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F ederal R eser v e Bank
OF DALLAS
W IL L IA M
fir s t

H. WALLACE

DALLAS. TEXAS 7 5 2 2 2

V IC E p r e s i d e n t

A N D C H IE F O P E R A T IN G O F F IC E R

September 4, 1990
C i r c u l a r 90-62

TO:

The Chief Executive O f f i c e r of
each f i n a n c i a l i n s t i t u t i o n in t he
Eleventh Federal Reserve D i s t r i c t

SUBJECT
Official Staff Commentary on
Regulation B--Equal Credit Opportunity
DETAILS
The Board o f Governors o f t h e Federal Reserve
System has pu blished an amended O f f i c i a l S t a f f Commentary
on Regulation B, e f f e c t i v e April 1990. The new commen­
t a r y should be i n s e r t e d i n to volume 2 o f your R eg u l at i on s
binder.

ENCLOSURE
The amended commentary i s en cl o s ed .

MORE INFORMATION
For more in for ma tio n, p le a s e c o n t a c t W Art hu r
.
T r i b b le a t (214) 744-7479. For a d d i t i o n a l co p i es o f t h i s
c i r c u l a r or the commentary, p le a se c o n t a c t t h e P ub l i c
A f f a i r s Department a t (214) 651-6289.
. Sincerely,

For additional copies of any circular, please contact the Public Affairs Department at (214) 651-6289.
Bankers and others are encouraged to use the following toll-free number in contacting the Federal
Reserve Bank of Dallas: (800) 333-4460.

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

Board of Governors of the Federal Reserve System

Official Staff Commentary
on Regulation B
Equal Credit Opportunity
As amended effective April 1, 1990

Any inquiry relating to Regulation B should be addressed to the Federal Reserve Bank of the
Federal Reserve District in which the inquiry arises.
May 1990

Contents

Introduction ............................................

Page
1

Page
Section 202.8—Special-purpose credit
pro gram s..............................................

12

Section 202.1—Authority, scope, and
purpose..................................................

1

Section 202.9—Notifications..................

13

Section 202.2—Definitions......................

2

Section 202.10—Furnishing of credit
inform ation..........................................

16

Section 202.11—Relation to state law . . .

16

Section 202.12—Record retention..........

16

Section 202.13—Information for
monitoring purposes............................

17

Section 202.14— Enforcement, penalties,
and liabilities........................................

18

Appendix B—Model application forms..

18

Section 202.3—Limited exceptions for
certain classes of transactions..............

4

Section 202.4— General rule prohibiting
discrim ination......................................

5

Section 202.5—Rules concerning taking
of applications......................................

5

Section 202.6—Rules concerning
evaluation of applications....................

6

Section 202.7—Rules concerning
extensions of c re d it..............................

9

Official Staff Commentary
on Regulation B
As amended effective April 1, 1990

Following is an official staff interpretation of
Regulation B issued under authority delegated
by the Federal Reserve Board to officials in
the Division of Consumer and Community
Affairs. References are to sections of the regu­
lation or the Equal Credit Opportunity Act
(15 USC 1601 et seq.).

designated with as much specificity as possible
according to the particular regulatory provi­
sion addressed. Each comment in the com­
mentary is identified by a number and the reg­
ulatory section or paragraph that it interprets.
For example, comments to section 202.2(c)
are further divided by subparagraph, such as
comment 2(c) (1) (ii)— and comment
1
2(c) (2) (ii)—
1.

IN T R O D U C T IO N
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 interpreta­
tion issued by a duly authorized official of the
Federal Reserve Board. This commentary is
the means by which the Division of Consumer
and Community Affairs of the Federal Re­
serve Board issues official staff interpretations
of Regulation B. Good faith compliance with
this commentary affords a creditor protection
under section 706(e) of the act.
2. Issuance o f interpretations. Under appendix
D to the regulation, any person may request
an official staff interpretation. Interpretations
will be issued at the discretion of designated
officials and incorporated in this commentary
following publication for comment in the Fed­
eral Register. Except in unusual circum­
stances, official staff interpretations will be
issued only by means of this commentary.
3. Status o f previous interpretations. Interpre­
tations of Regulation B previously issued by
the Federal Reserve Board and its staff have
been incorporated into this commentary as
appropriate. All other previous Board and
staff interpretations, official and unofficial, are
superseded by this commentary.
4. Footnotes. Footnotes in the regulation have
the same legal effect as the text of the regula­
tion, whether they are explanatory or illustra­
tive in nature.
5. Comment designations. The comments are

SE C T IO N 202.1— A uthority, Scope, and
Purpose

1 (a ) A uth ority and Scope
1. Scope. The Equal Credit Opportunity Act
and Regulation B apply to all credit—com­
mercial as well as personal—without regard
to the nature or type of the credit or the credi­
tor. 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). 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 general­
ly does not apply to lending activities that oc­
cur outside the United States. The regulation
does apply to lending activities that take place
within the United States (as well as the Com­
monwealth of Puerto Rico and any territory
or possession of the United States), whether
or not the applicant is a citizen.
3. Board. The term “Board,” as used in this
regulation, means the Board of Governors of
the Federal Reserve System.
1

Regulation B Commentary

§ 202.2
SE C T IO N 202.2— Definitions

•

2 (c ) A dverse A ction

•

Paragraph 2(c)(1)(H)
1. Move from service area. If a credit card is­
suer terminates the open-end account of a cus­
tomer because the customer has moved out of
the card issuer’s service area, the termination
is “adverse action” for purposes of the regula­
tion unless termination on this ground was ex­
plicitly provided for in the credit agreement
between the parties. In cases where termina­
tion is adverse action, notification is required
under section 202.9.
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 section 202.9.
Paragraph 2(c)(2)(ii)
1. Default—exercise o f due-on-sale clause. If a
mortgagor sells or transfers mortgaged prop­
erty 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 )-l for treatment of a
purchaser who requests to assume the loan.)
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:
•

•
•

2

A credit cardholder presents an expired
card or a card that has been reported to
the card issuer as lost or stolen.
The amount of a transaction exceeds a
cash advance or credit limit.
The circumstances (such as excessive use
of a credit card in a short period of time)
suggest that fraud is involved.

