View PDF

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

F e d e r a lR e s e r v eB a n k
O F DALLAS
W ILLIA M

H. WALLACE

FIRST V IC E PR ESID ENT
AND CH IEF O PERATING O FFICER

DALLAS, TEXAS 75222

August 15, 1989
Circular 89-46

TO:

The Chief Executive Officer of all
member banks and others concerned in
the Eleventh Federal Reserve District
SUBJECT

Proposed amendments to Regulation B, Equal Credit Opportunity
(Docket Number R-0671)
DETAILS
The Federal Reserve Board has requested public comment on proposed
amendments to its Regulation B, Equal Credit Opportunity, that would require
creditors to give small business applicants written notice of their right to a
statement of reasons for credit denials or other adverse action. The Board is
proposing these amendments to implement the Women’s Business Ownership Act of
1988, Pub. L. No. 100-533, 102 Stat. 2689, which was enacted October 25, 1988,
and amended the Equal Credit Opportunity Act. The amendments were intended to
provide small business owners, particularly women entrepreneurs, the same
rights that are afforded to consumer credit borrowers.
Comments are requested by September 15, 1989, and should be
addressed to William W. Wiles, Secretary, Board of Governors of the Federal
Reserve System, Washington, D.C. 20551. All correspondence should refer to
Docket No. R-0671 and must be received by September 15, 1989.
ATTACHMENTS
The Board’s notice is attached.
MORE INFORMATION
For further information regarding this circular, please contact
Dean Pankonien at (214) 651-6228. For additional copies of this circular,
please contact the Public Affairs Department at (214) 651-6289.
Sincerely yours,

For a dditional copies of any circu lar p lease co n ta c t the Public A ffairs D epartm ent a t (214) 6 5 1 -6 2 8 9 . Banks and others are
encouraged to use the follow ing incom ing W A T S num bers in c ontacting this Bank (800) 4 4 2 -7 1 4 0 (intrastate) and (800)
5 2 7 -9 2 0 0 (interstate).

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

29734

Federal Register / Vol. 54, No. 134 / Friday, July 14, 1989 / Proposed Rules

FEDERAL RESERVE SYSTEM
12CFR Part 202
[Regulation B; Docket No. R-0671]

Equal Credit Opportunity; Business
Credit
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Proposed rule.

The Board is proposing to
revise Regulation B to implement
amendments to the Equal Credit
Opportunity Act. The amendments,
enacted on October 25,1988, require
creditors to give written notice to
business credit applicants of their right
to a written statement of reasons for
credit denials or other adverse action.
The law also requires creditors to
maintain records used in evaluating
credit applications.
The proposed revisions to Regulation
B would implement the statutory
amendments and define coverage.
Coverage of business credit applications
generally would depend on the
applicant’s gross revenues: an
application would be subject to the
amendments if it involves a business
applicant with gross revenues of
$500,000 or less, except in the case of an
application for trade credit and similar
types of credit. The latter applications
and applications from businesses with
gross revenues greater than $500,000
would remain subject to modified rules
currently provided by § 202.3(d) of
Regulation B, although certain revisions
to that section are also being proposed
by the Board at this time.
The Board will adopt a final rule
following a 60-day comment period,
after review of the comments received.
The Board contemplates issuing a final
rule by late October 1989, with an
effective date of January 1,1990. Until
SUMMARY:

then, the existing rules of Regulation B
continue in effect.
DATE: Comments must be received on or
before September 15,1989.
ADDRESSES: Comments should be
mailed to William W. Wiles, Secretary,
Board of Governors of the Federal
Reserve System, Washington, DC 20551,
or delivered to the Mail Services
courtyard entrance on 20th Street,
between C Street and Constitution
Avenue NW., Washington, DC, between
8:45 a.m. and 5:15 p.m. weekdays.
Comments should include a reference to
Docket No. R-0671. Comments may be
inspected in Room B-1122 between 8:45
a.m. and 5:15 p.m. weekdays.
FOR FURTHER INFORMATION CONTACT: In
the Division of Consumer and
Community Affairs, at (202) 452-2412 or
452-3867: Adrienne Hurt, Senior
Attorney, or Jane Ahrens, Staff
Attorney; for the hearing impaired only,
contact Eamestine Hill or Dorothea
Thompson, Telecommunications Device
for the Deaf at (202) 452-3544, Board of
Governors of the Federal Reserve
System, Washington, DC 20551.
SUPPLEMENTARY INFORMATION:

