View original document

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

ANNUAL REPORT TO CONGRESS
ON
THE EQUAL CREDIT OPPORTUNITY ACT
FOR THE YEAR 1978

Board of Governors o f t h e F e d e r a l Reserve System

February 1 , 1979

TABLE OF CONTENTS
Page

I.
II.
III.
IV.
V.
VI.

SPECIAL CIVIL RIGHTS ENFORCEMENT EFFORTS

1

COMPLIANCE

3

LEGISLATIVE RECOMMENDATIONS

10

UNIFORM GUIDELINES FOR ENFORCING REGULATION B

11

COMPREHENSIVE REVIEW OF REGULATION B

12

NEW INFORMATION
A.

Consumer Awareness Survey

13

B.

I n q u i r y on E x e r c i s e o f R i g h t s under t h e
Equal C r e d i t O p p o r t u n i t y Act

VII.
VIII.

14

CONSUMER ADVISORY COUNCIL

14

ADMINISTRATIVE FUNCTIONS
A.

Amendments and I n t e r p r e t a t i o n s

of Regulation B

B.

During 1978
1.
Occurrence o f Adverse A c t i o n a t P o i n t o f S a l e
2.
Revised P r o c e d u r e s f o r Issuance o f O f f i c i a l
Staff Interpretations
3. Proposed Amendments to R e g u l a t i o n B
4.
O f f i c i a l Staff Interpretations
Education

APPENDIX A - S e l e c t e d R e s u l t s o f Consumer Awareness
APPENDIX B - Members o f the Consumer A d v i s o r y




Survey

Council

15
15
16
16
17
17

APPENDIX A
1 • Type of credit problem considered unfair
Per cent
Niunbsf

Problem mentlcced»

Total
Rspoudents

Problems
Credit refusals, limits
Reason for refusal not given.
Hfgli rates, charges
Other terms poor, short maturities, etc
Contract sale to other creditor
Prepap^ment penalty
Insufficieni information about credit terms
Dunning, garnishment, embarrassment over bills
Repossession
Problem with handling of defective merchandise
Billing errors
Improper identification (another's purchase, former spouse, stolen credit card)
Other mistakes, incorrect information, incompetence
Rudeness, unfriendliness
Family baclcground or sizt^and credit
Sex. marital status, and credit
Age and credit
Ra^e and credit
Other personal characteristics and credit
Lack of: assets, security, savings account, downpayment
Insufficient credit history
Credit-rating problem
Requirement of certain financial characteristics, residence, or job
A l l other mentions
D o not know or not ascertained

"f

128
54
27
21
35
94
25
54
70

10

66
8
2
26
8
3
6
13
17
33
33
25
16
947

Total

100.0

> The 947 problems were mentioned by 622 respondents^or by 24.3 per cent of the 2,563 total respondents.

Closed-end question about credit criteria
used by creditors
Number
of
mentions

Critoioo

2 • Perceptions of credit critei'i^? used by creditors
Mendont
Crlterioo
Number

personal
Marital status

'

R ^
:::
pAfMnal chiaracter reoutation
Other
Credit
Credit hlitory, credit rating, credit
collateral Mcuritv
AmoiiiK of oihiir dttbt. •
Other
Financial
Type of employment, security of
cmolovment time on job
Homeownershio
Time o f current a d d r e s s

Other
Other
Not k o n not ascertained
nw




68
69
27
110
12

.478
358
•57

i M g t h of time on present job
Length of time at present address...
Race
Having a checking account or not...
^vneownership (own or rent)

74

Amount of other monVhiy payn^'ti
(including rent or mortgage)

Per cent
(N-6,002)

1.1
1.1
.4
1.8

.023
219

Al«

Income
Marital sutus (married, single,
separated, divorced)
SizeoffamUy
Previous credit experience

143
77
,634

Per cent o f

57.7
14.0

2.2

9.8
28.3
2.9

1:1

62 A
5.6
3.0
<3.8

.1

7.8
1.2

1.583
556
646
40

26.4
9.3

1,033
94
192
1,089
34

17.2
1.6
1. r
18.1
.6

45
193

-7
3.2

6,002

100.0

Closed-end question about credit criterion
used by creditors

10.8

Per cent of respondents

.7

Grotip
Mentxonins
Race
^ Non-Caucasian
Sex
Ail
"Under 50 years
50 years and over
All
Marital status
Married
Widowed
Single, never married
All

Not mentionins

1.9
4.5
2.2

98.1
95.5
97.8

2.2
4.3
2.9

97.8
95.7
97.1

5.4
12.4
8.5

94.6
87.6
91.5

5.0
2.4
9.4
7.9
4.8
5.6

95.0
97.6
90.6
92.1
95.2
94.4




APPENDIX B
CONSUMER ADVISORY COUNCIL
Board of Governors of the F e d e r a l Reserve System
W i l l i a m D. Warren, Chairman
Los Angeles, C a l i f o r n i a
12-31-80

Percy W. Loy
P o r t l a n d Oregon
12-31-79

Marcia A. Hakala, V i c e Chairman
Omaha, Nebraska
12-31-80

R. C. Morgan
E l Paso, Texas
12-31-80

Roland E. Brandel
San F r a n c i s c o , C a l i f o r n i a
12-31-80

Florence M. R i c e
New York, New York
12-31-81

James L . Brown
Milwaukee, Wisconsin
12-31-81

Ralph J . Rohner
Washington, D.C.
12-31-81

Mark E. Budnitz
Boston, Massachusetts
12-31-81

Raymond J . Saulnier
New York, New York
12-31-79

John G. B u l l
Fort Lauderdale,
12-31-79

Henry S. Schechter
Washington, D.C,
12-31-81

Florida

Robert V. B u l l o c k
F r a n k f o r t , Kentucky
12-31-80

E . G. Schuhart
D a l h a r t , Texas
12-31-80

Carl Felsenfeld
New York, New York
12-31-79

B l a i r Shick
Cambridge, Massachusetts
12-31-79

Jean A, Fox
P i t t s b u r g h , Pennsylvania
12-31-79

Thomas R. Swan
P o r t l a n d , Maine
12-31-79

Richard H. Hoiton
Berkeley, C a l i f o r n i a
12-31-79

Anne Gary Taylor
Alexandria, V i r g i n i a
12-31-79

Edna DeCoursey Johnson
Baltimore, Maryland
12-31-79

Richard A. Van Winkle
S a l t Lake C i t y , Utah
12-31-81

Richard F. Kerr
C i n c i n n a t i , Ohio
12-31-81

Richard D, Wagner
Simsbury, Connecticut
12-31-80

Robert J . K l e i n
New York, New York
12-31-80

Mary W. Walker
Monroe, Georgia
12-31-81

Harvey M, Kuhnley
Edina, Minnesota
12-31-81

Leonor K. S u l l i v a n , Chairman Emeritus
St. Louis, Missouri
12-31-80

The t h i r d Annual Report on the Equal Credit Opportunity Act
(ECOA) describes the enforcement of the act and R e g u l a t i o n B by the Board
of Governors of the Federal Reserve System and the other Federal e n f o r c e ment agencies.

