from the means used by individuals to affirm the accuracy
of information. For example, signatures on a joint financial
statement affirming the veracity of information are not sufficient
to establish intent to apply for joint credit.
Paragraph 7(d)(2).
1. Jointly owned property. If an applicant requests unsecured
credit, does not own sufficient separate property, and relies on
joint property to establish creditworthiness, the creditor must
value the applicant's interest in the jointly owned property. A
creditor may not request that a nonapplicant joint owner sign any
instrument as a condition of the credit extension unless the
applicant's interest does not support the amount and terms of the
credit sought.
i. Valuation of applicant's interest. In determining the value
of an applicant's interest in jointly owned property, a creditor may
consider factors such as the form of ownership and the property's
susceptibility to attachment, execution, severance, or partition;
the value of the applicant's interest after such action; and the
cost associated with the action. This determination must be based on
the existing form of ownership, and not on the possibility of a
subsequent change. For example, in determining whether a married
applicant's interest in jointly owned property is sufficient to
satisfy the creditor's standards of creditworthiness for individual
credit, a creditor may not consider that the applicant's separate
property could be
[[Page 79477]]
transferred into tenancy by the entirety after consummation.
Similarly, a creditor may not consider the possibility that the
couple may divorce. Accordingly, a creditor may not require the
signature of the non-applicant spouse in these or similar
circumstances.
ii. Other options to support credit. If the applicant's interest
in jointly owned property does not support the amount and terms of
credit sought, the creditor may offer the applicant other options to
qualify for the extension of credit. For example:
A. Providing a co-signer or other party (Sec. 1002.7(d)(5));
B. Requesting that the credit be granted on a secured basis
(Sec. 1002.7(d)(4)); or
C. Providing the signature of the joint owner on an instrument
that ensures access to the property in the event of the applicant's
death or default, but does not impose personal liability unless
necessary under state law (such as a limited guarantee). A creditor
may not routinely require, however, that a joint owner sign an
instrument (such as a quitclaim deed) that would result in the
forfeiture of the joint owner's interest in the property.
2. Need for signature--reasonable belief. A creditor's
reasonable belief as to what instruments need to be signed by a
person other than the applicant should be supported by a thorough
review of pertinent statutory and decisional law or an opinion of
the state attorney general.
Paragraph 7(d)(3).
1. Residency. In assessing the creditworthiness of a person who
applies for credit in a community property state, a creditor may
assume that the applicant is a resident of the state unless the
applicant indicates otherwise.
Paragraph 7(d)(4).
1. Creation of enforceable lien. Some state laws require that
both spouses join in executing any instrument by which real property
is encumbered. If an applicant offers such property as security for
credit, a creditor may require the applicant's spouse to sign the
instruments necessary to create a valid security interest in the
property. The creditor may not require the spouse to sign the note
evidencing the credit obligation if signing only the mortgage or
other security agreement is sufficient to make the property
available to satisfy the debt in the event of default. However, if
under state law both spouses must sign the note to create an
enforceable lien, the creditor may require the signatures.
2. Need for signature--reasonable belief. Generally, a signature
to make the secured property available will only be needed on a
security agreement. A creditor's reasonable belief that, to ensure
access to the property, the spouse's signature is needed on an
instrument that imposes personal liability should be supported by a
thorough review of pertinent statutory and decisional law or an
opinion of the state attorney general.
3. Integrated instruments. When a creditor uses an integrated
instrument that combines the note and the security agreement, the
spouse cannot be asked to sign the integrated instrument if the
signature is only needed to grant a security interest. But the
spouse could be asked to sign an integrated instrument that makes
clear--for example, by a legend placed next to the spouse's
signature--that the spouse's signature is only to grant a security
interest and that signing the instrument does not impose personal
liability.
Paragraph 7(d)(5).
1. Qualifications of additional parties. In establishing
guidelines for eligibility of guarantors, cosigners, or similar
additional parties, a creditor may restrict the applicant's choice
of additional parties but may not discriminate on the basis of sex,
marital status, or any other prohibited basis. For example, the
creditor could require that the additional party live in the
creditor's market area.
2. Reliance on income of another person--individual credit. An
applicant who requests individual credit relying on the income of
another person (including a spouse in a non-community property
state) may be required to provide the signature of the other person
to make the income available to pay the debt. In community property
states, the signature of a spouse may be required if the applicant
relies on the spouse's separate income. If the applicant relies on
the spouse's future earnings that as a matter of state law cannot be
characterized as community property until earned, the creditor may
require the spouse's signature, but need not do so--even if it is
the creditor's practice to require the signature when an applicant
relies on the future earnings of a person other than a spouse. (See
Sec. 1002.6(c) on consideration of state property laws.)
3. Renewals. If the borrower's creditworthiness is reevaluated
when a credit obligation is renewed, the creditor must determine
whether an additional party is still warranted and, if not
warranted, release the additional party.
Paragraph 7(d)(6).
1. Guarantees. A guarantee on an extension of credit is part of
a credit transaction and therefore subject to the regulation. A
creditor may require the personal guarantee of the partners,
directors, or officers of a business, and the shareholders of a
closely held corporation, even if the business or corporation is
creditworthy. The requirement must be based on the guarantor's
relationship with the business or corporation, however, and not on a
prohibited basis. For example, a creditor may not require guarantees
only for women-owned or minority-owned businesses. Similarly, a
creditor may not require guarantees only of the married officers of
a business or the married shareholders of a closely held
corporation.
2. Spousal guarantees. The rules in Sec. 1002.7(d) bar a
creditor from requiring the signature of a guarantor's spouse just
as they bar the creditor from requiring the signature of an
applicant's spouse. For example, although a creditor may require all
officers of a closely held corporation to personally guarantee a
corporate loan, the creditor may not automatically require that
spouses of married officers also sign the guarantee. If an
evaluation of the financial circumstances of an officer indicates
that an additional signature is necessary, however, the creditor may
require the signature of another person in appropriate circumstances
in accordance with Sec. 1002.7(d)(2).