(1)Background
The Equal Credit Opportunity Act
(ECOA), 15 U.S.C. 1691-1691f, makes it
unlawful for creditors to discriminate in
any aspect of a credit transaction on the
basis of sex, marital status, race, color,
national origin, religion, age (provided
the applicant has the capacity to
contract), because all or part of an
applicant’s income derives from any
public assistance, or because an
applicant has in good faith exercised
any right under the Consumer Credit
Protection Act. The ECOA also provides
that a credit applicant has the right to
obtain a written statement of reasons
for a denial of credit. The ECOA is
implemented by the Board's Regulation
B, 12 CFR Part 202. A staff commentary
to the regulation, 12 CFR Part 202 Supp.
I, applies and interprets the
requirements of Regulation B.
Pursuant to authority granted under
section 703(a) of the ECOA, 12 U.S.C.
169lb(a), the Board has previously
provided limited exceptions, set forth in
§ 202.3 of Regulation B, from certain of
the regulation’s requirements for the
following types of credit: Credit
extensions involving public utility
services; credit extensions subject to
regulation under the Securities
Exchange Act; credit payable in four or
fewer installments, in which no credit
card is used and no finance charge is
imposed ("incidental credit”);
extensions of credit to federal and state

Federal Register / VoL 54, No. 134 / Friday, July 14, 1989 / Proposed Rules
governments and extensions of credit
primarily for business, commercial or
agricultural purposes ("business
credit”).
The current exceptions for business
credit relate to the following areas:
W ritten notification of credit denials,
record retention, marital status
inquiries, and supplying information to
third parties about accounts held jointly
by married persons. Business credit
transactions remain subject to all other
provisions of Regulation B (which
includes for example, rules that make it
unlawful for a creditor automatically to
require loan guarantees from a
nonapplicant spouse).

The Women's Business Ownership A ct
amendments to the ECOA
For a number of years, members of
Congress and others have expressed
concern that the business credit
exceptions under Regulation B do not
provide business credit applicants,
particularly small-business owners, with
adequate rights under the ECOA. On
October 25,1988, the fecOA was
amended by the Women's Business
Ownership Act of 1988, Pub. L No. 100­
533,102 Stat. 2689. These amendments
to the ECOA require creditors to (1) give
business credit applicants written notice
of the right to obtain reasons for a credit
denial and (2) retain records on business
credit applications for at least one year,
pursuant to the Federal Reserve Board's
implementing regulation.
The statutory provision governing the
Board’s rulewriting authority also was
amended to provide that any exemption
from the requirement of the act or
implementing regulation issued by the
Board will end after five years. The
Board may extend an exemption for an
additional five-year period if the Board
makes an express finding that an
extension is appropriate.
(2) The Proposed Revisions to
Regulation B
The Board proposes to revise
Regulation B to implement the ECOA
amendments regarding notice of credit
denials and record retention; define the
business credit applications to which
the revised rules will apply: and revise
the regulatory provisions that will
govern all other business credit
transactions.

General Coverage
The legislative history makes clear
that the primary intent of the statutory
amendments is to provide smallbusiness owners, particularly women
entrepreneurs, the same ECOA rights
that are afforded to consumer credit
borrowers. There is evidence of