I t presents the f i n d i n g s of a major survey of consumers,

which gathered information about consumer perceptions, and a smaller
i n q u i r y of c r e d i t o r s , which sought data on the use by consumers of consumer c r e d i t l e g i s l a t i o n .

This report a l s o discusses the uniform guide-

l i n e s proposed j o i n t l y by the f i n a n c i a l r e g u l a t o r y agencies f o r

enforcing

Regulation B, assesses the extent to which compliance w i t h the act i s being
achieved, and o u t l i n e s the Board's a d m i n i s t r a t i o n of i t s f u n c t i o n s under
the act•
This report does not c o n t a i n recommendations of the Board f o r
s t a t u t o r y amendments.

Such recommendations, i f

any, w i l l be made i n the

Board's Annual Report to the Congress.

I.

SPECIAL CIVIL RIGHTS ENFORCEMENT EFFORTS
A p r e l i m i n a r y review by the Board's s t a f f at the end of 1977 of

the s p e c i a l i z e d consumer a f f a i r s enforcement program that was e s t a b l i s h e d
e a r l i e r i n that year showed that although examinations f r e q u e n t l y revealed
procedural v i o l a t i o n s ,

they had not been as s u c c e s s f u l i n uncovering evidence

of. banks engaging i n substantive v i o l a t i o n s of R e g u l a t i o n B and the F a i r
Housing A c t .

The question arose whether e x i s t i n g procedures and t r a i n i n g

were adequate to enable examiners to detect u n l a w f u l d i s c r i m i n a t i o n
To supplement research conducted by the s t a f f on t h i s

readily.

question,

the Board engaged a consultant to study the Board's procedures and m a t e r i a l s
f o r e n f o r c i n g the ECOA and F a i r Housing Act and to make recommendations




- 2 f o r changes.

The c o n s u l t a n t ' s r e p o r t , which was p u b l i s h e d i n May 1978,

suggested a r e d i r e c t i o n of emphasis i n the System's enforcement
w i t h respect to c r e d i t d i s c r i m i n a t i o n .

efforts

On the b a s i s of t h i s report

and independent research, a task f o r c e of Board and Reserve Bank s t a f f
r e d r a f t e d examiner manuals and examination procedures f o r R e g u l a t i o n B
and the F a i r Housing A c t . I n l i g h t of the f i e l d t e s t r e s u l t s ,

the

manuals and procedures are being r e v i s e d . The s t a f f expects to present
the r e v i s e d c i v i l r i g h t s enforcement program to the Board e a r l y

in

1979.
Meanwhile, i n August 1978 the D i v i s i o n of Consumer A f f a i r s
augmented i t s compliance s t a f f by d e s i g n a t i n g three members of i t s
s t a f f as c i v i l r i g h t s s p e c i a l i s t s .

legal

These persons, i n c o n j u n c t i o n w i t h the

compliance s t a f f , were p r i m a r i l y r e s p o n s i b l e f o r d r a f t i n g new examiner manu a l s and examination procedures.

Each Federal Reserve Bank a l s o appointed

a member of i t s s t a f f to assume primary c i v i l r i g h t s
The Board's c i v i l

responsibilities.

r i g h t s s p e c i a l i s t s conferred w i t h the s t a f f

of

the Department of J u s t i c e on recent c i v i l r i g h t s enforcement developments
and i n September 1978, the Board's s t a f f arranged f o r the Department of
J u s t i c e to conduct a s p e c i a l 1-day seminar f o r a l l s t a f f i n the D i v i s i o n
of Consumer A f f a i r s and f o r the Reserve Bank c i v i l

rights

specialists.

The Board a l s o conducted a 3-day t r a i n i n g seminar f o r 12 examiners and 8
Board s t a f f members on the subject of c i v i l

rights

enforcement.

Three other Federal agencies reported s p e c i a l a c t i v i t i e s i n the
area of c i v i l r i g h t s .

The F e d e r a l Deposit Insurance Corporation (FDIC)

e s t a b l i s h e d a C i v i l Rights Branch w i t h i n i t s O f f i c e of Consumer A f f a i r s
and C i v i l Rights to provide l e a d e r s h i p i n a d m i n i s t e r i n g the FDIC's e n f o r c e ment of c i v i l r i g h t s laws and r e g u l a t i o n s .




The Federal Home Loan Bank Board

- 3 (FHLBB) adopted a new Nondiscrimination R e g u l a t i o n e f f e c t i v e J u l y 1, 1978,
which enhances Regulation B by p r o h i b i t i n g d i s c r i m i n a t i o n i n housing
l e n d i n g on a l l of the bases p r o h i b i t e d by the ECOA as w e l l as on two
a d d i t i o n a l bases—age and l o c a t i o n of the d w e l l i n g .

The Federal Trade

Commission (FTC) commissioned a report concerning d i s c r i m i n a t i o n i n r e a l
estate f i n a n c e , which reviews the FTC's enforcement options and provides
recommendations about l i t i g a t i o n s t r a t e g i e s and p o s s i b l e rulemaking
proceedings.

II.

COMPLIANCE
During the past year the Federal Reserve System and other Federal

enforcement agencies continued to enforce the Equal Credit Opportunity Act
and Regulation B through a v a r i e t y of methods. T h i s s e c t i o n summarizes the
compliance a c t i v i t i e s i n 1978 of the Federal Reserve System and the compliance reports of the other Federal enforcement agencies.
Many compliance e f f o r t s f e a t u r e s p e c i a l i z e d examinations conducted by examiners versed i n consumer law and r e g u l a t i o n s .