The authorization facilities are not
functioning.
Billing statements have been returned to
the creditor for lack of a forwarding
address.

Paragraph 2(c) (2) (v)
1. Terms o f credit versus type o f credit offered.
When an applicant applies for credit and the
creditor does not offer the credit terms re­
quested by the applicant (for example, the in­
terest rate, length of maturity, collateral, or
amount of downpayment), a denial of the ap­
plication for that reason is adverse action (un­
less the creditor makes a counteroffer that is
accepted by the applicant) and the applicant
is entitled to notification under section 202.9.
2 (e ) A pplicant
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) A pplication
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 established. ” The term refers
to the actual practices followed by a creditor
for making credit decisions as well as its stat­
ed application procedures. For example, if a
creditor’s stated policy is to require all appli­
cations to be in writing on the creditor’s appli­
cation form, but the creditor also makes credit
decisions based on oral requests, the creditor’s
established procedures are to accept both oral
and written applications.
3. When an inquiry 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
applicant, decides to decline the request, and
communicates this to the applicant, the credi­

§ 202.2

Regulation B Commentary
tor has treated the inquiry as an application
and must then comply with the notification
requirements under section 202.9. Whether
the inquiry becomes an application depends
on how the creditor responds to the applicant,
not on what the applicant says or asks.

the applicant, such as an address or telephone
number needed to verify employment, the
creditor should contact the applicant prompt­
ly. (But see comment 9 (a )(l)-3 , which dis­
cusses the creditor’s option to deny an appli­
cation on the basis of incompleteness.)

4. Examples o f inquiries that are not applica­
tions. The following examples illustrate situa­
tions in which only an inquiry has taken
place:

2 (g ) Business C redit

•

When a consumer calls to ask about loan
terms and an employee explains the credi­
tor’s basic loan terms, such as interest
rates, loan-to-value ratio, and debt-toincome ratio.
• When a consumer calls to ask about inter­
est 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.
• When a consumer asks about terms for a
loan to purchase a home and tells the loan
officer her income and intended downpay­
ment, 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.
• When a consumer calls to ask about terms
for a loan to purchase vacant land and
states his income and the sale price of the
property to be financed, and asks whether
he qualifies for a loan, and the employee
responds by describing the general lending
policies, explaining that he would need to
look at all of the applicant’s qualifications
before making a decision, and offering to
send an application form to the consumer.
5. Completed application— diligence require­
ment. The regulation defines a completed
application in terms that give a creditor the
latitude to establish its own information re­
quirements. Nevertheless, the creditor must
act with reasonable diligence to collect infor­
mation needed to complete the application.
For example, the creditor should request in­
formation from third parties, such as a credit
report, promptly after receiving the applica­
tion. If additional information is needed from

1. Definition. The test for deciding whether a
transaction qualifies as business credit is one
of primary purpose. For example, an openend 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 appli­
cant’s statement of the purpose for the credit
requested.

2 (j) C redit
1. General. Regulation B covers a wider
range of credit transactions than Regulation Z
(Truth in Lending). For purposes of Regula­
tion 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 commer­
cial purposes, the number of installments
required for repayment, or whether the
transaction is subject to a finance charge.

2(1) C reditor
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 who do not participate in
credit decisions but who regularly refer appli­
cants to creditors or who select or offer to se­
lect creditors to whom credit requests can be
made. These persons must comply with sec­
tion 202.4, the general rule prohibiting dis­
crimination, and with section 202.5(a), on
discouraging applications.
3

§ 202.2

2(p ) Empirically Derived and Other
Credit Systems
1. Purpose o f definition. The definition under
section 202.2(p)(l)(i) through (iv) sets the
criteria that a credit system must meet in or­
der for the system to use age as a predictive
factor. Credit systems that do not meet these
criteria are judgmental systems and may con­
sider age only for the purpose of determining
a “pertinent element of creditworthiness.”
(Both types of systems may favor an elderly
applicant. See section 202.6(b)(2).)
2. Periodic revalidation. The regulation does
not specify how often credit scoring systems
must be revalidated. To meet the require­
ments for statistical soundness, the credit
scoring system must be revalidated frequently
enough to ensure that it continues to meet
recognized professional statistical standards.

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. “Prohib­
ited basis” as used in this regulation refers not
only to characteristics—the race, color, reli­
gion, national origin, sex, marital status, or
age—of an applicant (or officers of an appli­
cant in the case of a corporation) but also to
the characteristics of individuals with whom
an applicant is affiliated or with whom the ap­
plicant associates. This means, for example,
that under the general rule stated in section
202.4, 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 oth­
er 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
4

Regulation B Commentary
applicant’s immigration status into account.
A creditor may also take into account any ap­
plicable law, regulation, or executive order re­
stricting dealings with citizens (or the govern­
ment) of a particular country or imposing
limitations regarding credit extended for their
use.
3. Public assistance program. Any federal,
state, or local governmental assistance pro­
gram that provides a continuing, periodic in­
come supplement, whether premised on enti­
tlement or need, is “public assistance” for
purposes of the regulation. The term includes
(but is not limited to) Aid to Families with
Dependent Children, food stamps, rent and
mortgage supplement or assistance programs,
Social Security and Supplemental Security In­
come, and unemployment compensation.
Only physicians, hospitals, and others to
whom the benefits are payable need consider
Medicare and Medicaid as public assistance.

SECTION 202.3—Limited Exceptions
for Certain Classes of Transactions
1. Scope. This section relieves burdens with
regard to certain types of credit for which full
application of the procedural requirements of
the regulation is not needed. All classes of
transactions remain subject to the general rule
given in section 202.4, 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 equip­
ment, or other durable goods, or for insula­
tion 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 provid­
ed. Thus, any credit term (such as a re­
quirement for a security deposit) is subject to
the regulation.