7(e) Insurance.
1. Differences in terms. Differences in the availability, rates,
and other terms on which credit-related casualty insurance or credit
life, health, accident, or disability insurance is offered or
provided to an applicant does not violate Regulation B.
2. Insurance information. A creditor may obtain information
about an applicant's age, sex, or marital status for insurance
purposes. The information may only be used for determining
eligibility and premium rates for insurance, however, and not in
making the credit decision.
Section 1002.8--Special Purpose Credit Programs
8(a) Standards for programs.
1. Determining qualified programs. The Bureau does not determine
whether individual programs qualify for special purpose credit
status, or whether a particular program benefits an ``economically
disadvantaged class of persons.'' The agency or creditor
administering or offering the loan program must make these decisions
regarding the status of its program.
2. Compliance with a program authorized by Federal or state law.
A creditor does not violate Regulation B when it complies in good
faith with a regulation promulgated by a government agency
implementing a special purpose credit program under Sec.
1002.8(a)(1). It is the agency's responsibility to promulgate a
regulation that is consistent with Federal and state law.
3. Expressly authorized. Credit programs authorized by Federal
or state law include programs offered pursuant to Federal, state, or
local statute, regulation or ordinance, or pursuant to judicial or
administrative order.
4. Creditor liability. A refusal to grant credit to an applicant
is not a violation of the Act or regulation if the applicant does
not meet the eligibility requirements under a special purpose credit
program.
5. Determining need. In designing a special purpose credit
program under Sec. 1002.8(a), a for-profit organization must
determine that the program will benefit a class of people who would
otherwise be denied credit or would receive it on less favorable
terms. This determination can be based on a broad analysis using the
organization's own research or data from outside sources, including
governmental reports and studies. For example, a creditor might
design new products to reach consumers who would not meet, or have
not met, its traditional standards of creditworthiness due to such
factors as credit inexperience or the use of credit sources that may
not report to consumer reporting agencies. Or, a bank could review
Home Mortgage Disclosure Act data along with demographic data for
its assessment area and conclude that there is a need for a special
purpose credit program for low-income minority borrowers.
6. Elements of the program. The written plan must contain
information that supports the need for the particular program. The
plan also must either state a specific period of time for which the
program will last, or contain a statement regarding when the program
will be reevaluated to determine if there is a continuing need for
it.
[[Page 79478]]
8(b) Rules in other sections.
1. Applicability of rules. A creditor that rejects an
application because the applicant does not meet the eligibility
requirements (common characteristic or financial need, for example)
must nevertheless notify the applicant of action taken as required
by Sec. 1002.9.
8(c) Special rule concerning requests and use of information.
1. Request of prohibited basis information. This section permits
a creditor to request and consider certain information that would
otherwise be prohibited by Sec. Sec. 1002.5 and 1002.6 to determine
an applicant's eligibility for a particular program.
2. Examples. Examples of programs under which the creditor can
ask for and consider information about a prohibited basis are:
i. Energy conservation programs to assist the elderly, for which
the creditor must consider the applicant's age.
ii. Programs under a Minority Enterprise Small Business
Investment Corporation, for which a creditor must consider the
applicant's minority status.
8(d) Special rule in the case of financial need.
1. Request of prohibited basis information. This section permits
a creditor to request and consider certain information that would
otherwise be prohibited by Sec. Sec. 1002.5 and 1002.6, and to
require signatures that would otherwise be prohibited by Sec.
1002.7(d).
2. Examples. Examples of programs in which financial need is a
criterion are:
i. Subsidized housing programs for low-to moderate-income
households, for which a creditor may have to consider the
applicant's receipt of alimony or child support, the spouse's or
parents' income, etc.
ii. Student loan programs based on the family's financial need,
for which a creditor may have to consider the spouse's or parents'
financial resources.
3. Student loans. In a guaranteed student loan program, a
creditor may obtain the signature of a parent as a guarantor when
required by Federal or state law or agency regulation, or when the
student does not meet the creditor's standards of creditworthiness.
(See Sec. Sec. 1002.7(d)(1) and (5).) The creditor may not require
an additional signature when a student has a work or credit history
that satisfies the creditor's standards.
Section 1002.9--Notifications
1. Use of the term adverse action. The regulation does not
require that a creditor use the term adverse action in communicating
to an applicant that a request for an extension of credit has not
been approved. In notifying an applicant of adverse action as
defined by Sec. 1002.2(c)(1), a creditor may use any words or
phrases that describe the action taken on the application.
2. Expressly withdrawn applications. When an applicant expressly
withdraws a credit application, the creditor is not required to
comply with the notification requirements under Sec. 1002.9. (The
creditor must comply, however, with the record retention
requirements of the regulation. See Sec. 1002.12(b)(3).)
3. When notification occurs. Notification occurs when a creditor
delivers or mails a notice to the applicant's last known address or,
in the case of an oral notification, when the creditor communicates
the credit decision to the applicant.
4. Location of notice. The notifications required under Sec.
1002.9 may appear on either or both sides of a form or letter.
5. Prequalification requests. Whether a creditor must provide a
notice of action taken for a prequalification request depends on the
creditor's response to the request, as discussed in comment 2(f)-3.
For instance, a creditor may treat the request as an inquiry if the
creditor evaluates specific information about the consumer and tells
the consumer the loan amount, rate, and other terms of credit the
consumer could qualify for under various loan programs, explaining
the process the consumer must follow to submit a mortgage
application and the information the creditor will analyze in
reaching a credit decision. On the other hand, a creditor has
treated a request as an application, and is subject to the adverse
action notice requirements of Sec. 1002.9 if, after evaluating
information, the creditor decides that it will not approve the
request and communicates that decision to the consumer. For example,
if the creditor tells the consumer that it would not approve an
application for a mortgage because of a bankruptcy in the consumer's
record, the creditor has denied an application for credit.
9(a) Notification of action taken, ECOA notice, and statement of
specific reasons.
Paragraph 9(a)(1).