congressional intent that the
amendments should not apply to
applications by large corporations or to
certain types of business credit (such as
applications for trade credit and credit
incident to factoring arrangements). See
House Committee on Small Business,
Selected Documents Pertaining to the
Women’s Business Ownership Act of
1988,100th Cong. 2d Sess. (Comm. Print).
There is, however, no commonly
accepted definition of a small business.
The Board therefore considered various
tests for determining coverage for
purposes o f the ECOA and Regulation
B— foT example, the asset size of the
business entity, and the number of
employees of the business entity. In
many instances, however, the
correlation between “s m a ir and some
of these characteristics depends on the
nature of the business, industry
dominance, and other factors. The Board
also considered using the size of the
loan transaction, but transaction size
does not differentiate between smalland large-business credit applicants.
Wanting to provide a simple test for
determining coverage of transactions by
Regulation B, the Board ultimately
decided to propose a cutoff based on
gross revenues.
.
Applications from businesses that had
gross revenues of $500,000 or less in the
preceding fiscal year would be subject
to regulatory provisions implementing
the statutory amendments on notice of
credit denials and record retention. (A
creditor would be permitted to rely on
the applicant’s assertions about the
revenue size of the business).
Applications to start a business would
be included in this category.
Applications for trade credit, credit
incident to factoring arrangements, and
similar types of credit—as Well as
credit applications from businesses with
revenues exceeding $500,000—would
continue to be subject to the modified
rules for notification and record
retention set forth in § 202.3(d)(3) of
Regulation B, discussed later in this
notice.
The $500,000 cutoff which the Board is
proposing would provide coverage for
credit applications involving some 70
percent of the businesses operating
today. The Board believes that this test
would ensure ECOA rights for most
small businesses and at the same time
not cover very large corporate entities.
In seeking an appropriate dollar cutoff
to delineate a small-business entity, for
purposes of the ECOA and Regulation B,
the Board looked to other legislation for
guidance. The dollar test being
proposed—$500,000 in gross revenues—
corresponds to the test that was used to
establish an exemption for small

29735

businesses under the minimum wage
legislation recently passed by both the
Senate and the House of
Representatives. See Amendments to
the Fair Labor Standards Act, H.R. 2,
100th Cong. 2d Sess. (1989)(subsequently
vetoed by the President).

Notice o f the Right to Reasons for a
Credit Denied
The statutory amendments require
creditors to inform business loan
applicants, in writing, of the right to a
written statement of the reasons for a
denial of their loan applications. Under
the Board’s proposal, creditors would
follow the notification rules in
§ 202.9(a)(3) of Regulation B, a new
provision governing credit applications
from businesses with $5 0 0 ,0 0 0 or less in
gross revenues. Applications from
businesses with revenues exceeding that
amount would be governed by § 202.3(d)
of the regulation, discussed below.
The proposed rules applicable to
business credit closely parallel the rules
that govern nonbuitness cred it
Creditors that follow the present
Regulation B rules governing
nonbusiness credit will be in full
compliance with the act and regulation.
The Board's proposal does, however,
contain one or two provisions that
would offer creditors some flexibility
and facilitate compliance.
Under the proposed rule, creditors
would continue to be allowed to notify
business credit applicants of a credit
decision orally or in writing.
(Nonbusiness credit applicants must be
notified in writing when credit is denied
or other adverse action is taken.) Notice
of the credit decision would be given in
accordance with the timing
requirements of § 202.9(a)(1) of the
regulation—typically within 30 days of
receiving a “completed” application.
Under § 202.2(f), an application is
deemed to be “completed” when the
creditor has received all the information
it regularly obtains and considers in
evaluating applications for credit
(including any information requested
from the applicant). If credit
negotiations involve a series of
countaroffers, the notice requirements of
§ 202.9 of the regulation would not be
triggered by each counteroffer. See
Regulation B, § 202.9(a)(l)(iv) and the
accompanying official staff commentary.
The Board proposes to allow creditors
to satisfy the requirement of providing a
written notice of the right to a statement
of reasons for a credit denial m one of
two ways. First, the creditor could give
the notice to all business applicants at
the time of application provided the
notice is given in a form the applicant

29736

Federal Register / Vol. 54, No. 134 / Friday, July 14, 1989 / Proposed Rules

may retain. Notice could be given on a
separate piece of paper or included on
any documentation provided to the
applicant. For example, the notice could
be printed on an application form or
financial statement. The disclosure
should be noticeable, but there are no
special requirements regarding location,
type size, or type face.
Alternatively, the creditor could
follow the rule used for nonbusiness
credit and give notice of the right to a
statement of reasons after a credit
denial or other adverse action is taken.
And of course, as in the case of
nonbusiness credit, the creditor may
provide the specific reasons for a credit
denial, instead of merely giving notice of
the right.
W hether a notice is provided at the
time of application or when-adverse
action is taken, the notification must
contain all the information required
under § 202.9(a)(2) of Regulation B,
except that—as noted above—creditors
would be permitted to give the
statement of the action taken (for
example, that a line of credit or a loan
has been denied) orally or in writing.
The information required includes the
name and address of the creditor; a
statement of the provisions of section
701(a) of the ECOA (the “ECOA
notice”); and the name and address of
the federal agency that administers
compliance with respect to the creditor.
Appendix C to Regulation B contains
sample notification forms. The Board is
proposing to add two notices—proposed
forms C-7 and C-8—for use in
connection with applications for
business credit. Form C-7 is a sample
notice of a statement of reasons for a
credit denial. The reasons for a credit
denial contained in form C-7 are
illustrative only. Form C-8 is a sample
disclosure of the right to a statement of
reasons of the type that would be given
at the time of application.
A creditor may design its own
notification forms or use all or a portion
of the forms contained in the appendix.
Proper use of the forms will satisfy the
requirements of § 202.9(a)(2)(i) and
proposed § 202.9(a)(3), respectively, for
applications for business credit.