§ 202.5

Regulation B Commentary
3. Telephone companies. A telephone compa­
ny’s credit transactions qualify for the excep­
tions provided in section 202.3(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 C redit
1. Examples. If a service provider (such as a
hospital, doctor, lawyer or retailer) allows the
client or customer to defer the payment of a
bill, this deferral of a debt is credit for purpos­
es of the regulation, even though there is no
finance charge and no agreement for payment
in installments. Because of the exceptions pro­
vided by this section, however, these particu­
lar credit extensions are excepted from com­
pliance with certain procedural requirements
as specified in the regulation.
3 (d ) G overnm ent C redit
1. Credit to governments. The exception re­
lates to credit extended to (not by) govern­
mental entities. For example, credit extended
to a local government by a creditor in the pri­
vate sector 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.
SE C T IO N 202.4— G eneral R ule
Prohibiting D iscrim ination
1. Scope o f section. The general rule stated in
section 202.4 covers all dealings, without ex­
ception, between an applicant and a creditor,
whether or not addressed by other provisions
of the regulation. Other sections of the regula­
tion identify specific practices that the Board
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, administra­
tion of accounts, and treatment of delinquent
or slow accounts. Thus, whether or not specif­
ically prohibited elsewhere in the regulation, a
credit practice that treats applicants different­
ly on a prohibited basis violates the law
because it violates the general rule.

SE C T IO N 202.5— R ules C oncerning
T aking of A pplications
5 (a ) D iscouraging A pplications
1. Potential applicants. Generally, the regula­
tion’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—section 202.5(a)
covers acts or practices directed at potential
applicants. Practices prohibited by this section
include—
•

•

•

a statement that the applicant should not
bother to apply, after the applicant states
that he is retired
use of words, symbols, models or other
forms of communication in advertising
that express, imply, or suggest a discrimi­
natory preference or a policy of exclusion
in violation of the act
use of interview scripts that discourage ap­
plications on a prohibited basis.

2. Affirmative advertising. A creditor may af­
firmatively solicit or encourage members of
traditionally disadvantaged groups to apply
for credit, especially groups that might not
normally seek credit from that creditor.
5 (b ) G eneral Rules C oncerning Requests
for Inform ation
1. Requests fo r information. This section gov­
erns the types of information that a creditor
may gather. Section 202.6 governs how infor­
mation may be used.
Paragraph 5(b)(2)
1. Local laws. Information that a creditor is
allowed to collect pursuant to a “state” stat­
ute or regulation includes information re­
quired by a local statute, regulation, or
ordinance.
2. Information required by Regulation C.
Regulation C generally requires creditors cov­
ered by the Home Mortgage Disclosure Act
(HM DA) to collect and report information
about the race or national origin and sex of
applicants for home-improvement loans and
home-purchase loans, including some types of
5

§ 202.5

Regulation B Commentary

loans not covered by section 202.13. Certain
creditors with assets under $30 million,
though covered by HMDA, are not required
to collect and report these data; but they may
do so at their option under HMDA, without
violating the ECOA or Regulation B.

disclose the fact that income is derived from
alimony, child support, or separate mainte­
nance 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.

5 (d ) O th er Lim itations on Inform ation
Requests

5 (e ) W ritten A pplications

Paragraph 5(d)(1)
1. Indirect disclosure o f prohibited informa­
tion. The fact that certain credit-related infor­
mation may indirectly disclose marital status
does not bar a creditor from seeking such in­
formation. For example, the creditor may ask
about—
•

the applicant’s obligation to pay alimony,
child support, or separate maintenance
• the source of income to be used as the ba­
sis for repaying the credit requested, which
could disclose that it is the income of a
spouse
• whether any obligation disclosed by the
applicant has a co-obligor, which could
disclose that the co-obligor is a spouse or
former spouse
• the ownership of assets, which could dis­
close the interest of a spouse
Paragraph 5(d)(2)
1. Disclosure about income. The sample appli­
cation forms in appendix B to the regulation
illustrate how a creditor may inform an appli­
cant of the right not to disclose alimony, child
support, or separate maintenance income.
2. General inquiry about source o f income.
Since a general inquiry about the source of
income may lead an applicant to disclose ali­
mony, child support, or separate maintenance,
a creditor may not make such an inquiry on
an application form without prefacing the re­
quest with the disclosure required by this
paragraph.
3. Specific inquiry about sources o f income. A
creditor need not give the disclosure if the in­
quiry about income is specific and worded in a
way that is unlikely to lead the applicant to
6

1. Requirement fo r written applications. The
requirement of written applications for certain
types of dwelling-related loans is intended to
assist the federal supervisory agencies in mon­
itoring compliance with the ECOA and the
Fair Housing Act. Model application forms
are provided in appendix B to the regulation,
although use of a printed form of any kind is
not required. A creditor will satisfy the re­
quirement by writing down the information
that it normally considers in making a credit
decision. The creditor may complete the ap­
plication on behalf of an applicant and need
not require the applicant to sign the
application.
2. Telephone applications. A creditor that ac­
cepts applications by telephone for dwellingrelated credit covered by section 202.13 can
meet the requirements for written applications
by writing down pertinent information that is
provided by the applicant(s).
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
section 202.13(b).)

SE C T IO N 202.6— R ules C oncerning
E valuation o f A pplications
6 (a ) G eneral R ule C oncerning Use o f
Inform ation
1. General. When evaluating an application
for credit, a creditor generally may consider
any information obtained. However, a credi­
tor may not consider in its evaluation of cred­
itworthiness any information that it is barred
by section 202.5 from obtaining.
2. Effects test. The effects test is a judicial

§ 202.6

Regulation B Commentary
doctrine that was developed in a series of em­
ployment cases decided by the Supreme Court
under title VII of the Civil Rights Act of 1964
(42 USC 2000e et seq.). Congressional intent
that this doctrine apply to the credit area is
documented in the Senate Report that accom­
panied 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 dis­
criminatory in effect because it has a dispro­
portionately negative impact on a prohibited
basis, even though the creditor has no intent
to discriminate and the practice appears neu­
tral 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 exam­
ple, requiring that applicants have incomes in
excess of a certain amount to qualify for an
overdraft line of credit could mean that wom­
en and minority applicants will be rejected at
a higher rate than men and nonminority ap­
plicants. If there is a demonstrable relation­
ship between the income requirement and
creditworthiness for the level of credit in­
volved, however, use of the income standard
would likely be permissible.