1. Timing of notice--when an application is complete. Once a
creditor has obtained all the information it normally considers in
making a credit decision, the application is complete and the
creditor has 30 days in which to notify the applicant of the credit
decision. (See also comment 2(f)-6.)
2. Notification of approval. Notification of approval may be
express or by implication. For example, the creditor will satisfy
the notification requirement when it gives the applicant the credit
card, money, property, or services requested.
3. Incomplete application--denial for incompleteness. When an
application is incomplete regarding information that the applicant
can provide and the creditor lacks sufficient data for a credit
decision, the creditor may deny the application giving as the reason
for denial that the application is incomplete. The creditor has the
option, alternatively, of providing a notice of incompleteness under
Sec. 1002.9(c).
4. Incomplete application--denial for reasons other than
incompleteness. When an application is missing information but
provides sufficient data for a credit decision, the creditor may
evaluate the application, make its credit decision, and notify the
applicant accordingly. If credit is denied, the applicant must be
given the specific reasons for the credit denial (or notice of the
right to receive the reasons); in this instance missing information
or ``incomplete application'' cannot be given as the reason for the
denial.
5. Length of counteroffer. Section 1002.9(a)(1)(iv) does not
require a creditor to hold a counteroffer open for 90 days or any
other particular length of time.
6. Counteroffer combined with adverse action notice. A creditor
that gives the applicant a combined counteroffer and adverse action
notice that complies with Sec. 1002.9(a)(2) need not send a second
adverse action notice if the applicant does not accept the
counteroffer. A sample of a combined notice is contained in form C-4
of Appendix C to the regulation.
7. Denial of a telephone application. When an application is
made by telephone and adverse action is taken, the creditor must
request the applicant's name and address in order to provide written
notification under this section. If the applicant declines to
provide that information, then the creditor has no further
notification responsibility.
Paragraph 9(a)(3).
1. Coverage. In determining which rules in this paragraph apply
to a given business credit application, a creditor may rely on the
applicant's assertion about the revenue size of the business.
(Applications to start a business are governed by the rules in Sec.
1002.9(a)(3)(i).) If an applicant applies for credit as a sole
proprietor, the revenues of the sole proprietorship will determine
which rules govern the application. However, if an applicant applies
for business credit as an individual, the rules in Sec.
1002.9(a)(3)(i) apply unless the application is for trade or similar
credit.
2. Trade credit. The term trade credit generally is limited to a
financing arrangement that involves a buyer and a seller--such as a
supplier who finances the sale of equipment, supplies, or inventory;
it does not apply to an extension of credit by a bank or other
financial institution for the financing of such items.
3. Factoring. Factoring refers to a purchase of accounts
receivable, and thus is not subject to the Act or regulation. If
there is a credit extension incident to the factoring arrangement,
the notification rules in Sec. 1002.9(a)(3)(ii) apply, as do other
relevant sections of the Act and regulation.
4. Manner of compliance. In complying with the notice provisions
of the Act and regulation, creditors offering business credit may
follow the rules governing consumer credit. Similarly, creditors may
elect to treat all business credit the same (irrespective of revenue
size) by providing notice in accordance with Sec. 1002.9(a)(3)(i).
5. Timing of notification. A creditor subject to Sec.
1002.9(a)(3)(ii)(A) is required to notify a business credit
applicant, orally or in writing, of action taken on an application
within a reasonable time of receiving a completed application.
Notice provided in accordance with the timing requirements of Sec.
1002.9(a)(1) is deemed reasonable in all instances.
9(b) Form of ECOA notice and statement of specific reasons.
Paragraph 9(b)(1).
1. Substantially similar notice. The ECOA notice sent with a
notification of a credit denial or other adverse action will comply
with the regulation if it is ``substantially similar'' to the notice
contained in Sec. 1002.9(b)(1). For example, a creditor may add a
reference to the fact that the ECOA permits age to be considered in
certain credit scoring systems, or add a reference to a similar
state statute or regulation and to a state enforcement agency.
[[Page 79479]]
Paragraph 9(b)(2).
1. Number of specific reasons. A creditor must disclose the
principal reasons for denying an application or taking other adverse
action. The regulation does not mandate that a specific number of
reasons be disclosed, but disclosure of more than four reasons is
not likely to be helpful to the applicant.
2. Source of specific reasons. The specific reasons disclosed
under Sec. Sec. 1002.9(a)(2) and (b)(2) must relate to and
accurately describe the factors actually considered or scored by a
creditor.
3. Description of reasons. A creditor need not describe how or
why a factor adversely affected an applicant. For example, the
notice may say ``length of residence'' rather than ``too short a
period of residence.''
4. Credit scoring system. If a creditor bases the denial or
other adverse action on a credit scoring system, the reasons
disclosed must relate only to those factors actually scored in the
system. Moreover, no factor that was a principal reason for adverse
action may be excluded from disclosure. The creditor must disclose
the actual reasons for denial (for example, ``age of automobile'')
even if the relationship of that factor to predicting
creditworthiness may not be clear to the applicant.
5. Credit scoring--method for selecting reasons. The regulation
does not require that any one method be used for selecting reasons
for a credit denial or other adverse action that is based on a
credit scoring system. Various methods will meet the requirements of
the regulation. One method is to identify the factors for which the
applicant's score fell furthest below the average score for each of
those factors achieved by applicants whose total score was at or
slightly above the minimum passing score. Another method is to
identify the factors for which the applicant's score fell furthest
below the average score for each of those factors achieved by all
applicants. These average scores could be calculated during the
development or use of the system. Any other method that produces
results substantially similar to either of these methods is also
acceptable under the regulation.
6. Judgmental system. If a creditor uses a judgmental system,
the reasons for the denial or other adverse action must relate to
those factors in the applicant's record actually reviewed by the
person making the decision.