In the past

year. Federal Reserve System examiners have conducted s p e c i a l examinations
of approximately 800 State member banks to determine compliance w i t h consumer c r e d i t r e g u l a t i o n s , i n c l u d i n g equal c r e d i t

opportunity.

T r a i n i n g of examiners remains a major a c t i v i t y among those agenc i e s that enforce the act by means of an exmination p r o c e s s .

The Comptroller

of the Currency, f o r example, held s i x 2-week schools to t r a i n 300 of

its

examiners i n consumer r e g u l a t i o n s , and j o i n e d the FDIC and the Board i n conducting a 1-week seminar f o r supervisors and senior

examiners.

Most of the enforcement agencies handle consumer complaints by
i n v e s t i g a t i n g c r e d i t o r s and r e s o l v i n g complaints.




During the f i r s t

10 months

- 4 -

of 1978, the Federal Reserve System received 304 complaints
to the act or Regulation B against State member banks.

relating

Of these,

260 charged u n f a i r d e n i a l , t e r m i n a t i o n , or change i n terms of
credit.

Over h a l f of these (138 complaints) claimed

on a b a s i s the act does not d e f i n e as d i s c r i m i n a t o r y ,
h i s t o r y , l e v e l of income, and l e n g t h of employment.

discrimination
such as c r e d i t
On the other hand,

28 complainants f e l t that m a r i t a l status or sex was the reason f o r the
c r e d i t o r ' s adverse a c t i o n , 11 charged d i s c r i m i n a t i o n because of age, and
11 because of race, c o l o r , or n a t i o n a l

origin.

With respect to the 304 complaints regarding State member banks,
168 i n v e s t i g a t i o n s have been completed, 60 are s t i l l under

investigation,

and 76 were handled by f u r n i s h i n g information or an e x p l a n a t i o n .
completed i n v e s t i g a t i o n s ,

In the 168

the bank was found t o be l e g a l l y c o r r e c t i n 139

cases ( i n 36 of which i t nevertheless reached an accommodation w i t h the
complainant); to have made an e r r o r , which has s i n c e been c o r r e c t e d , i n 19
cases; to be i n p o s s i b l e v i o l a t i o n ,

s i n c e r e s o l v e d , i n 7 cases; and i n

p o s s i b l e v i o l a t i o n , s t i l l unresolved, i n 1 case.

I n two cases, the c r e d i t

a p p l i c a n t was i n e r r o r .
For t h i s same 10-month p e r i o d , the O f f i c e of the Comptroller
reported 625 consumer complaints received, 280 of which a l l e g e d
on the basis of sex or m a r i t a l s t a t u s .

In a d d i t i o n ,

discrimination

58 complainants f e l t

they had been d i s c r i m i n a t e d a g a i n s t due to r a c e , c o l o r , or n a t i o n a l

that

origin,

30 c i t e d age as the perceived reason f o r d e n i a l , and 16 charged d i s c r i m i n a t i o n
due to r e c e i p t of p u b l i c a s s i s t a n c e , and 2 because of

religion.

The FHLBB noted 211 complaints received during t h i s p e r i o d .

Over 25

per cent of these (56 complaints) a l l e g e d d i s c r i m i n a t i o n on the b a s i s of sex




- 5 or m a r i t a l s t a t u s and nearly 25 per cent more (52 complaints) charged
redlining.

Complainants a l s o charged d i s c r i m i n a t i o n due t o r a c e ,

or n a t i o n a l o r i g i n i n 34 cases, age i n 16 cases, and r e l i g i o n

color,

in

1 case.
During f i s c a l year 1978, the FDIC reported r e c e i v i n g 215 comp l a i n t s and 17 i n q u i r i e s concerning equal c r e d i t o p p o r t u n i t y .

Of these,

approximately 30 per cent involved the n o t i c e of adverse a c t i o n ,

28 per

cent a l l e g e d d i s c r i m i n a t i o n on the b a s i s of sex or m a r i t a l s t a t u s , and 8
per cent on the bases of race and age.
The N a t i o n a l Credit Union A d m i n i s t r a t i o n (NCUA) stated that
during t h i s same p e r i o d i t received 91 complaints about

discrimination,

the l a r g e s t number of which (30 complaints) a l l e g e d d i s c r i m i n a t i o n on the
basis of race, c o l o r , or n a t i o n a l o r i g i n .

Sex or m a r i t a l s t a t u s was con-

sidered the reason f o r d i s c r i m i n a t i o n i n 20 i n s t a n c e s , age i n 4 i n s t a n c e s ,
and r e c e i p t of p u b l i c a s s i s t a n c e i n 3 i n s t a n c e s .
During f i s c a l year 1978, the Federal Trade Commission (FTC)
responded t o over 11,000 consumers w i t h complaints or i n q u i r i e s

pertaining

to the ECOA, an increase of approximately 4,000 from 1977. The FTC s t a f f
stated that i t

continues to r e l y h e a v i l y on i n f o r m a t i o n provided by

consumers i n i d e n t i f y i n g suspected v i o l a t o r s of the act f o r ECOA e n f o r c e ment a c t i o n s .

For t h i s reason, the FTC s t a f f i s developing a computerized

system — s i m i l a r to those c u r r e n t l y used by the Board, the Comptroller
of the Currency, the Federal Deposit Insurance Corporation, the Federal
Home Loan Bank Board, and the N a t i o n a l Credit Union A d m i n i s t r a t i o n
t o a i d i n the r e t r i e v a l of i n f o r m a t i o n about consumer complaints.




—

- 6 The Farm C r e d i t A d m i n i s t r a t i o n (FCA) reported r e c e i p t of 7
complaints of d i s c r i m i n a t i o n on the b a s i s of r a c e , c o l o r , or n a t i o n a l
o r i g i n , and 5 on the b a s i s of sex or m a r i t a l s t a t u s .