Oral Notification for Telephone
Applications
An oral or written request for an
extension of credit, if made in
accordance with procedures established
by a creditor for the type of credit
requested, is considered an application
under § 202.2(f) of Regulation B. The
Board recognizes that creditors that
accept telephone applications might find
it difficult to comply with the written
notification requirements. Proposed

§ 202.9(a)(3) of the regulation therefore
provides that when an application for
business credit is made by telephone,
compliance with the notification
requirements would be satisfied by an
oral disclosure of the applicant’s right to
a statement of reasons for a denial of
credit. In this instance, the additional
information otherwise required on a
written notification need not be recited.
For example, a creditor does not have to
give an oral disclosure of the ECOA
notice specified in § 202.9(b)(1) of the
regulation.
A request for an advance under an
existing line of credit is not considered
an “application" for credit and therefore
does not trigger the notification
requirements of the regulation. See
Regulation B, § 202.2(f) and
accompanying commentary; see also
§ 202.2(c)(2). Inquiries from potential
applicants seeking only credit
information also are not covered by the
notification requirements. Such inquiries
are, however, subject to § 202.5(a) of
Regulation B, which bars creditors from
discouraging prospective applicants, on
a prohibited basis, from making or
pursuing an application.

Retention o f Records Used to Evaluate
Applications
Regulation B generally requires
creditors to retain records for a 25month period that starts when the
creditor notifies an applicant of the
action taken on an application for credit.
The purpose of record retention is to
evidence compliance with or enforce
any action under the ECOA by
preserving records that may disclose
patterns of lending policies or practices,
to help support or refute allegations of
discrimination. A 25-month period was
established by the regulation because an
aggrieved applicant has two years in
which to file a lawsuit alleging
violations of the ECOA.
The statutory amendments to the
ECOA require that creditors retain
records on business credit applications
for not less than one year, though the
Board has the discretion to set a longer
period for record retention. The Board is
proposing that records for applications
involving businesses with gross
revenues of $500,000 or less be retained
for 25 months, the same time period
required for the retention of nonbusiness
credit records. As in the case of
notification, the Board would like to
provide as much uniformity between
business and nonbusiness credit rules as
possible. The Board believes that doing
so would facilitate creditor compliance
by eliminating confusion that might
result from having different rules for
business and nonbusiness credit. The

Board invites comment on whether
requiring records to be retained for 25
months, instead of 12 months, would
impose a significant incremental burden.
The rules governing record retention
are contained in § 202.12 of Regulation
B. Creditors are required to retain the
original or a copy of any application
document and other written or recorded
data used in evaluating an application.
(A “copy” includes carbon copies,
photocopies, microfilm copies, copies
produced by a computerized system, or
copies produced by any other accurate
retrieval system.) Typically, such data
might include financial statements, tax
returns, and business plans. The creditor
must also retain a copy of any statement
of reasons for a credit denial provided
to an applicant. Any documents that are
returned to the applicant upon the
applicant's request need not be retained.
Regulation B does not require
creditors to use written application
forms to satisfy the record retention
requirements of the regulation. In
situations where no formal written
application is used, or where there is
little documentation concerning an
application because a creditor is dealing
with a customer of long standing or for
some other reasons, the documentation
necessary for record retention would be
minimal.
Where a creditor provides a notice of
rights, a creditor may evidence
compliance in various ways. The
creditor need not retain acknowledged
copies of the actual notice of rights
given to each individual applicant. A
creditor could evidence compliance by
having a sample copy of the type of
notice provided to applicants and
demonstrating that there are procedures
in place to ensure that notices are being
provided.
N otification and R ecord Retention
Requirem ents fo r A pplications by
Businesses W ith Gross R evenues in
Excess o f $500,000, and Applications fo r
Trade and Sim ilar Credit
The proposed rules for notification
and record retention discussed above
would govern credit applications by
businesses with gross revenues of
$500,000 or less. Credit applications by
businesses with gross revenues
exceeding $500,000, and applications for
trade credit, credit incident to factoring
and similar credit (regardless of the
applicant’s revenues) would be subject
to modified rules contained in § 202.3(d)
of Regulation B. (Trade credit and credit
extensions incident to factoring
arrangements, typically involve the
financing of inventory, equipment or
accounts receivable. Some of these