7. Combined credit scoring and judgmental system. If a creditor
denies an application based on a credit evaluation system that
employs both credit scoring and judgmental components, the reasons
for the denial must come from the component of the system that the
applicant failed. For example, if a creditor initially credit scores
an application and denies the credit request as a result of that
scoring, the reasons disclosed to the applicant must relate to the
factors scored in the system. If the application passes the credit
scoring stage but the creditor then denies the credit request based
on a judgmental assessment of the applicant's record, the reasons
disclosed must relate to the factors reviewed judgmentally, even if
the factors were also considered in the credit scoring component. If
the application is not approved or denied as a result of the credit
scoring, but falls into a gray band, and the creditor performs a
judgmental assessment and denies the credit after that assessment,
the reasons disclosed must come from both components of the system.
The same result applies where a judgmental assessment is the first
component of the combined system. As provided in comment 9(b)(2)-1,
disclosure of more than a combined total of four reasons is not
likely to be helpful to the applicant.
8. Automatic denial. Some credit decision methods contain
features that call for automatic denial because of one or more
negative factors in the applicant's record (such as the applicant's
previous bad credit history with that creditor, the applicant's
declaration of bankruptcy, or the fact that the applicant is a
minor). When a creditor denies the credit request because of an
automatic-denial factor, the creditor must disclose that specific
factor.
9. Combined ECOA-FCRA disclosures. The ECOA requires disclosure
of the principal reasons for denying or taking other adverse action
on an application for an extension of credit. The Fair Credit
Reporting Act (FCRA) requires a creditor to disclose when it has
based its decision in whole or in part on information from a source
other than the applicant or its own files. Disclosing that a credit
report was obtained and used in the denial of the application, as
the FCRA requires, does not satisfy the ECOA requirement to disclose
specific reasons. For example, if the applicant's credit history
reveals delinquent credit obligations and the application is denied
for that reason, to satisfy Sec. 1002.9(b)(2) the creditor must
disclose that the application was denied because of the applicant's
delinquent credit obligations. The FCRA also requires a creditor to
disclose, as applicable, a credit score it used in taking adverse
action along with related information, including up to four key
factors that adversely affected the consumer's credit score (or up
to five factors if the number of inquiries made with respect to that
consumer report is a key factor). Disclosing the key factors that
adversely affected the consumer's credit score does not satisfy the
ECOA requirement to disclose specific reasons for denying or taking
other adverse action on an application or extension of credit.
Sample forms C-1 through C-5 of Appendix C of the regulation provide
for both the ECOA and FCRA disclosures. See also comment 9(b)(2)-1.
9(c) Incomplete applications.
Paragraph 9(c)(1).
1. Exception for preapprovals. The requirement to provide a
notice of incompleteness does not apply to preapprovals that
constitute applications under Sec. 1002.2(f).
Paragraph 9(c)(2).
1. Reapplication. If information requested by a creditor is
submitted by an applicant after the expiration of the time period
designated by the creditor, the creditor may require the applicant
to make a new application.
Paragraph 9(c)(3).
1. Oral inquiries for additional information. If an applicant
fails to provide the information in response to an oral request, a
creditor must send a written notice to the applicant within the 30-
day period specified in Sec. Sec. 1002.9(c)(1) and (2). If the
applicant provides the information, the creditor must take action on
the application and notify the applicant in accordance with Sec.
1002.9(a).
9(g) Applications submitted through a third party.
1. Third parties. The notification of adverse action may be
given by one of the creditors to whom an application was submitted,
or by a noncreditor third party. If one notification is provided on
behalf of multiple creditors, the notice must contain the name and
address of each creditor. The notice must either disclose the
applicant's right to a statement of specific reasons within 30 days,
or give the primary reasons each creditor relied upon in taking the
adverse action--clearly indicating which reasons relate to which
creditor.
2. Third party notice--enforcement agency. If a single adverse
action notice is being provided to an applicant on behalf of several
creditors and they are under the jurisdiction of different Federal
enforcement agencies, the notice need not name each agency;
disclosure of any one of them will suffice.
3. Third-party notice--liability. When a notice is to be
provided through a third party, a creditor is not liable for an act
or omission of the third party that constitutes a violation of the
regulation if the creditor accurately and in a timely manner
provided the third party with the information necessary for the
notification and maintains reasonable procedures adapted to prevent
such violations.
Section 1002.10--Furnishing of Credit Information
1. Scope. The requirements of Sec. 1002.10 for designating and
reporting credit information apply only to consumer credit
transactions. Moreover, they apply only to creditors that opt to
furnish credit information to credit bureaus or to other creditors;
there is no requirement that a creditor furnish credit information
on its accounts.
2. Reporting on all accounts. The requirements of Sec. 1002.10
apply only to accounts held or used by spouses. However, a creditor
has the option to designate all joint accounts (or all accounts with
an authorized user) to reflect the participation of both parties,
whether or not the accounts are held by persons married to each
other.
3. Designating accounts. In designating accounts and reporting
credit information, a creditor need not distinguish between accounts
on which the spouse is an authorized user and accounts on which the
spouse is a contractually liable party.
4. File and index systems. The regulation does not require the
creation or maintenance of separate files in the name of each
participant on a joint or user account, or require any other
particular system of recordkeeping or indexing. It requires only
that a creditor be able to report information in the name of each
spouse on accounts covered by Sec. 1002.10. Thus, if a creditor
receives a credit inquiry about the wife, it should be able to
locate her credit file without asking the husband's name.
[[Page 79480]]
10(a) Designation of accounts.
1. New parties. When new parties who are spouses undertake a
legal obligation on an account, as in the case of a mortgage loan
assumption, the creditor must change the designation on the account
to reflect the new parties and must furnish subsequent credit
information on the account in the new names.
2. Request to change designation of account. A request to change
the manner in which information concerning an account is furnished
does not alter the legal liability of either spouse on the account
and does not require a creditor to change the name in which the
account is maintained.
Section 1002.11--Relation to State Law
11(a) Inconsistent state laws.
1. Preemption determination--New York. The Bureau recognizes
state law preemption determinations made by the Board of Governors
of the Federal Reserve System prior to July 21, 2011, until and
unless the Bureau makes and publishes any contrary determination.