No complaints

i n v o l v i n g farm c r e d i t l e n d i n g i n s t i t u t i o n s are known to have r e s u l t e d
litigation.

in

However, the Department of J u s t i c e i s i n v e s t i g a t i n g , under

the ECOA, p r a c t i c e s of a F e d e r a l land bank and a F e d e r a l land bank a s s o c i a t i o n due to a complaint that the FCA explored.
The C i v i l Aeronautics Board (CAB) reported that i t r e c e i v e d a p p r o x i mately 150 complaints from the p u b l i c i n v o l v i n g the ECOA and R e g u l a t i o n B.
The CAB i n d i c a t e d that v i r t u a l l y a l l of these complaints have been processed
i n f o r m a l l y by c o n t a c t i n g the c a r r i e r or supplying i n f o r m a t i o n to the comp l a i n a n t , and that s e v e r a l major i n v e s t i g a t i o n s of consumer c r e d i t

practices

i n the a i r l i n e i n d u s t r y have been i n i t i a t e d as a r e s u l t of the complaints.
During f i s c a l year 1978, 44 complaints of d i s c r i m i n a t i o n based on
r a c e , n a t i o n a l o r i g i n , or sex were made against Small Business A d m i n i s t r a t i o n
(SBA) program o f f i c e s and r e c i p i e n t s , but SBA i n v e s t i g a t i o n s found no v i o l a t i o n s .
Neither the S e c u r i t i e s and Exchange Commission nor the A g r i c u l t u r a l
Marketing Service (Packers and Stockyards) r e c e i v e d complaints a l l e g i n g

dis-

c r i m i n a t i o n under the ECOA d u r i n g 1978.
The agencies r e s p o n s i b l e f o r e n f o r c i n g the Equal C r e d i t Opportunity Act
have reported varying assessments of the extent to which c r e d i t o r s are complying
w i t h the a c t .

During the past year, two agencies noted s u b s t a n t i a l

i n l e v e l s of c r e d i t o r noncompliance.

increases

NCUA's p r e l i m i n a r y r e s u l t s show that 63

per cent of the c r e d i t unions examined were not i n compliance, more than
double the 28 per cent f o r 1977.
i n g forms.

Many of the v i o l a t i o n s i n v o l v e d noncomply-

S i m i l a r l y , the p r o p o r t i o n of FDIC examination r e p o r t s

indicating

apparent v i o l a t i o n s rose from 26.6 per cent i n f i s c a l year 1977 to 51.3 per




- 7 -

cent i n f i s c a l year 1978.

These reported v i o l a t i o n s r e l a t e d

to f a i l u r e s to provide proper n o t i f i c a t i o n s

primarily

i n the event of adverse

a c t i o n , and improper requests f o r the signature of a spouse.

Both agen-

c i e s a t t r i b u t e d the reports of increased noncompliance to the a d d i t i o n a l
staff

t r a i n i n g and improved examination techniques that f o l l o w e d

special

emphasis on c i v i l r i g h t s enforcement.
Sincc many c r e d i t o r s supervised by the NCUA were found to be
using improper forms, the NCUA has developed a set of model loan a p p l i c a t i o n forms w r i t t e n i n p l a i n E n g l i s h and designed to meet the
needs of c r e d i t unions.

special

A f t e r the forms are re\iewed, t h e i r o p t i o n a l use

by c r e d i t unions should r e s u l t i n a decrease i n t h i s kind of

violation.

From J u l y 1977 through June 1978, 89 per cent of n a t i o n a l banks
examined by the Comptroller of the Currency (OCC) were found to be i n
v i o l a t i o n of the r e g u l a t i o n compared w i t h 97 per cent during the previous
report p e r i o d .

Patterns of substantive v i o l a t i o n s of the r e g u l a t i o n were

reported f o r 66 per cent of banks examined.

Roughly t w o - t h i r d s of

these

involved requests f o r and subsequent c o n s i d e r a t i o n of c e r t a i n p r o h i b i t e d
information w i t h regard to a p p l i c a n t s , and 30 per cent concerned requests
f o r signature of a spouse or other person.

When a n a t i o n a l bank i s

alleged

to be d i s c r i m i n a t i n g on a p r o h i b i t e d b a s i s , the OCC conducts a s p e c i a l
investigation.

Such an i n v e s t i g a t i o n , which may be t r i g g e r e d by a consumer

complaint or by p r e l i m i n a r y evidence discovered i n the examination,

entails

use of a l a r g e r sample of loan f i l e s , and provides f o r a d e t a i l e d review of
a p p r a i s a l p r a c t i c e s and other data.
The C o m p t r o l l e r ' s o f f i c e s a i d i t b e l i e v e s that

substantial

compliance w i t h the act i s achieved by n a t i o n a l banks a f t e r a consumer




^8 examination occurs and the r e q u i r e d c o r r e c t i v e a c t i o n i s taken.
the f o l l o w i n g three enforcement problems:

I t noted

the l a c k of uniform guide-

l i n e s f o r req\iired c o r r e c t i v e a c t i o n f o r banks found t o be i n v i o l a t i o n ;
the d i f f i c u l t y of d e t e c t i n g i l l e g a l discouragement of c r e d i t

applications

by a review of loan a p p l i c a t i o n f i l e s ; and the l a c k of w r i t t e n lending
p o l i c i e s i n banks, which can be overcome only p a r t i a l l y by interviews w i t h
3ocn o f f i c e r s and bank management.
The Federal Reserve System's f i r s t round of s p e c i a l consumer
examinations revealed approximately 78 per cent of State member banks i n
noncompliance w i t h the r e g u l a t i o n .

Of those banks undergoing a second

consumer examination, 28 per cent repeated v i o l a t i o n s p r e v i o u s l y c i t e d
although 73 per cent continued to have v i o l a t i o n s of one k i n d or another.
The overwhelming m a j o r i t y of v i o l a t i o n s continue t o r e l a t e to the use
of noncomplying a p p l i c a t i o n forms, w h i l e other frequent v i o l a t i o n s

involve

the n o t i f i c a t i o n requirements of Regulation B and f a i l u r e to request
i n f o r m a t i o n f o r monitoring purposes.
The Federal Home Loan Bank Board reported that v i o l a t i o n s were
found i n 53 per cent of i n s t i t u t i o n s examined from J u l y 1977 through June
1978.

Major concentrations of v i o l a t i o n s concerned improper requests f o r

i n f o r m a t i o n on m a r i t a l s t a t u s , f a i l u r e to n o t i f y about adverse a c t i o n ,
and f a i l u r e to obtain monitoring

information.