Federal Register / Vol. 54, No. 134 / Friday, July 14, 1989 / Proposed Rules
transactions may involve numerous oral,
instant-credit decisions made on a daily,
or even hourly, basis under the credit
relationship, and the legislative record
indicates congressional intent that these
transactions should not be subject to the
new statutorily mandated provisions.)
The Board is proposing certain
revisions to the rules in § 202.3(d) to
simplify their application for both
applicants and creditors, and to make it
easier for creditors to comply by
providing more uniformity among the
various timing requirements for notice
and record retention. Under the current
regulation, a creditor must notify a
business credit applicant of a credit
denial, orally or in writing, within a
reasonable time after receiving a
completed application. (Notice provided
in accordance with the timing
requirements of § 202.9(a)(1) of
Regulation B is deemed “reasonable” in
all instances.) The applicant currently
has the right to a written statement of
the specific reasons for a credit denial,
but must submit a written request within
30 days of a denial in order to obtain the
reasons. Under the proposed revisions,
applicants would have up to 60 days
after a denial (as in nonbusiness credit)
to request written reasons for the denial.
,
The current regulation requires
creditors to retain records for 90 days
after taking action on a business credit
application. If during this time an
applicant makes a written request to
have records kept, the creditor must
retain the records for 25 months. As in
the case of the reasons for a credit
denial, however, the creditor need not
inform the applicant of the right to make
the request. Under the proposed
revisions to § 202.3(d), if the creditor
receives a written request for a
statement of reasons, the creditor would
be required both to give the reasons and
also to retain records for a 25-month
period. Thus, rejected applicants would
not need to make two distinct requests
regarding the credit decision. Absent a
request, a creditor would not have to
retain records beyond the 60-day period
in which a request might be received.

Elimination o f Current Business Credit
Exception Concerning M arital Status
Inquiries
The ECOA prohibits creditors from
discriminating on the basis of marital
status in any aspect of a credit
transaction. Section 202.5(d)(1) of
Regulation B generally prohibits
creditors from asking about marital
status when an applicant applies
individually for unsecured credit.
Currently, however, individuals
applying for business tred it may be
asked about their marital status whether

the credit is to be secured or unsecured,
under an exception provided by
§ 202.3(d)(2)(i).
The Board proposes to eliminate that
exception. As a result, inquiries about a
business credit applicant's marital
status would now be governed by the
rules that apply to nonbusiness credit.
Inquiries about marital status would be
permissible only if an applicant applies
for secured credit, applies jointly for
credit, resides in a community property
state, or relies on property located in
such a state as a basis for repaying a
debt. See generally Regulation B,
i 202.5(d)(1) and accompanying
commentary.

Elimination o f Exception Regarding
Reporting Credit Information to Third
Parties
The Board proposes to delete from
§ 202.3(d) the exception from § 202.10,
the regulatory provision that governs the
reporting of credit histories on joint
accounts held by spouses. Under
§ 202.10, a creditor that furnishes credit
information to third parties (for
example, to a credit bureau or another
creditor) must reflect the participation of
both spouses on any account held
jointly by married persons, even if one
spouse is merely an authorized user on
the account. This provision is intended
to ensure that married women are able
to develop credit histories in their own
names so that in the event of
widowhood or divorce, for example,
they are not left without a credit history.
The Board believes this provision has no
applicability in the context of business
credit accounts because any credit
history reported about such an account
pertains to the'business entity and not
to the individuals owning the business.
The Board therefore believes that
providing an exception from this
provision is unnecessary, and proposes
to eliminate the exception.