6 (b ) Specific Rules C oncerning Use of
Inform ation

Paragraph 6(b)(2)
1. Favoring the elderly. Any system of evalu­
ating creditworthiness may favor a credit ap­
plicant who is age 62 or older. A credit pro­
gram that offers more favorable credit terms
to applicants age 62 or older is also permissi­
ble; a program that offers more favorable
credit terms to applicants at an age lower than
62 is permissible only if it meets the specialpurpose credit requirements of section 202.8.
2. Consideration o f age in a credit scoring sys­
tem. Age may be taken directly into account
in a credit scoring system that is “demonstra­
bly and statistically sound,” as defined in sec­
tion 202.2 (p), with one limitation: an appli­
cant who is 62 years old or older must be
treated at least as favorably as anyone who is
under age 62.
3. Consideration o f age in a judgmental sys­
tem. In a judgmental system, defined in sec­
tion 202.2 (t), a creditor may not take age di­
rectly into account in any aspect of the credit
transaction. For example, the creditor may
not reject an application or terminate an ac­
count because the applicant is 60 years old.
But a creditor that uses a judgmental system
may relate the applicant’s age to other infor­
mation about the applicant that the creditor
considers in evaluating creditworthiness. For
example:
•

Paragraph 6(b)(1)
1. Prohibited basis— marital status. A creditor
may not use marital status as a basis for deter­
mining the applicant’s creditworthiness. How­
ever, a creditor may consider an applicant’s
marital status for the purpose of ascertaining
the creditor’s rights and remedies applicable
to the particular extension of credit. For ex­
ample, 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.
2. 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 section 202.8.)

A creditor may consider the applicant’s
occupation and length of time to retire­
ment to ascertain whether the applicant’s
income (including retirement income) will
support the extension of credit to its
maturity.
• A creditor may consider the adequacy of
any security offered when the term of the
credit extension exceeds the life expectan­
cy of the applicant and the cost of realiz­
ing on the collateral could exceed the ap­
plicant’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.)
• A creditor may consider the applicant’s
age to assess the significance of the length
of the applicant’s employment (a young
applicant may have just entered the job
7

§ 202.6
market) or length of time at an address
(an elderly applicant may recently have
retired and moved from a long-term
residence).
As the examples above illustrate, the evalua­
tion must be made in an individualized, caseby-case manner; and it is impermissible for a
creditor, in deciding whether to extend credit
or in setting the terms and conditions, to base
its decision on age or information related ex­
clusively to age. Age or age-related informa­
tion may be considered only in evaluating oth­
er “pertinent elements of creditworthiness”
that are drawn from the particular facts and
circumstances concerning the applicant.
4. Consideration o f age in a combined system.
A creditor using a credit scoring system that
qualifies as “empirically derived” under sec­
tion 202.2 (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 “de­
monstrably and statistically sound.” While
age could be used in the credit scoring por­
tion, 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.)
5. Consideration o f public assistance. When
considering income derived from a public as­
sistance program, a creditor may take into ac­
count, for example—
•
•

•

the length of time an applicant will likely
remain eligible to receive such income
whether the applicant will continue to
qualify for benefits based on the status of
the applicant’s dependents (such as Aid to
Families with Dependent Children or So­
cial Security payments to a minor)
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 o f an individual applicant. A
creditor must evaluate income derived from
part-time employment, alimony, child sup­
port, separate maintenance, retirement bene­

Regulation B Commentary
fits, or public assistance (all referred to as
“protected income” ) on an individual basis,
not on the basis of aggregate statistics, and
must assess its reliability or unreliability by
analyzing the applicant’s actual circum­
stances, not by analyzing statistical measures
derived from a group.
2. Payments consistently made. In determin­
ing the likelihood of consistent payments of
alimony, child support, or separate mainte­
nance, 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 o f income. A creditor need
not consider income at all in evaluating cred­
itworthiness. If a creditor does consider in­
come, there are several acceptable methods,
whether in a credit scoring or a judgmental
system:
•

•

•

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.
A creditor may evaluate each component
of the applicant’s income, and then score
or take into account reliable income sepa­
rately from income that is not reliable, or
the creditor may disregard that portion of
income that is not reliable before aggregat­
ing it with reliable income.
A creditor that does not evaluate all in­
come components for reliability must treat
as reliable any component of protected in­
come that is not evaluated.

In considering the separate components of
an applicant’s income, the creditor may not
automatically discount or exclude from con­
sideration any protected income. Any dis­
counting or exclusion must be based on the
applicant’s actual circumstances.
4. Part-time employment, sources o f income.
A creditor may score or take into account the
fact that an individual applicant has more

§ 202.7

Regulation B Commentary
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. How­
ever, the creditor may not score or otherwise
take into account the number of sources for
protected income—for example, retirement
income, Social Security, alimony. Nor may
the creditor treat negatively the fact that an
applicant’s only earned income is derived
from a part-time job.
Paragraph 6(b)(6)
1. Types o f 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 appli­
cants without regard to sex, marital status, or
any other prohibited basis. However, on the
applicant’s request, 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.

tor may not require a creditworthy applicant
seeking an individual credit account to pro­
vide additional signatures. However, the cred­
itor may condition the designation of an au­
thorized user by the account holder on the
authorized user’s becoming contractually lia­
ble for the account, as long as the creditor
does not differentiate on any prohibited basis
in imposing this requirement.
2. Open-end credit— choice o f authorized user.
A creditor that permits an account holder to
designate an authorized user may not restrict
this designation on a prohibited basis. For ex­
ample, if the creditor allows the designation of
spouses as authorized users, the creditor may
not refuse to accept a nonspouse as an
authorized user.
3. Overdraft authority on transaction ac­
counts. 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 ) D esignation o f N am e

Paragraph 6(b)(7)
1. National origin— immigration status. The
applicant’s immigration status and ties to the
community (such as employment and contin­
ued residence in the area) could have a bear­
ing on a creditor’s ability to obtain repayment.
Accordingly, the creditor may consider and
differentiate, for example, between a nonciti­
zen who is a long-time resident with perma­
nent resident status and a noncitizen who is
temporarily in this country on a student visa.
2. National origin—citizenship. Under the
regulation, 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.

