Equal Credit Opportunity Act and Regulation B

1
Equal Credit Opportunity Act and Regulation B

• Presentation for 2003 Fall Training Conference
• Arthur J. Rotatori
• McGlinchey Stafford, PLLC
• Telephone [phone]
• Email arotatori_at_mcglinchey.com

2
Scope

• Regulation B prohibits discrimination in any
  aspect of any type of credit transaction on a
  prohibited basis, which includes

• Age
• Receipt of public assistance income and
• Good faith exercise of rights under the Consumer
  Credit Protection Act.

• Race
• Color
• Religion
• National Origin
• Sex
• Marital Status

12 C.F. R. 202.2(z)
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Definitions

• Adverse Action A refusal to grant credit in
  substantially the amount or on substantially the
  terms requested in an application, unless the
  creditor makes a counteroffer that the applicant
  accepts. 12 C.F.R. 202.2(c).

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Definitions

• Adverse action includes
• A termination of an account or an unfavorable
  change in the terms of an account that does not
  affect all or a substantial portion of the
  creditors accounts.
• A refusal to increase the amount of credit
  available to an applicant who has applied for a
  credit increase.

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Adverse Action does not include

• A change in terms expressly agreed to by the
  borrower.
• Any action resulting from the accounts
  inactivity, default, or delinquency.
• A refusal or failure to authorize an account
  transaction at a POS.

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Adverse Action does not include

• A refusal to extend credit because applicable law
  prohibits the creditor from extending the credit
  requested.
• A refusal to extend credit because the creditor
  does not offer the type of credit requested.

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Definitions Applicant

• Person who requests or who has received a credit
  extension from a creditor, including anyone who
  is or may become contractually liable for a
  credit extension. 12 C.F.R. 202.2(e)

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Definitions Application

• An oral or written credit request that is made in
  accordance with a creditors established
  procedures for the type of credit requested. 12
  C.F.R. 202.2(f)

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Definitions

• Credit
• The right to defer payment of a debt, incur debt
  and defer its payment, or purchase property or
  services and defer payment.
• 12 C.F.R. 202.2(j)
• Creditor
• Person who, in the ordinary course of business,
  regularly participates in the decision of whether
  or not to extend credit.
• 12 C.F.R. 202.2(1)

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Taking the Application

• A creditor cannot do anything that would
  discourage (on a prohibited basis) a reasonable
  person from making or pursing an application.
• 12 C.F.R. 202.4
• This includes written or oral statements and
  advertising.
• Even subtle differences in the way applicants and
  potential applicants are treated may be
  problematic.

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Taking the Application

• There are limitations regarding what questions
  the creditor may ask about certain topics.
• 12 C.R.F. 202.5(c)

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Taking the Application

• Spousal Information A creditor can only ask for
  information concerning an applicants spouse if
• The spouse will be permitted to use the account
• The spouse will be contractually liable on the
  account
• The applicant is relying on the spouses income
  as a basis for repaying the credit requested
• 12 C.R.F. 202.5(c)

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Taking the Application

• Spousal Information A creditor can only ask for
  information concerning an applicants spouse if
• The applicant resides in a community property
  state or
• The applicant is relying on alimony, child
  support or separate maintenance payments from a
  spouse or former spouse to repay the credit
  requested.
• 12 C.R.F. 202.5(c)

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Taking the Application

• Marital Status A creditor may ask about an
  applicants marital status only when the
  applicant is applying for
• Individual credit and lives in a community
  property state or
• Individual secured credit, regardless of whether
  he lives in a community or separate property
  state or
• Joint credit (secured or unsecured).
• 12 C.F.R. 202.5(d)

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Taking the Application

• Permissible marital status terms are limited
  to
• Married
• Unmarried (includes divorced, widowed or single
  persons) and
• Separated

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Taking the Application

• Income A creditor may ask whether income
  reflected in a credit application is derived from
  alimony, child support or separate maintenance
  payment if the creditor discloses that the
  applicant need not reveal that income if the
  applicant doesnt want the creditor to consider
  the income in determining his creditworthiness.
• Gender A creditor cannot ask about the
  applicants gender.

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Taking the Application

• Childbearing A creditor cannot ask an applicant
  about his/her intentions regarding childbearing.
• Race, color, religion, national origin A
  creditor cannot ask about the color, religion or
  national origin of an application.