Exceptions for Nonbusiness Credit
The ECOA amendments of 1988 were
enacted to modify the business credit
exceptions, and no specific mention is
made in the legislative record of other
nonbusiness credit transactions. The
modifications relating to the Board’s
rulewriting authority, however, also
affect the other existing exceptions in
§ 202.3 (a)— and (e) of Regulation B—
(c)
for public-utilities credit, securities
credit incidental credit and credit to
governmental agencies. Like the
exceptions for business credit, th e .
exceptions for these types of
transactions will be subject to review
every five years. The exceptions exist
primarily because the extensions of
credit to which they relate generally are

29737

incidental to some other service being
provided, or because they are subject to
regulation by another governmental
entity. The nonbusiness exceptions have
been republished in this notice. The
Board invites specific comment on the
appropriateness of retaining these
exceptions.
(3) Comments Requested
Interested persons are invited to
submit written comments on the
proposed amendments and other
matters addressed in this notice.
Comments must be received by
September 15,1989. After the close of
the comment period, based upon its
analysis of the comments received, the
Board will publish in the Federal
Register its notice of final action. The
Board contemplates issuing a final rule
by late October 1989, with an effective
date of January 1,1990. Until then, the
existing rules of Regulation B continue
in effect.
(4) Economic Impact Statement
The Board's Division of Research and
Statistics has prepared an economic
impact statement on the proposed
revisions to Regulation B. A copy of the
analysis may be obtained from
Publications Services, Board of
Governors of the Federal Reserve
System, Washington, DC 20551, at (202)
452-3245.
List of Subjects in 12 CFR Part 202
Banks, Banking, Civil rights.
Consumer protection, C redit Federal
Reserve System, Marital status
discrimination, Minority Groups,
Penalties, Sex discrimination. Women.
(5) Text of Proposed Revisions.
Certain conventions have been used
to highlight the proposed revisions. New
language is shown inside arrows, while
language that would be removed is set
off with brackets. Pursuant to authority
granted in 15 U.S.C. 1691b of the ECOA,
the Board proposes to amend Regulation
B (12 CFR Part 202) as follows:
1. The authority citation for Part 202 is
revised to read as follows:
Authority: 15 U.S.C. 1691-169lf.

2. Section 202.3(a) through (c) and (e)
are being republished. Section 202.3 is
further amended by removing paragraph
(d)(2), adding a new paragraph (d)(2),
and revising paragraph (d)(3) to read as
follows:
§ 202.3 Limited exceptions for certain
classes of transactions.

(a) Public-utilities credit.— (1)
Definition. Public-utilities credit refers
to extensions of credit that involve

29738

Federal Register / Vol. 54, No. 134 / Friday, July 14, 1989 / Proposed Rules

public-utility services provided through
pipe, wire, or other connected facilities,
or radio or similar transmission
(including extensions of such facilities),
if the charges for service, delayed
payment, and any discount for prompt
payment are filed with or regulated by a
government unit.
(2) Exceptions. The following
provisions of this regulation do not
apply to public-utilities credit:
(1) Section 202.5(d)(1) concerning
information about marital status;
(ii) Section 202.10 relating to
furnishing of credit information; and
(iii) Section 202.12(b) relating to
record retention.
(b) Securities credit.—(1) Definition.
Securities credit refers to extensions of
credit subject to regulation under
section 7 of the Securities Exchange Act
of 1934 or extensions of credit by a
broker or dealer subject to regulation as
a broker or dealer under the Securities
Exchange Act of 1934.
(2) Exceptions. The following
•provisions of this regulation do not
apply to securities credit:
(i) Section 202.5(c) concerning
information about a spouse or former
spouse;
(ii) Section 202.5(d)(1) concerning
information about marital status:
(iii) Section 202.5(d)(3) concerning
information about the sex of an
applicant;
(iv) Section 202.7(b) relating to
designation of name, but only to the
extent necessary to prevent violation of
rules regarding an account in which a
broker or dealer has an interest, or rules
necessitating the aggregation of
accounts of spouses for the purpose of
determining controlling interests,
beneficial interests, beneficial
ownership, or purchase limitations and
restrictions;
(v) Section 202.7(c) relating to action
concerning open-end accounts, but only
to the extent the action taken is on the
basis of a change of name or marital
status:
(vi) Section 207.7(d) relating to the
signature of a spouse or other person;
(vii) Section 202.10 relating to
furnishing of credit information; and
(viii) Section 202.12(b) relating to
record retention.
(c) Incidental credit—(1) Definition.
Incidental credit refers to extensions of
consumer credit other than credit of the
types described in paragraphs (a) and
(b) of this section—
(i) That are not made pursuant to the
terms of a credit card account;
(ii) That are not subject to a finance
charge (as defined in Regulation Z, 12
CFR 226.4); and