SE C T IO N 202.7— Rules C oncerning
Extensions of C redit
7 (a ) Individual A ccounts
1. Open-end credit— authorized user. A credi­

1. Single name on account. A creditor may
require that joint applicants on an account
designate a single name for purposes of ad­
ministering the account and that a single
name be embossed on any credit card(s) is­
sued on the account. But the creditor may not
require that the name be the husband’s name.
(See section 202.10 for rules governing the
furnishing of credit history on accounts held
by spouses.)
7 (c ) A ction C oncerning Existing Openend A ccounts
Paragraph 7(c)(1)
1. Termination coincidental with marital
status change. When an account holder’s mar­
ital status changes, a creditor generally may
not terminate the account unless it has evi­
dence that the account holder is unable or un­
willing to repay. But the creditor may termi­
nate an account on which both spouses are
jointly liable, even if the action coincides with
9

Regulation B Commentary

§ 202.7
a change in marital status, when one or both
spouses—
•
•
•

repudiate responsibility for future charges
on the joint account
request separate accounts in their own
names
request that the joint account be closed

2. Updating information. A creditor may pe­
riodically request updated information from
applicants but may not use events related to a
prohibited basis—such as an applicant’s re­
tirement, reaching a particular age, or change
in name or marital status—to trigger such a
request.
Paragraph 7(c)(2)
1. Procedure pending reapplication. A credi­
tor may require a reapplication from a con­
tractually liable party, even when there is no
evidence of unwillingness or inability to repay,
if (1) the credit was based on the qualifica­
tions of a person who is no longer available to
support the credit and (2) the creditor has
information indicating that the account hold­
er’s income by itself 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 o f Spouse o r O ther
Person

commentary to section 202.7(d)(5)
( 6 ).)

and

Paragraph 7(d)(1)
1. Joint applicant. The term “joint applicant”
refers to someone who applies contemporane­
ously with the applicant for shared or joint
credit. It does not refer to someone whose sig­
nature is required by the creditor as a condi­
tion for granting the credit requested.

Paragraph 7(d)(2)
1. Jointly owned property. In determining the
value of the applicant’s interest in jointly
owned property, a creditor may consider fac­
tors such as the form of ownership and the
property’s susceptibility to attachment, execu­
tion, severance, or partition and the cost of
such action. If the applicant’s interest in the
property does not support the amount and
terms of credit sought, the creditor may give
the applicant some other option of providing
additional support for the extension of credit,
for example—
•
•
•

requiring an additional party under sec­
tion 202.7(d)(5)
offering to grant the applicant’s request on
a secured credit basis
asking for the signature of the co-owner of
the property on an instrument that ensures
access to the property but does not impose
personal liability unless necessary under
state law

2. Need fo r signature— reasonable belief. A
creditor’s reasonable belief as to what instru­
ments need to be signed by a person other
than the applicant should be supported by a
thorough review of pertinent statutory and de­
cisional law or an opinion of the state attorney
general.

1. Qualified applicant. The signature rules en­
sure that qualified applicants are able to ob­
tain credit in their own names. Thus, when an
applicant requests individual credit, a creditor
generally may not require the signature of an­
other person unless the creditor has first de­
termined that the applicant alone does not
qualify for the credit requested.

Paragraph 7(d)(3)

2. Unqualified applicant. When an applicant
applies for individual credit but does not alone
meet a creditor’s standards, the creditor may
require a cosigner, guarantor or the like—but
cannot require that it be the spouse. (See

1. Residency. In assessing the creditworthi­
ness of a person who applies for credit in a
community property state, a creditor may as­
sume that the applicant is a resident of the
state unless the applicant indicates otherwise.

10

Regulation B Commentary
Paragraph 7(d)(4)
1. Creation o f enforceable lien. Some state
laws require that both spouses join in execut­
ing any instrument by which real property is
encumbered. If an applicant offers such prop­
erty as security for credit, a creditor may
require the applicant’s spouse to sign the in­
struments 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 mort­
gage 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 them to do so.
2. Need fo r signature— reasonable belief. Gen­
erally, a signature to make the secured proper­
ty 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 im­
poses 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 required to sign the integrat­
ed instrument if the signature is only needed
to grant a security interest. But the spouse
could be asked to sign an integrated instru­
ment that makes clear—for example, by a leg­
end 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 o f additional parties. In es­
tablishing guidelines for eligibility of guaran­
tors, cosigners, or similar additional parties, a
creditor may restrict the applicant’s choice of
additional parties buy 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.

§ 202.7
2. Reliance on income o f another person—in­
dividual credit. An applicant who requests in­
dividual credit relying on the income of an­
other 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 appli­
cant relies on the spouse’s future earnings that
as a matter of state law cannot be character­
ized 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 ap­
plicant relies on the future earnings of a per­
son other than a spouse. (See section 202.6(c)
on consideration of state property laws.)
3. Renewals. If the borrower’s creditworthi­
ness is reevaluated when a credit obligation is
renewed, the creditor must determine whether
an additional party is still warranted and, if
not, 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. The rules
in section 202.7(d) bar a creditor from requir­
s
ing the signature of a guarantor’ spouse just
as they bar the creditor from requiring the sig­
nature of an applicant’ spouse. For example,
s
when all officers of a closely held corporation
are required to personally guarantee a corpo­
rate loan, the creditor may not automatically
require that spouses of married officers also
sign. However, an evaluation of the financial
circumstances of an officer may indicate that
an additional signature is necessary, and this
may be the signature of a spouse in appropri­
ate circumstances.
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 of­
fered or provided to an applicant does not vio­
late Regulation B.
11

§ 202.7

Regulation B Commentary

2. Insurance information. A creditor may ob­
tain information about an applicant’s age, sex,
or marital status for insurance purposes. The
information may only be used, however, for
determining eligibility and premium rates for
insurance, and not in making the credit
decision.