The Board of Governors determined that the following provisions in
the state law of New York are preempted by the Federal law,
effective November 11, 1988:
i. Article 15, section 296a(1)(b). Unlawful discriminatory
practices in relation to credit on the basis of race, creed, color,
national origin, age, sex, marital status, or disability. This
provision is preempted to the extent that it bars taking a
prohibited basis into account when establishing eligibility for
certain special-purpose credit programs.
ii. Article 15, section 296a(1)(c). Unlawful discriminatory
practice to make any record or inquiry based on race, creed, color,
national origin, age, sex, marital status, or disability. This
provision is preempted to the extent that it bars a creditor from
requesting and considering information regarding the particular
characteristics (for example, race, national origin, or sex)
required for eligibility for special-purpose credit programs.
2. Preemption determination--Ohio. The Bureau recognizes state
law preemption determinations made by the Board of Governors of the
Federal Reserve System prior to July 21, 2011, until and unless the
Bureau makes and publishes any contrary determination. The Board of
Governors determined that the following provision in the state law
of Ohio is preempted by the Federal law, effective July 23, 1990:
i. Section 4112.021(B)(1)--Unlawful discriminatory practices in
credit transactions. This provision is preempted to the extent that
it bars asking or favorably considering the age of an elderly
applicant; prohibits the consideration of age in a credit scoring
system; permits without limitation the consideration of age in real
estate transactions; and limits the consideration of age in special-
purpose credit programs to certain government-sponsored programs
identified in the state law.
Section 1002.12--Record Retention
12(a) Retention of prohibited information.
1. Receipt of prohibited information. Unless the creditor
specifically requested such information, a creditor does not violate
this section when it receives prohibited information from a consumer
reporting agency.
2. Use of retained information. Although a creditor may keep in
its files prohibited information as provided in Sec. 1002.12(a),
the creditor may use the information in evaluating credit
applications only if permitted to do so by Sec. 1002.6.
12(b) Preservation of records.
1. Copies. Copies of the original record include carbon copies,
photocopies, microfilm or microfiche copies, or copies produced by
any other accurate retrieval system, such as documents stored and
reproduced by computer. A creditor that uses a computerized or
mechanized system need not keep a paper copy of a document (for
example, of an adverse action notice) if it can regenerate all
pertinent information in a timely manner for examination or other
purposes.
2. Computerized decisions. A creditor that enters information
items from a written application into a computerized or mechanized
system and makes the credit decision mechanically, based only on the
items of information entered into the system, may comply with Sec.
1002.12(b) by retaining the information actually entered. It is not
required to store the complete written application, nor is it
required to enter the remaining items of information into the
system. If the transaction is subject to Sec. 1002.13, however, the
creditor is required to enter and retain the data on personal
characteristics in order to comply with the requirements of that
section.
Paragraph 12(b)(3).
1. Withdrawn and brokered applications. In most cases, the 25-
month retention period for applications runs from the date a
notification is sent to the applicant granting or denying the credit
requested. In certain transactions, a creditor is not obligated to
provide a notice of the action taken. (See, for example, comment 9-
2.) In such cases, the 25-month requirement runs from the date of
application, as when:
i. An application is withdrawn by the applicant.
ii. An application is submitted to more than one creditor on
behalf of the applicant, and the application is approved by one of
the other creditors.
12(b)(6) Self-tests.
1. The rule requires all written or recorded information about a
self-test to be retained for 25 months after a self-test has been
completed. For this purpose, a self-test is completed after the
creditor has obtained the results and made a determination about
what corrective action, if any, is appropriate. Creditors are
required to retain information about the scope of the self-test, the
methodology used and time period covered by the self-test, the
report or results of the self-test including any analysis or
conclusions, and any corrective action taken in response to the
self-test.
12(b)(7) Preapplication marketing information.
1. Prescreened credit solicitations. The rule requires creditors
to retain copies of prescreened credit solicitations. For purposes
of this part, a prescreened solicitation is an ``offer of credit''
as described in 15 U.S.C. 1681a(1) of the Fair Credit Reporting Act.
A creditor complies with this rule if it retains a copy of each
solicitation mailing that contains different terms, such as the
amount of credit offered, annual percentage rate, or annual fee.
2. List of criteria. A creditor must retain the list of criteria
used to select potential recipients. This includes the criteria used
by the creditor both to determine the potential recipients of the
particular solicitation and to determine who will actually be
offered credit.
3. Correspondence. A creditor may retain correspondence relating
to consumers' complaints about prescreened solicitations in any
manner that is reasonably accessible and is understandable to
examiners. There is no requirement to establish a separate database
or set of files for such correspondence, or to match consumer
complaints with specific solicitation programs.
Section 1002.13--Information for Monitoring Purposes
13(a) Information to be requested.
1. Natural person. Section1002.13 applies only to applications
from natural persons.
2. Principal residence. The requirements of Sec. 1002.13 apply
only if an application relates to a dwelling that is or will be
occupied by the applicant as the principal residence. A credit
application related to a vacation home or a rental unit is not
covered. In the case of a two-to four-unit dwelling, the application
is covered if the applicant intends to occupy one of the units as a
principal residence.
3. Temporary financing. An application for temporary financing
to construct a dwelling is not subject to Sec. 1002.13. But an
application for both a temporary loan to finance construction of a
dwelling and a permanent mortgage loan to take effect upon the
completion of construction is subject to Sec. 1002.13.
4. New principal residence. A person can have only one principal
residence at a time. However, if a person buys or builds a new
dwelling that will become that person's principal residence within a
year or upon completion of construction, the new dwelling is
considered the principal residence for purposes of Sec. 1002.13.