The FHLBB s a i d that enforcement of the ECOA was complicated by
the d i f f i c u l t y of i d e n t i f y i n g and c o r r e c t i n g p r a c t i c e s that are n e u t r a l on
t h e i r face but have the e f f e c t o f d i s c r i m i n a t i n g against a protected c l a s s .
The l e g a l theory under which such p r a c t i c e s are i d e n t i f i e d holds that
p r a c t i c e s having a greater negative impact on some p r o t e c t e d c l a s s e s may,
if

not j u s t i f i e d by business n e c e s s i t y , be i l l e g a l because of




their

- 9 -

d i s c r i m i n a t o r y e f f e c t , even though they are not

intentionally

d i s c r i m i n a t o r y and are applied e q u a l l y t o a l l c r c d i t

applicants.

The FHLBB f u r t h e r i n d i c a t e d t h a t , without c l e a r e r standards and
guidance from Congress or the c o u r t s , determinations as to how b u s i ness n e c e s s i t y and d i s c r i m i n a t i o n r e l a t e to mortgage l e n d i n g w i l l
remain extremely d i f f i c u l t to make.
The Federal Trade Commission stated that the l e v e l of compliance w i t h the ECOA v a r i e s g r e a t l y among c r e d i t o r s subject to i t s
diction.

juris-

Although many v i o l a t i o n s arc apparently confined to narrow

segments of an i n d u s t r y , c e r t a i n u n l a w f u l p r a c t i c e s appear t o occur more
frequently.

Such p r a c t i c e s include requesting i n f o r m a t i o n about an

a p p l i c a n t ' s spouse, and obtaining the signature of the spouse or other
person on a promissory note; disregarding or t r e a t i n g l e s s

favorably

income derived from sources other than employment, such as alimony,
c h i l d support, pension, and p u b l i c a s s i s t a n c e payments; r e l y i n g on ZIP
codes as c r i t e r i a of creditworthiness; misusing the Statement of

Credit

D e n i a l , Termination, or Change sample form i n Regulation B; f a i l i n g to
d i s c l o s e that s e n s i t i v e f a c t o r s , such as age, are considered by the
c r e d i t o r ; and p r o v i d i n g vague, rather than s p e c i f i c ,

reasons f o r

rejecting

applicants.
The FTC described the f o l l o w i n g four enforcement problems encountered i n f i s c a l year 1978 as s i g n i f i c a n t :

f a i l u r e of c r e d i t o r s to provide

the p r i n c i p a l s p e c i f i c reasons f o r adverse a c t i o n ; d i f f i c u l t i e s i n d e t e c t i n g
and remedying r a c i a l steering i n r e a l e s t a t e f i n a n c i n g ; d i f f i c u l t i e s
documenting business c r e d i t d i s c r i m i n a t i o n ; and d i f f i c u l t i e s
w i t h d i s c r i m i n a t o r y telephone and m a i l s o l i c i t a t i o n




in

i n dealing

techniques.

- 10 During the past y e a r , the FTC isstted two f i n a l Commission
I n t e r p r e t a t i o n s of the F a i r C r e d i t Reporting A c t , designed to r e c o n c i l e
the goals of that s t a t u t e w i t h the goals of the ECOA.

Interpretation

600.7 f a c i l i t a t e s access to c r e d i t by women w h i l e preserving the p r i v a c y
of t h e i r spouses.

I n t e r p r e t a t i o n 600.8 permits c r e d i t o r s to o b t a i n

r e p o r t s on the nonapplicant spouse i n c e r t a i n circumstances.
p r e t a t i o n s are statements of FTC enforcement p o l i c y f o r a l l
subject to FTC

These i n t e r creditors

jurisdiction.

The agencies e n f o r c i n g the ECOA and R e g u l a t i o n B reported that
they have taken the f o l l o w i n g formal a d m i n i s t r a t i v e a c t i o n s .

During

fiscal

year 1978 the Federal Deposit Insurance Corporation i n i t i a t e d one ceasea n d - d e s i s t order, made f i n a l four p r e v i o u s l y i s s u e d o r d e r s , and terminated
three outstanding o r d e r s .

During t h i s same p e r i o d , the Federal Trade

Commission accepted one consent order and obtained one consent

judgment.

The Federal Home Loan Bank Board and the C i v i l Aeronautics Board each
i s s u e d one cease-and-desist order d u r i n g 1978.
Each enforcement agency, w i t h the exception of the S e c u r i t i e s
and Exchange Commission (SEC) and the I n t e r s t a t e Commerce Commission (ICC),
submitted a cost estimate of i t s compliance e f f o r t i n connection w i t h the
Equal C r e d i t Opportunity A c t .

While these f i g u r e s are not s t r i c t l y com-

p a r a b l e , the t o t a l estimated expenditure was approximately $7.6 m i l l i o n

in

1978.

III.

LEGISLATIVE RECOMMENDATIONS
Although the Board i s not making l e g i s l a t i v e recommendations

t h i s r e p o r t , two of the other enforcement agencies made suggestions
amending the Equal Credit Oportunity A c t . The Small Business




in

for

Administration

- 11 requests that the Congress t r a n s f e r to i t

(from the FTC) the r e s p o n s i -

b i l i t y f o r monitoring Regulation B and the ECOA i n i t s programs.

SBA s a i d

i t b e l i e v e s t h i s would avoid d u p l i c a t i v e a d m i n i s t r a t i v e hearings when
c e r t a i n v i o l a t i o n s are a l l e g e d .

The O f f i c e of Equal Opportunity w i t h i n

the Department of A g r i c u l t u r e recommends that d i s c r i m i n a t i o n because of
a handicap be included among the p r o h i b i t e d bases under the ECOA.

IV.

UNIFORM GUIDELINES FOR ENFORCING REGULATION B
The f i v e Federal agencies that supervise F e d e r a l l y

insured

f i n a n c i a l i n s t i t u t i o n s — t h e O f f i c e of the Comptroller of the Currency, the
Federal Deposit Insurance Corporation, the Federal Home Loan Bank Board,
the Federal Reserve Board, and the N a t i o n a l Credit Union A d m i n i s t r a t i o n

—

have j o i n t l y proposed uniform g u i d e l i n e s f o r enforcement of the Equal
C r e d i t Opportunity A c t , i t s implementing Regulation B, and the F a i r Housing
Act.