8 (c ) Special R ule C oncerning Requests
and Use o f Inform ation

SE C T IO N 202.8— Special-Purpose
C redit Program s

2. Examples. Examples of programs under
which the creditor can ask for and consider
information related to a prohibited basis are—

8 (a ) Standards for Program s

•

1. Determining qualified programs. The
Board does not determine whether individual
programs qualify for special-purpose credit
status, or whether a particular program bene­
fits an “economically disadvantaged class of
persons.” The agency or creditor administer­
ing or offering the loan program must make
these decisions regarding the status of its
program.

1. Request o f prohibited information. This sec­
tion permits a creditor to request and consider
certain information that would otherwise be
prohibited by sections 202.5 and 202.6 to de­
termine an applicant’s eligibility for a particu­
lar program.

•

energy conservation programs to assist the
elderly, for which the creditor must con­
sider the applicant’s age
programs under a Minority Enterprise
Small Business Investment Corporation,
for which a creditor must consider the ap­
plicant’s minority status

8 (d ) Special R ule in the Case of
F inancial N eed

2. Compliance with a program authorized by
federal or state law. A creditor does not vio­
late Regulation B when it complies in good
faith with a regulation promulgated by a gov­
ernment agency implementing a specialpurpose credit program under section
202.8(a)(1). It is the agency’s responsibility
to promulgate a regulation that is consistent
with federal and state law.

1. Request o f prohibited information. This sec­
tion permits a creditor to request and consider
certain information that would otherwise be
prohibited by sections 202.5 and 202.6, and to
require signatures that would otherwise be
prohibited by section 202.7(d).

3. Expressly authorized. Credit programs au­
thorized by federal or state law include pro­
grams offered pursuant to federal, state, or
local statute, regulation or ordinance, or by
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.
8 (b ) R ules in O ther Sections
1. Applicability o f rules. A creditor that re­
jects an application because the applicant does
not meet the eligibility requirements (com­
mon characteristic or financial need, for ex­
ample) must nevertheless notify the applicant
of action taken as required by section 202.9.
12

2. Examples. Examples of programs in which
financial need is a criterion are—

•

subsidized housing programs for low- to
moderate-income households, for which a
creditor may have to consider the appli­
cant’s receipt of alimony or child support,
the spouse’s or parents’ income, etc.
student loan programs based on the fami­
ly’s financial need, for which a creditor
may have to consider the spouse’s or par­
ents’ 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 sections
202.7(d)(1) and (5).) The creditor may not
require an additional signature when a stu­
dent has a work or credit history that satisfies
the creditor’s standards.

§ 202.9

Regulation B Commentary
SE C T IO N 202.9— N otifications
1. Use o f the term “adverse action.” The regu­
lation 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
tion 202.2(c)(1), a creditor may use any
words or phrases that describe the action tak­
en on the application.
2. Expressly withdrawn applications. When an
applicant expressly withdraws a credit appli­
cation, the creditor is not required to comply
with the notification requirements under sec­
tion 202.9. (The creditor must, however, com­
ply with the record-retention requirements of
the regulation. See section 202.12(b)(3).)
3. When notification occurs. Notification oc­
curs 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 cred­
itor communicates the credit decision to the
applicant.
4. Location o f notice. The notifications re­
quired under section 202.9 may appear on ei­
ther or both sides of a form or letter.
9 (a ) N otification o f A ction Taken,
E C O A N otice, and Statem ent o f Specific
Reasons
Paragraph 9(a)(1)
1. Timing o f 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 noti­
fy the applicant of the credit decision. (See
also comment 2(f)-5.)
2. Notification o f approval. Notification of ap­
proval may be express or by implication. For
example, the creditor will satisfy the notifica­
tion requirement when it gives the applicant
the credit card, money, property, or services
requested.
3. Incompletion application— denial fo r in­
completeness. When an application is incom­
plete regarding matters that the applicant can

complete 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 credi­
tor has the option, alternatively, of providing
a notice of incompleteness under section
202.9(c).
4. Incomplete application— denial fo r reasons
other than incompleteness. When an applica­
tion is missing information but provides suffi­
cient data for a credit decision, the creditor
may evaluate the application and notify the
applicant under this section as appropriate. 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 the incompleteness of the appli­
cation cannot be given as the reason for the
denial.
5. Length o f counteroffer. Section 202.9(a)
(l) ( 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 no­
tice that complies with section 202.9(a)(2)
need not send a second adverse-action notice
if the applicant does not accept the counterof­
fer. A sample of a combined notice is con­
tained in form C-4 of appendix C to the
regulation.
7. Denial o f a telephone application. When an
application is conveyed by means of 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 pro­
vide that information, then the creditor has no
further notification responsibility.
Paragraph 9(a)(3)
1. Coverage. In determining the rules in this
paragraph that apply to a given business-credit application, a creditor may rely on the ap­
plicant’s assertion about the revenue size of
the business. (Applications to start a business
are governed by the rules in section
202.9(a)(3 )(i).) If an applicant applies for
13