(iii) That are not payable by
agreement in more than four
installments.
(2) Exceptions. The following
provisions of this regulation do not
apply to incidental credit:
(i) Section 202.5(c) concerning
information about a spouse or former
spouse;
(ii) Section 202.5(d)(1) concerning
information about marital status:
(iii) Section 202.5(d)(2) concerning
information about income derived from
alimony, child support, or separate
maintenance payments;
(iv) Section 202.5(d)(3) concerning
information about the sex of an
applicant, but only to the extent
necessary for medical records or similar
purposes;
(v) Section 202.7(d) relating to the
signature of a spouse or other person;
(vi) Section 202.9 relating to
notifications;
(vii) Section 202.10 relating to
furnishing of credit information; and
(viii) Section 202.12(b) relating to
record retention.
(d) Business credit—(1) Definition.
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
paragraphs (a) and (b) of this section.
[(2) Exceptions. The following
provisions of this regulation do not
apply to business credit:
(i) Section 202.5(d)(1) concerning
information about marital status; and
(ii) Section 202.10 relating to furnishing
of credit information.]
► ( 2 ) A pplication from business with
gross revenues o f $500,000 or less. An
application from a business that had, in
the preceding fiscal year, gross revenues
of $500,000 or less (except an application
for an extension of trade credit, credit
incident to a factoring agreement, or
other similar types of credit) is subject
to all the provisions of this regulation.
(See S 202.9(a)(3) for rule regarding
notification.)*
(3) [ M odified requirem ents. ]
► Application from business with gross
revenues in excess o f $500,000;
extension o f trade or sim ilar cred it An
application from a business that had
gross revenues in excess of $500,000 in
its preceding fiscal year, or an
application for an extension of trade
credit credit incident to a factoring
agreement, or other similar types of
credit, is subject to all the provisions of
this regulation, except that {$ 202.9 and
202.12-4 [T h e following provisions of
this regulation] apply [ t o business
cred it] as specified below:

(1) ►N o tificatio n u n d e r* § 202.9 (a),
(b), and (c) [relating to notifications]:
the creditor shall notify the applicant,
orally or in writing, of action taken or of
incompleteness. When credit is denied
or when other adverse action is taken,
the creditor [ is required to ] ► shall *
provide a written statement of the
reasons and the ECOA notice specified
in § 202.9(b) if the applicant makes a
written request for the reasons within
[3 0 ] ► 6 0 * days of that notification^
and] ► . - 4
(ii)►R e c o r d retention u n d e r*
§ 202.12(b) [relating to record
retention.] ► : the-* [ T h e ] creditor
shall retain records of an application
[ a s provided] ► f o r the 25-month
period specified* in § 202.12(b) if the
applicant [.w ithin 90 days after being
notified of action taken or of
incompleteness, requests in writing that
records be retained.] ► h a s requested in
writing the reasons for adverse action
(as provided in paragraph (d)(3)(i) of this
section) or if, within 60 days after being
notified of action taken or of
incompleteness, the applicant requests
in writing that records be retained.*
(e) Government credit—(1) Definition.
Government credit refers to extensions
of credit made to governments or
governmental subdivisions, agencies, or
instrumentalities.
(2) A pplicability o f regulation. Except
for § 202.4, the general rule prohibiting
discrimination on a prohibited basis, the
requirements of this regulation do not
apply to government credit.
3. Section 202.9 is amended by adding
paragraph (a)(3) to read as follows:
§ 202.9

Notifications.