The g u i d e l i n e s were issued f o r p u b l i c comment i n June 1978.

They

are intended to promote improved and uniform enforcement of the equal c r e d i t
opportunity and f a i r housing laws among F e d e r a l l y r e g u l a t e d f i n a n c i a l

insti-

t u t i o n s , by r e q u i r i n g c o r r e c t i v e a c t i o n f o r v i o l a t i o n s discovered during
examinations and through i n v e s t i g a t i o n of

complaints.

The e n f o r c i n g agencies would encourage v o l u n t a r y

correction

and compliance, and take the a c t i o n s noted i n the g u i d e l i n e s to c o r r e c t
violations.

These v i o l a t i o n s i n c l u d e discouraging a p p l i c a t i o n s on a

p r o h i b i t e d b a s i s , using d i s c r i m i n a t o r y elements i n c r e d i t

evaluation

systems, charging a higher r a t e of i n t e r e s t on a p r o h i b i t e d b a s i s or
r e q u i r i n g insurance i n v i o l a t i o n of f a i r housing or equal c r e d i t

opportunity

laws, r e q u i r i n g a cosigner on a p r o h i b i t e d b a s i s , f a i l i n g to provide n o t i c e s
of adverse a c t i o n , f a i l i n g to maintain and report separate c r e d i t




histories

- 12 -

where required, f a i l i n g to c o l l e c t i n f o r m a t i o n f o r monttoring purposes,
and terminating or changing the terms of accounts on a p r o h i b i t e d b a s i s .
In each case,^the circumstances would be considered i n determining
the s u i t a b i l i t y of the remedy provided i n the uniform g u i d e l i n e s .

If

v i o l a t i o n s remain uncorrected, the e n f o r c i n g agencies would take admini s t r a t i v e a c t i o n s to ensure c o r r e c t i o n .

The agencies have reviewed the

comments received and are working toward f i n a l

V.

guidelines.

COMPREHENSIVE REVIEW OF REGULATION B
In June 1978 the Board announced that i t was embarking on a

comprehensive review of a l l i t s r e g u l a t i o n s , t o determine whether they
needed modernization or improvement.

The s t y l e and format o f

existing

regu'i'^tions are r e c e i v i n g s p e c i a l a t t e n t i o n i n an attempt t o make Federal
Reserve r e g u l a t i o n s more understandable and t o reduce the burden o f compliance.

The Federal Reserve Bank of P h i l a d e l p h i a , which was assigned

r e s p o n s i b l i t y f o r reviewing R e g u l a t i o n B, submitted i t s r e p o r t to the Board
at the end of 1978.

The Board's s t a f f w i l l review the r e p o r t and make

recommendations to the Board.

VI.

NEW INFORMATION
During the past year, the Board published the r e s u l t s of two

s t u d i e s — a major survey of consumers and a l e s s extensive c o l l e c t i o n of data

1

from c r e d i t o r s .

Both i n q u i r i e s were undertaken to l e a r n more about c r e d i t

use and consumer needs and t o provide information about consumer awareness
and use of consumer c r e d i t

legislation.

1
Thomas A. Durkin and Gregory E l l i e h a u s e n , 1977 Consumer C r e d i t Survey
(Board of Governors of the Federal Reserve System, 1978); " E x e r c i s e of
Consumer Rights under the Equal C r e d i t Opportunity and F a i r C r e d i t B i l l i n g
A c t s , " Federal Reserve B u l l e t i n , v o l . 64 (May 1978), pp. 363-66.




- 13 A.

Consumer Awareness Survey
I n the summer of 1977 the Survey Research Center of the

U n i v e r s i t y of Michigan conducted a survey of consumer awareness under
the j o i n t sponsorship of the Board, the Federal Deposit Insurance Corp o r a t i o n , and the O f f i c e of the Comptroller of the Currency.

The survey,

which i n v o l v e d interviews w i t h a nationwide sample of 2,563 consumers,
i n c l u d e d s e v e r a l questions p e r t a i n i n g t o the act and R e g u l a t i o n B.
Nearly one-quarter of the consumers surveyed experienced
problems or treatment they considered u n f a i r i n t h e i r c r e d i t
t i o n s ; 622 respondents mentioned 947 problems.

transac-

However, r e l a t i v e l y few

of them considered c r e d i t d i s c r i m i n a t i o n to be among t h e i r problems.
They reported only 26 problems because of sex or m a r i t a l s t a t u s , 8 because
of age, 3 because of race, and 6 because of other personal c h a r a c t e r i s t i c s — a t o t a l of only 4.4 per cent of a l l problems (See Table 1 i n
appendix A ) .
The survey f u r t h e r asked respondents what i n f o r m a t i o n they
thought c r e d i t o r s use i n d e c i d i n g whether t o make a l o a n . As shown
i n Table 2, 9.6 per cent of the responses r e l a t e d to personal
characteristics

such as age or r a c e , w h i l e the r e s t r e l a t e d to

c r e d i t h i s t o r y or f i n a n c i a l c h a r a c t e r i s t i c s .

In response to a question

that focused on personal c h a r a c t e r i s t i c s protected by the ECOA, personal
f a c t o r s were mentioned very i n f r e q u e n t l y

(Table 3 ) , even by m i n o r i t y ,

female, e l d e r l y , and nonmarried respondents (Table 4 ) .
The survey d i d not attempt to measure consumers' awareness of
the ECOA d i r e c t l y because at the time of the i n t e r v i e w s the law had only
r e c e n t l y taken e f f e c t .

Survey research w i t h respect to other

credit

laws i n d i c a t e s that p u b l i c awareness of them tended t o develop very s l o w l y .




- 14 B.

I n q u i r y on E x e r c i s e of Rights under the Equal C r e d i t Opportunity Act
In November 1977 the Board surveyed e i g h t l a r g e c r e d i t o r s

to

determine the extent to which consumers e x e r c i s e c e r t a i n r i g h t s under
the ECOA and the cost t o c r e d i t o r s of complying w i t h t h i s law.

Two

areas covered i n the i n q u i r y were the r i g h t to a separate c r e d i t
f o r married persons, and n o t i f i c a t i o n by c r e d i t o r s of s p e c i f i c
f o r d e n i a l of

history

reasons

credit.