§ 202.9
credit as a sole proprietor, the revenues of the
sole proprietorship will determine which rules
in the paragraph govern the application.
However, if an applicant applies for businesspurpose credit as an individual, the rules in
paragraph 9(a) (3) (i) apply unless the appli­
cation is for trade or similar credit.
2. Trade credit. The term “trade credit” gen­
erally 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 finan­
cial 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 exten­
sion incident to the factoring arrangement,
the
notification
rules
in
section
202.9(a)(3) (ii) apply, as do other relevant
sections of the act and regulation.
4. Manner o f compliance. In complying with
the notice provisions of the act and regulation,
creditors offering business credit may follow
the rules governing consumer credit. Similar­
ly, creditors may elect to treat all business
credit the same (irrespective of revenue size)
by providing notice in accordance with sec­
tion 202.9(a) (3) (i).
5. Timing o f notification. A creditor subject to
section 202.9(a) (3) (ii) (A ) is required to no­
tify a business credit applicant, orally or in
writing, of action taken on an application
within a reasonable time of receiving a com­
pleted application. Notice provided in accord­
ance with the timing requirements of section
202.9(a)(1) is deemed reasonable in all
instances.
9 (b ) Form o f EC O A N otice and
Statem ent o f Specific Reasons
Paragraph 9(b)(1)
1. Substantially similar notice. The ECOA
notice sent with a notification of a credit deni­
al or other adverse action will comply with
the regulation if it is “substantially similar” to
the notice contained in section 202.9(b)(1).
For example, a creditor may add a reference
14

Regulation B Commentary
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.
Paragraph 9(b)(2)
1. Number o f 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 specif­
ic number of reasons be disclosed, but disclo­
sure of more than four reasons is not likely to
be helpful to the applicant.
2. Source o f specific reasons. The specific rea­
sons disclosed under section 202.9(a)(2) and
(b)(2 ) must relate to and accurately describe
the factors actually considered or scored by a
creditor.
3. Description o f reasons. A creditor need not
describe how or why a factor adversely affect­
ed 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 re­
late only to those factors actually scored in
the system. Moreover, no factor that was a
principal reason for adverse action may be ex­
cluded from disclosure. The creditor must
disclose the actual reasons for denial (for ex­
ample, “age of automobile” ) even if the rela­
tionship of that factor to predicting creditwor­
thiness may not be clear to the applicant.
5. Credit scoring— method fo r selecting rea­
sons. 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 fac­
tors for which the applicant’s score fell fur­
thest 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

Regulation B Commentary
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 ac­
ceptable 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 re­
viewed by the person making the decision.
7. Combined credit scoring and judgm ental
system. If a creditor denies an application
based on a credit evaluation system that em­
ploys 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 de­
nies the credit request as a result of that scor­
ing, 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.
8. Automatic denial. Some credit-decision
methods contain features that call for auto­
matic 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 re­
quest 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 re­
quires 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
from its own files. Disclosing that a credit re­
port was obtained and used to deny the appli­
cation, as the FCRA requires, does not satisfy

§ 202.9
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 section 202.9(b)(2) the creditor
must disclose that the application was denied
because of the applicant’s delinquent credit
obligations. To satisfy the FCRA require­
ment, the creditor must also disclose that a
credit report was obtained and used to deny
credit. Sample forms C-l through C-5 of ap­
pendix C of the regulation provide for the two
disclosures.
9 (c ) Incom plete A pplications
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 fo r additional information. If
the 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 section
202.9(c)(1) and (c)(2 ). If the applicant does
provide the information, the creditor shall
take action on the application and notify the
applicant in accordance with section
202.9(a).
9 (g ) A pplications Subm itted T hrough a
T hird Party
1. Third parties. The notification of adverse
action may be given by one of the creditors to
whom an application was submitted. Alterna­
tively, the third party may be a noncreditor.
2. Third-party notice— enforcement agency. If
a single adverse action notice is being provid­
ed to an applicant on behalf of several credi­
tors and they are under the jurisdiction of dif­
ferent 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 no15

§ 202.9
tice 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.

SE C T IO N 202.10— F urnishing o f C redit
Inform ation
1. Scope. The requirements of section 202.10
for designating and reporting credit informa­
tion apply only to creditors that furnish credit
information to credit bureaus or to other cred­
itors. There is no requirement that a creditor
furnish credit information on its accounts.
2. Reporting on all accounts. The require­
ments of section 202.10 apply only to ac­
counts 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 par­
ties, whether or not the accounts are held by
persons married to each other.
3. Designating accounts. In designating ac­
counts and reporting credit information, a
creditor need not distinguish between ac­
counts 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 oth­
er particular system of recordkeeping or in­
dexing. It requires only that a creditor be able
to report information in the name of each
spouse on accounts covered by section 202.10.
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.

Regulation B Commentary
parties and should furnish subsequent credit
information on the account in the new names.
2. Request to change designation o f account.
A request to change the manner in which in­
formation concerning an account is furnished
does not alter the legal liability of either
spouse upon the account and does not require
a creditor to change the name in which the
account is maintained.

S E C T IO N 202.11— R elation to State
Law
11 (a ) Inconsistent State Laws
1. Preemption determination— New York.
fective November 11, 1988, the Board has
termined that the following provisions in
state law of New York are preempted by
federal law:

Ef­
de­
the
the

• Article 15, Section 2 9 6 a(l)(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 cer­
tain special-purpose credit programs.
• Article 15, Section 2 9 6 a (l)(c )—Unlawful
discriminatory practice to make any record
or inquiry based on race, creed, color, na­
tional origin, age, sex, marital status, or dis­
ability. This provision is preempted to the
extent that it bars a creditor from request­
ing and considering information regarding
the particular characteristics (for example,
race, national origin, or sex) required for
eligibility for special-purpose
credit
programs.

SE C T IO N 202.12— R ecord R etention

10(a) D esignation o f A ccounts

12(a) R etention o f Prohibited
Inform ation

1. New parties. When new parties who are
spouses undertake a legal obligation on an ac­
count, as in the case of a mortgage-loan
assumption, the creditor should change the
designation on the account to reflect the new

1. Receipt o f prohibited information. Unless
the creditor specifically requested such infor­
mation, a creditor does not violate this section
when it receives prohibited information from
a consumer reporting agency.