(a) N otification o f action taken, ECOA
notice, and statem ent o f specific
reasons.
*

*

*

*

*

► ( 3 ) N otification rule— application
from business with gross revenues o f
$500,000 or less. A creditor shall provide
the notification required by this section
to a business credit applicant with gross
revenues of $500,000 or less in the
preceding fiscal year (except in the case
of an application for trade credit credit
incident to factoring arrangements, or
other similar types of credit). The
notification given to a business credit
applicant when adverse action is taken
shall be provided in accordance with
paragraph (a)(2) of this section, except
that the statement of action taken may
be given orally or in writing. A creditor
may disclose an applicant’s right to a
statement of reasons and other
information required by paragraph (a)(2)
of this section at the time of application,
instead of when adverse action is taken.

Federal Register / Vol. 54, No. 134 / Friday, July 14, 1989 / Proposed Rules
provided the disclosure is in a form that
the applicant may retain. For an
application made by telephone, the
requirements of this section are satisfied
by oral notification of action taken and
of the applicant's right to a statement of
reasons for adverse action.*
*

*

*

*

*

or because the applicant has in good faith
exercised any right under the Consum er
Credit Protection Act. The federal agency
that adm inisters 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 R easons for Credit Denial
Given at Time of Application (Business
Credit)

4. Appendix C is amended by revising
the first and last paragraph of the
introduction, and by adding sample
Forms C-7 and C-8 to read as follows:
Creditor's nam e
Appendix C—Sample Notification
Creditor's address
Forms
This appendix contains [six] ► e i g h t *
sam ple notification forms. Forms C-l through
C-4 are intended for use in notifying an
applicant that adverse action h as been taken
on an application or account under
I I 202.9(a) (1) and (2)(i) of this regulation.
Form C-5 is a notice of disclosure of the right
to request specific reason s for adverse action
under | § 202.9(a) (1) and (2)(ii). Form C-6 is
designed for use in notifying an applicant,
under | 202.9(c)(2), that an application is
incomplete. ► F o r m s C-7 and C-8 are
intended for use in connection with
applications for business credit under
I 202.9(a)(3).*
*

*

*

*

*

A creditor m ay design its ow n notification
forms or use all or a portion of the forms
contained in this appendix. Proper use of
Forms C -l through C -4 will satisfy the
requirem ents of | 202.9(a)(2)(i). Proper use of
Forms C-5 and C-6 constitutes full
compliance with § | 202.9(a)(2)(ii) and
202.9(c)(2), respectively. ► P r o p e r use of
Forms C-7 and C-8 will satisfy the
requirem ents of § § 202.9(a)(Z)(i) a n d (3),
respectively, for applications for business
c r e d it.*
*

*

*

*

*

► Form C-7—Sample Notice of Action T aken
a n d Statem ent of Reasons (Business Credit)

If your application for business credit is
denied, you have the right to a w ritten
statem ent of the specific reasons for the
denial. To obtain the statem ent, please
contact [name, address and telephone
num ber of the person or office from which the
statem ent of reasons can be obtained] within
60 days from the date you are notified of our
decision. We will send you a w ritten
statem ent of reasons for the denial within 30
days of receiving your request.
Notice
The federal Equal Credit Opportunity Act
prohibits creditors from discrim inating
against credit applicants on the basis of race,
color, religion, national origin,.sex, m arital
status, age (provided the applicant has the
capacity to enter into a binding contract);
because all or p art of the applicant's income
derives from any public assistan ce program;
or because the applicant h as in good faith
exercised any right under the Consum er
Credit Protection Act. The federal agency
that adm inisters compliance with this law
concerning this creditor is (name and address
as specified by the appropriate agency listed
in appendix A ) . *
By order of the Board of G overnors of the
Federal Reserve System, d ated July 10,1989.
W illiam W . W iles,

Secretary of the Board.
[FR Doc. 89-16511 Filed 7-13-89; 8:45 am]

Creditor’s nam e
Creditor’s address
Date -------------------------------------------------------D ear Applicant:
.
T hank you for applying to us for credit. W e
have given your request careful
consideration, and regret that we are unable
to extend credit to you at this time for the
following reasons:
Value or type of collateral not sufficient
Lack of established earnings record
Slow or p ast due in trade or loan paym ents
Lack of m anagerial experience
Sincerely,
Notice
The federal Equal Credit Opportunity Act
prohibits creditors from discriminating
against credit applicants on the basis or race,
color, religion, national origin, sex, m arital
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;

BILUNG CODE 6210-01-M

29739


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102