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Evaluating the Application

• General Rule The creditor cannot take a
  prohibited basis into account when evaluating an
  application. 12 C.F.R. 202.6
• Age A creditor cannot consider an applicants
  age or whether his income is derived from a
  public assistance program.
• Children A creditor cannot use assumptions
  relating to childbearing.

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Evaluating the Application

• General Rule The creditor cannot take a
  prohibited basis into account when evaluating an
  application. 12 C.F.R. 202.6
• Telephone A creditor cannot consider whether an
  applicant has a telephone listed in his name but
  may take into account whether there is a
  telephone in the applicants home.
• Income A creditor cannot discount or ignore the
  income of an applicant or his spouse because of a
  prohibited basis or because it is derived from a
  part-time job or is an annuity, pension or other
  retirement benefit.

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Evaluating the Application

• General Rule The creditor cannot take a
  prohibited basis into account when evaluating an
  application. 12 C.F.R. 202.6
• Credit History To the extent that a creditor
  considers credit history, the creditor must
  consider other information that the applicant
  presents that tends to indicate that the credit
  history being considered doesnt accurately
  reflect the applicants creditworthiness.
• Immigration Status A creditor can consider
  whether an applicant is a permanent resident of
  the U.S. and his immigration status.

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Extending Credit

• Individual Accounts A creditor cannot refuse to
  grant an individual account to a creditworthy
  applicant on any prohibited basis. 12 C.F.R.
  202.7
• Names A creditor must allow an applicant to
  open an account using a birth-given surname, the
  spouses surname or a combined surname.

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Extending Credit

• Individual Accounts (Continued)
• Signature Rules/Unsecured Credit When an
  applicant requests unsecured individual credit,
  the creditor generally cannot require another
  persons signature unless the creditor has first
  determined that the applicant does not
  individually qualify for the credit requested on
  his own.

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Extending Credit

• Individual Accounts (Continued)
• Signature Rules/Unsecured Credit (continued)
• If an applicant doesnt meet the creditors
  criteria, the creditor may require a cosigner or
  guarantor but cannot require that person to be
  the applicants spouse.
• Community Property If the applicant for
  unsecured individual credit is relying on his
  spouses future income to qualify for the credit
  requested and doesnt have sufficient separate
  property to qualify for the credit requested, the
  creditor may require the non-applicant spouse to
  sign the note.

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Extending Credit

• Individual Accounts (Continued)
• Signature Rules/Secured Credit The creditor may
  require the signature of the applicants spouse
  or any other person on the security instrument as
  reasonably believed to be necessary under the
  applicable state law to create an enforceable
  lien in the property being offered as collateral.
• Guarantees A loan guarantee is part of a credit
  extension and is subject to Regulation Bs
  protections.

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Notice of Action Taken

• A creditor must notify an applicant of action
  taken on his application.
• When approved, the notification of action taken
  can be express or implied.
• When declined, the notification must be in
  writing.

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Notice of Action Taken

• Timing Notification must be provided within
• 30 days after the creditor receives a completed
  application.
• 30 days after taking adverse action on an
  existing account or
• 90 days after notifying the applicant of a
  counteroffer if the applicant does not expressly
  accept or use the credit offered.
• 30 days after taking adverse action on an
  incomplete application.

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Notice of Action Taken

• Option Provide notice of incompleteness within
  30 days.
• Notice of incompleteness must
• Specify the information still needed
• Set a reasonable time frame for providing the
  additional information and
• Tell the applicant that failure to provide the
  requested information will result in no further
  consideration being given to his application.

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Notice of Action Taken

• If the applicant fails to respond within the time
  allowed, the creditor has no further notice
  obligation if he responds, the creditor has an
  additional 30 days to act on the application and
  notify the applicant.

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Notice of Action Taken

• Contents of the written adverse action notice
• Statement of the action taken
• Creditors name and address
• Statement regarding the protections afforded by
  the ECOA
• Name and address of the creditors federal
  regulatory agency and Either
• Specific reasons for the action taken or
• Disclosure of the applicants right of a
  statement of the specific reason for actions taken

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Notice of Action Taken

• Specific reasons for adverse action must indicate
  the principal reason(s) for adverse action.
• Specific reasons given must relate to and
  accurately describe the factors that the creditor
  actually considers or scores.
• If creditor uses a credit scoring system, the
  reasons disclosed must relate only to those
  factors actually stored in the system.

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Equal Credit Opportunity Act and Regulation B

• Presentation for 2003 Fall Training Conference
• Arthur J. Rotatori
• McGlinchey Stafford, PLLC
• Telephone [phone]
• Email arotatori_at_mcglinchey.com