5. Transactions not covered. The information-collection
requirements of this section apply to applications for credit
primarily for the purchase or refinancing of a dwelling that is or
will become the applicant's principal residence. Therefore,
applications for credit secured by the applicant's principal
residence but made primarily for a purpose other than the purchase
or refinancing of the principal residence (such as loans for home
improvement and debt consolidation) are not subject to the
information-collection requirements. An application for an open-end
home equity line of credit is not subject to this section unless it
is readily apparent to the creditor when the application is taken
that the primary purpose of the line is for the purchase or
refinancing of a principal dwelling.
6. Refinancings. A refinancing occurs when an existing
obligation is satisfied and replaced by a new obligation undertaken
by
[[Page 79481]]
the same borrower. A creditor that receives an application to
refinance an existing extension of credit made by that creditor for
the purchase of the applicant's dwelling may request the monitoring
information again but is not required to do so if it was obtained in
the earlier transaction.
7. Data collection under Regulation C. See comment 5(a)(2)-2.
13(b) Obtaining of information.
1. Forms for collecting data. A creditor may collect the
information specified in Sec. 1002.13(a) either on an application
form or on a separate form referring to the application. The
applicant must be offered the option to select more than one racial
designation.
2. Written applications. The regulation requires written
applications for the types of credit covered by Sec. 1002.13. A
creditor can satisfy this requirement by recording on paper or by
means of computer the information that the applicant provides orally
and that the creditor normally considers in a credit decision.
3. Telephone, mail applications.
i. A creditor that accepts an application by telephone or mail
must request the monitoring information.
ii. A creditor that accepts an application by mail need not make
a special request for the monitoring information if the applicant
has failed to provide it on the application form returned to the
creditor.
iii. If it is not evident on the face of an application that it
was received by mail, telephone, or via an electronic medium, the
creditor should indicate on the form or other application record how
the application was received.
4. Video and other electronic-application processes.
i. If a creditor takes an application through an electronic
medium that allows the creditor to see the applicant, the creditor
must treat the application as taken in person. The creditor must
note the monitoring information on the basis of visual observation
or surname, if the applicant chooses not to provide the information.
ii. If an applicant applies through an electronic medium without
video capability, the creditor treats the application as if it were
received by mail.
5. Applications through loan-shopping services. When a creditor
receives an application through an unaffiliated loan-shopping
service, it does not have to request the monitoring information for
purposes of the ECOA or Regulation B. Creditors subject to the Home
Mortgage Disclosure Act should be aware, however, that data
collection may be called for under Regulation C (12 CFR part 1003),
which generally requires creditors to report, among other things,
the sex and race of an applicant on brokered applications or
applications received through a correspondent.
6. Inadvertent notation. If a creditor inadvertently obtains the
monitoring information in a dwelling-related transaction not covered
by Sec. 1002.13, the creditor may process and retain the
application without violating the regulation.
13(c) Disclosure to applicants.
1. Procedures for providing disclosures. The disclosure to an
applicant regarding the monitoring information may be provided in
writing. Appendix B contains a sample disclosure. A creditor may
devise its own disclosure so long as it is substantially similar.
The creditor need not orally request the monitoring information if
it is requested in writing.
13(d) Substitute monitoring program.
1. Substitute program. An enforcement agency may adopt, under
its established rulemaking or enforcement procedures, a program
requiring creditors under its jurisdiction to collect information in
addition to information required by this section.
Section 1002.14--Rules on Providing Appraisal Reports
14(a) Providing appraisals.
1. Coverage. This section covers applications for credit to be
secured by a lien on a dwelling, as that term is defined in Sec.
1002.14(c), whether the credit is for a business purpose (for
example, a loan to start a business) or a consumer purpose (for
example, a loan to finance a child's education).
2. Renewals. This section applies when an applicant requests the
renewal of an existing extension of credit and the creditor obtains
a new appraisal report. This section does not apply when a creditor
uses the appraisal report previously obtained to evaluate the
renewal request.
14(a)(2)(i) Notice.
1. Multiple applicants. When an application that is subject to
this section involves more than one applicant, the notice about the
appraisal report need only be given to one applicant, but it must be
given to the primary applicant where one is readily apparent.
14(a)(2)(ii) Delivery.
1. Reimbursement. Creditors may charge for photocopy and postage
costs incurred in providing a copy of the appraisal report, unless
prohibited by state or other law. If the consumer has already paid
for the report--for example, as part of an application fee--the
creditor may not require additional fees for the appraisal (other
than photocopy and postage costs).
14(c) Definitions.
1. Appraisal reports. Examples of appraisal reports are:
i. A report prepared by an appraiser (whether or not licensed or
certified), including written comments and other documents submitted
to the creditor in support of the appraiser's estimate or opinion of
the property's value.
ii. A document prepared by the creditor's staff that assigns
value to the property, if a third-party appraisal report has not
been used.
iii. An internal review document reflecting that the creditor's
valuation is different from a valuation in a third party's appraisal
report (or different from valuations that are publicly available or
valuations such as manufacturers' invoices for mobile homes).
2. Other reports. The term ``appraisal report'' does not cover
all documents relating to the value of the applicant's property.
Examples of reports not covered are:
i. Internal documents, if a third-party appraisal report was
used to establish the value of the property.
ii. Governmental agency statements of appraised value.
iii. Valuations lists that are publicly available (such as
published sales prices or mortgage amounts, tax assessments, and
retail price ranges) and valuations such as manufacturers' invoices
for mobile homes.
Section 1002.15--Incentives for Self-Testing and Self-Correction
15(a) General rules.
15(a)(1) Voluntary self-testing and correction.
1. Activities required by any governmental authority are not
voluntary self-tests. A governmental authority includes both
administrative and judicial authorities for Federal, State, and
local governments.
15(a)(2) Corrective action required.
1. To qualify for the privilege, appropriate corrective action
is required when the results of a self-test show that it is more
likely than not that there has been a violation of the ECOA or this
part. A self-test is also privileged when it identifies no
violations.