16

Regulation B Commentary
2. Use o f retained information. Although a
creditor may keep in its files prohibited infor­
mation as provided in section 202.12(a), the
creditor may use the information in evaluat­
ing credit applications only if permitted to do
so by section 202.6.
12(b) Preservation o f Records
1. Copies. A copy of the original record in­
cludes carbon copies, photocopies, microfilm
or microfiche copies, or copies produced by
any other accurate retrieval system, such as
documents stored and reproduced by comput­
er. A creditor that uses a computerized or
mechanized system need not keep a written
copy of a document (for example, 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 appli­
cation into a computerized or mechanized sys­
tem and makes the credit decision mechani­
cally, based only on the items of information
entered into the system, may comply with sec­
tion 202.12(b) by retaining the information
actually entered. It is not required to store the
complete written application, nor is it re­
quired to enter the remaining items of infor­
mation into the system. If the transaction is
subject to section 202.13, however, the credi­
tor 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—
•
•

an application is withdrawn by the
applicant
an application is submitted to more than
one creditor on behalf of the applicant,

§202.13
and the application is approved by one of
the other creditors

SE C T IO N 202.13— Inform ation for
M onitoring Purposes
13(a) Inform ation to Be Requested
1. Natural person. Section 202.13 applies only
to applications from natural persons.
2. Principal residence. The requirements of
section 202.13 apply only if an application re­
lates 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 section 202.13. But an applica­
tion for both a temporary loan to finance con­
struction of a dwelling and a permanent mort­
gage loan to take effect upon the completion
of construction is subject to section 202.13.
4. New principal residence. A person can have
only one principal residence at a time. Howev­
er, if a person buys or builds a new dwelling
that will become that person’s principal resi­
dence within a year or upon completion of
construction, the new dwelling is considered
the principal residence for purposes of section
202.13.
5. Transactions not covered. The informationcollection 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 resi­
dence. Therefore, applications for credit se­
cured 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 improve­
ment 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 un­
less it is readily apparent to the creditor when
17

§202.13
the application is taken that the primary pur­
pose of the line is for the purchase or refinanc­
ing of a principal dwelling.
6. Refinancings. A creditor who receives an
application to change the terms and condi­
tions of an existing extension of credit made
by that creditor for the purchase of the appli­
cant’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(b) (2)-2.
13(b) O btaining o f Inform ation
1. Forms fo r collecting data. A creditor may
collect the information specified in section
202.13(a) either on an application form or on
a separate form referring to the application.
2. Written applications. The regulation re­
quires written applications for the types of
credit covered by section 202.13. A creditor
can satisfy this requirement by recording in
writing or by means of computer the informa­
tion that the applicant provides orally and
that the creditor normally considers in a cred­
it decision.
3. Telephone, mail applications. If an appli­
cant does not apply in person for the credit
requested, a creditor does not have to com­
plete the monitoring information. For
example:
•

•

When a creditor accepts an application by
telephone, it does not have to request the
monitoring information.
When a creditor accepts an application by
mail, it does not have to make a special
request to the applicant if the applicant
fails to complete the monitoring informa­
tion on the application form sent to the
creditor.

If it is not evident on the face of the applica­
tion that it was received by mail or telephone,
the creditor should indicate on the form or
other application record how the application
was received.
4. Applications through loan-shopping services.
When a creditor accepts an application
through an unaffiliated loan-shopping service,
18

Regulation B Commentary
it does not have to request the monitoring
information.
5. Inadvertent notation. If a creditor inadver­
tently obtains the monitoring information in a
dwelling-related transaction not covered by
section 202.13, the creditor may process and
retain the application without violating the
regulation.
13(c) D isclosure to A pp lican t(s)
1. Procedures for providing disclosures. The
disclosures to an applicant regarding the mon­
itoring information may be provided in writ­
ing. 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 applicant to pro­
vide the monitoring information if it is re­
quested in writing.
13 (d) Substitute M onitoring Program
1. Substitute program. An enforcement agen­
cy may adopt, under its established rulemak­
ing or enforcement procedures, a program
requiring creditors under its jurisdiction to
collect information in addition to that re­
quired by this section.

SE C T IO N 202.14— Enforcem ent,
Penalties, and Liabilities
14(c) F ailure o f Com pliance
1. Inadvertent errors. Inadvertent errors in­
clude, 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 o f error. For inadvertent errors
that occur under sections 202.12 and 202.13,
this section requires that they be corrected
prospectively only.

A P P E N D IX B— M odel A pplication
Form s
1. FHLMC/FNMA form — residential loan
application. The residential loan application
form (FHLMC 65/FNM A 1003), including

Regulation B Commentary
supplemental form (FHLMC 65A/FNMA
1003A ), prepared by the Federal Home Loan
Mortgage Corporation and the Federal Na­
tional Mortgage Association and dated Octo­
ber 1986, complies with the requirements of
this regulation in some transactions but not
others because of the form’s section “Informa­
tion for Government Monitoring Purposes.”
Creditors that are governed by section
202.13(a) of the regulation (which limits col­
lection to applications primarily for the pur­
chase or refinancing of the applicant’s princi­
pal residence) should delete, strike, or modify
the data-collection section on the form when
using it for transactions not covered by sec­
tion 202.13(a) to ensure that they do not col­
lect the information. Creditors that are subject
to more extensive collection requirements by a
substitute monitoring program under section
202.13(d) may use the form as issued, in
compliance with that substitute program.
2. FHLMC/FNMA

form —home-improve-

Appendix B
ment loan application. The home-improvement and energy loan application form
(FHLMC 703/FNMA 1012), prepared by
the Federal Home Loan Mortgage Corpora­
tion and the Federal National Mortgage Asso­
ciation 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 gov­
erned by section 202.13(a) of the regulation
(which limits collection to applications pri­
marily 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 section 202.13(a) to ensure that
they do not collect the information. Creditors
that are subject to more extensive collection
requirements by a substitute monitoring pro­
gram under section 202.13(d) may use the
form as issued, in compliance with that substi­
tute program.

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