C r e d i t o r s enclosed w i t h b i l l i n g statements the i n i t i a l

notices

regarding the r i g h t to a separate c r e d i t h i s t o r y . Approximately 11 per
cent of customers requested the maintenance of separate c r e d i t

histories.

The average cost t o the c r e d i t o r s of p r i n t i n g and p r o c e s s i n g each n o t i c e
i n such a m a i l i n g was l e s s than 1 c e n t , and the average cost of

processing

the r e t u r n requests and I n i t i a l l y r e p o r t i n g the new Information t o the
c r e d i t - r e p o r t i n g agencies was about 9 cents per request.
A s u b s t a n t i a l p r o p o r t i o n of r e j e c t e d c r e d i t
requested the reasons f o r d e n i a l i f

applicants

they had not been given reasons at

the time of r e j e c t i o n ; many a p p l i c a n t s subsequently provided a d d i t i o n a l
i n f o r m a t i o n s u f f i c i e n t to warrant the g r a n t i n g of c r e d i t .
many a p p l i c a n t s who were i n i t i a l l y given reasons f o r c r e d i t

Similarly,
denial

supplied more Information, and a h i g h p r o p o r t i o n of these were then
granted c r e d i t .

The cost of p r o v i d i n g reasons f o r the d e n i a l of

credit

to the r e j e c t e d a p p l i c a n t s v a r i e d w i d e l y — r a n g i n g from 22 cents to $5.25
per account.

VII.

CONSUMER ADVISORY COUNCIL
The Consumer Advisory C o u n c i l , whose members Include a broad

r e p r e s e n t a t i o n of consumer and c r e d i t o r i n t e r e s t s , was e s t a b l i s h e d i n l a t e




- 15 1976 t o a d v i s e on t h e B o a r d ' s r e s p o n s i b i l i t i e s
credit protection laws.
discussed various issues,
R e g u l a t i o n B.

i n the f i e l d of

consumer

During 1978, the C o u n c i l met f o u r times and
i n c l u d i n g the u n i f o r m g u i d e l i n e s f o r

In a d d i t i o n ,

enforcing

the C o u n c i l reviewed the e f f o r t s o f

the

F e d e r a l Reserve System i n a c h i e v i n g member bank compliance w i t h t h e ECOA
and F a i r Housing A c t , and e x p l o r e d approaches the Board s h o u l d
in its

consumer e d u c a t i o n

consider

efforts.

I n F e b u r a r y 1978, the Board expanded the C o u n c i l membership t o
28 by a p p o i n t i n g 2 a d d i t i o n a l members.

I n December, 8 new members were

a p p o i n t e d t o the C o u n c i l f o r terms o f 3 years t o r e p l a c e t h o s e whose
terms e x p i r e d a t t h e end o f 1978.
on the C o u n c i l , and t h e i r

VIII.

A.

A list

o f members c u r r e n t l y

serving

terms, i s a t t a c h e d as appendix B.

ADMINISTRATIVE FUNCTIONS

Amendments and I n t e r p r e t a t i o n s of R e g u l a t i o n B D u r i n g 1978
1.

Occurrence of Adverse A c t i o n a t P o i n t of

Sale

Under R e g u l a t i o n B, i n each i n s t a n c e o f adverse a c t i o n ,

a

c r e d i t o r must e i t h e r g i v e a w r i t t e n e x p l a n a t i o n t o t h e customer o f
reason f o r such a c t i o n or i n f o r m the customer o f the r i g h t
an e x p l a n a t i o n upon r e q u e s t .

to

receive

I n March 1978 t h e Board amended t h e

i t i o n of adverse a c t i o n t o exclude most p o i n t - o f - s a l e o r l o a n
from the adverse a c t i o n r e q u i r e m e n t s .

the

defin-

denials

Under t h e r e v i s e d d e f i n i t i o n a

r e f u s a l t o a u t h o r i z e a p o i n t - o f - s a l e or l o a n t r a n s a c t i o n i s n o t

adverse

a c t i o n u n l e s s a c r e d i t o r u n f a v o r a b l y changes the terms o f an a c c o u n t ,
such as by l o w e r i n g the c u s t o m e r ' s c r e d i t l i m i t ;

c l o s e s an a c c o u n t ;

o r t u r n s down an a p p l i c a t i o n t o i n c r e a s e t h e c r e d i t l i m i t o f an account
made i n accordance w i t h the c r e d i t o r ' s procedures a t the p o i n t o f




sale.

-

The amendment superseded O f f i c i a l
was

16

Staff

-

I n t e r p r e t a t i o n EC-0008, w h i c h

rescinded.
2•

Revised Procedures f o r
tations

Issuance o f O f f i c i a l S t a f f

Interpre-

I n A p r i l 1978 the Board amended R e g u l a t i o n B t o r e v i s e
procedure f o r i s s u i n g o f f i c i a l
procedure, o f f i c i a l

staff

staff

interpretations.

interpretations

the

Under t h e new

aro Issued w i t h an e f f e c t i v e

d a t e 30 days a f t e r p u b l i c a t i o n i n t h e F e d e r a l R e g i s t e r , w h i c h e n a b l e s
the p u b l i c t o r e v i e w them b e f o r e they become e f f e c t i v e and p e r m i t s
i n t e r e s t e d p a r t i e s t o r e q u e s t t h e o p p o r t u n i t y f o r p u b l i c comment.
a request i s received,
suspended and i t s

t h e e f f e c t i v e date of t h e i n t e r p r e t a t i o n

If

is

t e x t r e p u b l i s h e d f o r p u b l i c comment t o g e t h e r w i t h t h e

r e q u e s t f o r a comment p e r i o d o r a summary o f t h e arguments p r e s e n t e d
i n the request.
is

A f t e r t h e comments a r e r e v i e w e d , a f i n a l

interpretation

issued.
3»

Proposed Amendments to R e g u l a t i o n B
In response t o c e r t a i n recoraraendations from the s t a f f

of

the

F e d e r a l Trade Commission and the P r e s i d e n t ' s Task F o r c e on Women B u s i n e s s
Owners, the Board, i n October 1978, proposod f o r corPTnent s e v e r a l
to R e g u l a t i o n B t h a t would broaden I t s s c o p e .