2. In some cases, the issue of whether certain information is
privileged may arise before the self-test is complete or corrective
actions are fully under way. This would not necessarily prevent a
creditor from asserting the privilege. In situations where the self-
test is not complete, for the privilege to apply the lender must
satisfy the regulation's requirements within a reasonable period of
time. To assert the privilege where the self-test shows a likely
violation, the rule requires, at a minimum, that the creditor
establish a plan for corrective action and a method to demonstrate
progress in implementing the plan. Creditors must take appropriate
corrective action on a timely basis after the results of the self-
test are known.
3. A creditor's determination about the type of corrective
action needed, or a finding that no corrective action is required,
is not conclusive in determining whether the requirements of this
paragraph have been satisfied. If a creditor's claim of privilege is
challenged, an assessment of the need for corrective action or the
type of corrective action that is appropriate must be based on a
review of the self-testing results, which may require an in camera
inspection of the privileged documents.
15(a)(3) Other privileges.
1. A creditor may assert the privilege established under this
section in addition to asserting any other privilege that may apply,
such as the attorney-client privilege or the work-product privilege.
Self-testing data may be privileged under this section whether or
not the creditor's assertion of another privilege is upheld.
15(b) Self-test defined.
15(b)(1) Definition.
Paragraph 15(b)(1)(i).
1. To qualify for the privilege, a self-test must be sufficient
to constitute a determination of the extent or effectiveness of the
creditor's compliance with the Act and Regulation B. Accordingly, a
self-test is only privileged if it was designed and used for that
purpose. A self-test that is designed or used to determine
compliance with other laws or regulations or for other purposes is
[[Page 79482]]
not privileged under this rule. For example, a self-test designed to
evaluate employee efficiency or customers' satisfaction with the
level of service provided by the creditor is not privileged even if
evidence of discrimination is uncovered incidentally. If a self-test
is designed for multiple purposes, only the portion designed to
determine compliance with the ECOA is eligible for the privilege.
Paragraph 15(b)(1)(ii).
1. The principal attribute of self-testing is that it
constitutes a voluntary undertaking by the creditor to produce new
data or factual information that otherwise would not be available
and could not be derived from loan or application files or other
records related to credit transactions. Self-testing includes, but
is not limited to, the practice of using fictitious applicants for
credit (testers), either with or without the use of matched pairs. A
creditor may elect to test a defined segment of its business, for
example, loan applications processed by a specific branch or loan
officer, or applications made for a particular type of credit or
loan program. A creditor also may use other methods of generating
information that is not available in loan and application files,
such as surveying mortgage loan applicants. To the extent permitted
by law, creditors might also develop new methods that go beyond
traditional pre-application testing, such as hiring testers to
submit fictitious loan applications for processing.
2. The privilege does not protect a creditor's analysis
performed as part of processing or underwriting a credit
application. A creditor's evaluation or analysis of its loan files,
Home Mortgage Disclosure Act data, or similar types of records (such
as broker or loan officer compensation records) does not produce new
information about a creditor's compliance and is not a self-test for
purposes of this section. Similarly, a statistical analysis of data
derived from existing loan files is not privileged.
15(b)(3) Types of information not privileged.
Paragraph 15(b)(3)(i).
1. The information listed in this paragraph is not privileged
and may be used to determine whether the prerequisites for the
privilege have been satisfied. Accordingly, a creditor might be
asked to identify the self-testing method, for example, whether
preapplication testers were used or data were compiled by surveying
loan applicants. Information about the scope of the self-test (such
as the types of credit transactions examined, or the geographic area
covered by the test) also is not privileged.
Paragraph 15(b)(3)(ii).
1. Property appraisal reports, minutes of loan committee
meetings or other documents reflecting the basis for a decision to
approve or deny an application, loan policies or procedures,
underwriting standards, and broker compensation records are examples
of the types of records that are not privileged. If a creditor
arranges for testers to submit loan applications for processing, the
records are not related to actual credit transactions for purposes
of this paragraph and may be privileged self-testing records.
15(c) Appropriate corrective action.
1. The rule only addresses the corrective actions required for a
creditor to take advantage of the privilege in this section. A
creditor may be required to take other actions or provide additional
relief if a formal finding of discrimination is made.
15(c)(1) General requirement.
1. Appropriate corrective action is required even though no
violation has been formally adjudicated or admitted by the creditor.
In determining whether it is more likely than not that a violation
occurred, a creditor must treat testers as if they are actual
applicants for credit. A creditor may not refuse to take appropriate
corrective action under this section because the self-test used
fictitious loan applicants. The fact that a tester's agreement with
the creditor waives the tester's legal right to assert a violation
does not eliminate the requirement for the creditor to take
corrective action, although no remedial relief for the tester is
required under paragraph 15(c)(3).
15(c)(2) Determining the scope of appropriate corrective action.
1. Whether a creditor has taken or is taking corrective action
that is appropriate will be determined on a case-by-case basis.
Generally, the scope of the corrective action that is needed to
preserve the privilege is governed by the scope of the self-test.
For example, a creditor that self-tests mortgage loans and discovers
evidence of discrimination may focus its corrective actions on
mortgage loans, and is not required to expand its testing to other
types of loans.
2. In identifying the policies or practices that are a likely
cause of the violation, a creditor might identify inadequate or
improper lending policies, failure to implement established
policies, employee conduct, or other causes. The extent and scope of
a likely violation may be assessed by determining which areas of
operations are likely to be affected by those policies and
practices, for example, by determining the types of loans and stages
of the application process involved and the branches or offices
where the violations may have occurred.
3. Depending on the method and scope of the self-test and the
results of the test, appropriate corrective action may include one
or more of the following:
i. If the self-test identifies individuals whose applications
were inappropriately processed, offering to extend credit if the
application was improperly denied and compensating such persons for
out-of-pocket costs and other compensatory damages;
ii. Correcting institutional policies or procedures that may
have contributed to the likely violation, and adopting new policies
as appropriate;
iii. Identifying and then training and/or disciplining the
employees involved;
iv. Developing outreach programs, marketing strategies, or loan
products to serve more effectively segments of the lender's markets
that may have been affected by the likely discrimination; and
v. Improving audit and oversight systems to avoid a recurrence
of the likely violations.
15(c)(3) Types of relief.
Paragraph 15(c)(3)(ii).
1. The use of pre-application testers to identify policies and
practices that illegally discriminate does not require creditors to
review existing loan files for the purpose of identifying and
compensating applicants who might have been adversely affected.
2. If a self-test identifies a specific applicant who was
discriminated against on a prohibited basis, to qualify for the
privilege in this section the creditor must provide appropriate
remedial relief to that applicant; the creditor is not required to
identify other applicants who might also have been adversely
affected.
Paragraph 15(c)(3)(iii).
1. A creditor is not required to provide remedial relief to an
applicant that would not be available by law. An applicant might
also be ineligible for certain types of relief due to changed
circumstances. For example, a creditor is not required to offer
credit to a denied applicant if the applicant no longer qualifies
for the credit due to a change in financial circumstances, although
some other type of relief might be appropriate.
15(d)(1) Scope of privilege.
1. The privilege applies with respect to any examination,
investigation or proceeding by Federal, State, or local government
agencies relating to compliance with the Act or this part.
Accordingly, in a case brought under the ECOA, the privilege
established under this section preempts any inconsistent laws or
court rules to the extent they might require disclosure of
privileged self-testing data. The privilege does not apply in other
cases (such as in litigation filed solely under a State's fair
lending statute). In such cases, if a court orders a creditor to
disclose self-test results, the disclosure is not a voluntary
disclosure or waiver of the privilege for purposes of paragraph
15(d)(2); a creditor may protect the information by seeking a
protective order to limit availability and use of the self-testing
data and prevent dissemination beyond what is necessary in that
case. Paragraph 15(d)(1) precludes a party who has obtained
privileged information from using it in a case brought under the
ECOA, provided the creditor has not lost the privilege through
voluntary disclosure under paragraph 15(d)(2).
15(d)(2) Loss of privilege.
Paragraph 15(d)(2)(i).
1. A creditor's corrective action, by itself, is not considered
a voluntary disclosure of the self-test report or results. For
example, a creditor does not disclose the results of a self-test
merely by offering to extend credit to a denied applicant or by
inviting the applicant to reapply for credit. Voluntary disclosure
could occur under this paragraph, however, if the creditor disclosed
the self-test results in connection with a new offer of credit.
2. The disclosure of self-testing results to an independent
contractor acting as an auditor or consultant for the creditor on
compliance matters does not result in loss of the privilege.
Paragraph 15(d)(2)(ii).
1. The privilege is lost if the creditor discloses privileged
information, such as the results of the self-test. The privilege is
not lost if the creditor merely reveals or refers to the existence
of the self-test.
Paragraph 15(d)(2)(iii).
1. A creditor's claim of privilege may be challenged in a court
or administrative law
[[Page 79483]]
proceeding with appropriate jurisdiction. In resolving the issue,
the presiding officer may require the creditor to produce privileged
information about the self-test.
Paragraph 15(d)(3) Limited use of privileged information.
1. A creditor may be required to produce privileged documents
for the purpose of determining a penalty or remedy after a violation
of the ECOA or Regulation B has been formally adjudicated or
admitted. A creditor's compliance with such a requirement does not
evidence the creditor's intent to forfeit the privilege.
Section 1002.16--Enforcement, Penalties, and Liabilities
16(c) Failure of compliance.
1. Inadvertent errors. Inadvertent errors include, but are not
limited to, clerical mistake, calculation error, computer
malfunction, and printing error. An error of legal judgment is not
an inadvertent error under the regulation.
2. Correction of error. For inadvertent errors that occur under
Sec. Sec. 1002.12 and 1002.13, this section requires that they be
corrected prospectively.
Appendix B--Model Application Forms
1. Freddie Mac/Fannie Mae form--residential loan application.
The uniform residential loan application form (Freddie Mac 65/Fannie
Mae 1003), including supplemental form (Freddie Mac 65A/Fannie Mae
1003A), prepared by the Federal Home Loan Mortgage Corporation and
the Federal National Mortgage Association and dated October 1992 may
be used by creditors without violating this part. Creditors that are
governed by the monitoring requirements of this part (which limits
collection to applications primarily for the purchase or refinancing
of the applicant's principal residence) should delete, strike, or
modify the data-collection section on the form when using it for
transactions not covered by Sec. 1002.13(a) to ensure that they do
not collect the information. Creditors that are subject to more
extensive collection requirements by a substitute monitoring program
under Sec. 1002.13(d) or by the Home Mortgage Disclosure Act (HMDA)
may use the form as issued, in compliance with the substitute
program or HMDA.
2. FHLMC/FNMA form--home improvement loan application. The home-
improvement and energy loan application form (FHLMC 703/FNMA 1012),
prepared by the Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association and dated October 1986,
complies with the requirements of the regulation for some creditors
but not others because of the form's section ``Information for
Government Monitoring Purposes.'' Creditors that are governed by
Sec. 1002.13(a) of the regulation (which limits collection to
applications primarily for the purchase or refinancing of the
applicant's principal residence) should delete, strike, or modify
the data-collection section on the form when using it for
transactions not covered by Sec. 1002.13(a) to ensure that they do
not collect the information. Creditors that are subject to more
extensive collection requirements by a substitute monitoring program
under Sec. 1002.13(d) may use the form as issued, in compliance
with that substitute program.
Appendix C--Sample Notification Forms
1. Form C-9. Creditors may design their own form, add to, or
modify the model form to reflect their individual policies and
procedures. For example, a creditor may want to add:
i. A telephone number that applicants may call to leave their
name and the address to which an appraisal report should be sent.
ii. A notice of the cost the applicant will be required to pay
the creditor for the appraisal or a copy of the report.
Dated: November 29, 2011.
Alastair M. Fitzpayne,
Deputy Chief of Staff and Executive Secretary, Department of the
Treasury.
[FR Doc. 2011-31714 Filed 12-20-11; 8:45 am]
BILLING CODE 4810-AM-P