The proposed amendments

would (1) b r i n g under the r e g u l a t i o n a r r a n g e r s o f c r e d i t — f o r

example,

r e a l e s t a t e b r o k e r s who choose the c r e d i t o r s w i t h which a c r e d i t
c a t i o n w i l l be f i l e d ;

changes

appli-

(2) e l i m i n a t e the exemption o f b u s i n e s s c r e d i t

the r e c o r d - k e e p i n g and n o t i f i c a t i o n requirements i n c e r t a i n

from

transactions

under $100,000; and (3) e l i m i n a t e t h e exemption o f b u s i n e s s c r e d i t

from

the g e n e r a l bar a g a i n s t a s k i n g f o r an a p p l i c a n t ' s m a r i t a l s t a t u s .

The

proposed amendment r e g a r d i n g b u s i n e s s c r e d i t




incorporates

Official

- 17 -

Staff

I n t e r p r e t a t i o n EC-0009, which r e q u i r e s c r e d i t o r s

to give

appli-

c a n t s f o r b u s i n e s s c r e d i t w r i t t e n or o r a l n o t i c e of a c t i o n taken on
an a p p l i c a t i o n or an e x i s t i n g account w i t h i n a r e a s o n a b l e

time.

The continent p e r i o d ended December 26, 1978.
4.

O f f i c i a l Staff

Interpretations

D u r i n g 1978, the s t a f f

issued three o f f i c i a l

staff

t i o n s of R e g u l a t i o n B and withdrew two p r e v i o u s l y i s s u e d .
the Board i n s t r u c t e d i t s

staff

t o withdraw O f f i c i a l S t a f f

EC-0007 d e a l i n g w i t h the c o l l e c t i o n ,

I n March 1978,
Interpretation

f o r marketing p u r p o s e s , o f

t i o n o t h e r w i s e p r o h i b i t e d under the r e g u l a t i o n ,

informa-

and t o i s s u e a new i n t e r -

p r e t a t i o n , EC-OOlO, l i m i t i n g the a p p l i c a b i l i t y of the
O f f i c i a l Staff

interpreta-

interpretation.

I n t e r p r e t a t i o n EC-0008, which concerned whether

adverse

a c t i o n can occur a t the p o i n t of s a l e , was superseded by the March 1978
amendment t o the

regulation.

The remaining two o f f i c i a l

staff

interpretations,

E C - O O l l and

EC-0012, d e a l , r e s p e c t i v e l y , w i t h the a p p l i c a b i l i t y o f R e g u l a t i o n B t o
c e r t a i n l e n d i n g o p e r a t i o n s conducted o u t s i d e the U n i t e d S t a t e s , and w i t h
the r e v i s e d a p p l i c a t i o n forms f o r r e s i d e n t i a l mortgage l o a n s p r e p a r e d by
the F e d e r a l Home Loan Mortgage A s s o c i a t i o n and the F e d e r a l
Mortgage A s s o c i a t i o n .
were not

B.

National

Both were i s s u e d under the r e v i s e d p r o c e d u r e s ,

but

challenged.

Education
An i n t e g r a l p a r t o f any enforcement program i s e d u c a t i n g both

c r e d i t o r s and consumers o f t h e i r r i g h t s and r e s p o n s i b i l i t i e s .
the past y e a r ,

the enforcement agencies p a r t i c i p a t e d i n a number o f

-educational e f f o r t s ,




During

i n c l u d i n g speeches and seminars i n v o l v i n g

consinners.

- 18 creditors,

s c h o o l groups, p r o f e s s i o n a l a s s o c i a t i o n s ,

and o t h e r s .

E x p l a n a t o r y pamphlets remain a p o p u l a r method o f
education.

consumer

T h i s past y e a r , t h e F e d e r a l Reserve Board announced two

new b r o c h u r e s , one of w h i c h . The E q u a l C r e d i t O p p o r t u n i t y A c t and

...

C r e d i t R i g h t s i n H o u s i n g , p r o v i d e s i n f o r m a t i o n about how t h e major
s i o n s o f the ECOA a f f e c t mortgage l e n d i n g .
Handbook t o C r e d i t P r o t e c t i o n Laws, i s

A n o t h e r , t h e B o a r d ' s Consumer

a compilation of

r i g h t s under c r e d i t laws and r e g u l a t i o n s .

consumers*

The Small B u s i n e s s

t r a t i o n r e p o r t s t h a t pamphlets c o n c e r n i n g i t s
are a v a i l a b l e f o r d i s t r i b u t i o n i n a l l

Adminis-

"Women i n Business

The f i l m i s b e i n g d i s t r i b u t e d

v a r i o u s consumer and c i v i c g r o u p s .

Program"

SBA program o f f i c e s .

The F e d e r a l Reserve Bank of P h i l a d e l p h i a has r e c e n t l y
a f i l m e n t i t l e d To Your C r e d i t .

provi-

I t d e p i c t s common problems

produced
to
faced

by consumers i n c r e d i t t r a n s a c t i o n s and o f f e r s s o l u t i o n s by i n f o r m i n g
consumers o f t h e i r r i g h t s under t h e many consumer c r e d i t p r o t e c t i o n

laws.

The FTC and the F e d e r a l Reserve Bank o f San F r a n c i s c o have e^ch developed
p u b l i c s e r v i c e announcements f o r t e l e v i s i o n and r a d i o .
E d u c a t i o n of c r e d i t o r s o f t e n o c c u r s d u r i n g the e x a m i n a t i o n
Most a g e n c i e s r e p o r t t h a t t h i s procedure e n a b l e s o n e - t o - o n e guidance
the areas i n which i t
cation,
visits

i s most needed.

process.
in

As a supplement t o t h i s o n - s i t e

the F e d e r a l Reserve System c o n t i n u e d i t s program o f
t o member banks w i t h a p p r o x i m a t e l y 450 v i s i t s

edu-

advisory

d u r i n g 1978. I n

addition,

s e v e r a l new p u b l i c a t i o n s have been developed f o r c r e d i t o r s i n 1978, such
as the F e d e r a l Reserve Bank o f New Y o r k ' s Consumer R e g u l a t i o n s
and the NCUA's Manual of Laws A f f e c t i n g F e d e r a l C r e d i t




Unions.

Checklist