The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Federal R eserve Bank
OF DALLAS
WILLIAM H. WALLACE
DALLAS, TEXAS 7 5 2 2 2
FIR S T VICE P R E S ID E N T
April 18, 1985
Circular 85-46
TO:
The Chief Executive Officer of all
member banks and others concerned
in the Eleventh Federal Reserve District
SUBJECT
Request for public comnent on Regulation B — Equal Credit
Opportuni ty
DETAILS
The Board of Governors of the Federal Reserve System has issued for
public comment a proposal that would revise and simplify its Regulation B.
The revised regulation would increase uniformity to rules recently imposed by
other Federal regulatory agencies, revise the definition of a credit
applicant, require the collection of data on dwelling-related loans, and
provide additional sample forms for credit denial. In addition, the Board is
issuing a proposed staff commentary to facilitate creditor compliance.
Comments should be addressed to Mr. William W. Wiles, Secretary,
Board of Governors of the Federal Reserve System, Washington, D. C. 20551.
All correspondence should refer to Docket No. R-0541, and must be received by
June 14, 1985.
ATTACHMENTS
The Board's press release, a summary of the Board's notice, and, as
published in the Federal Register, a full text of the proposed revised
Regulation B are attached.
MORE INFORMATION
For further information, please contact this Bank's Legal Department
at (214) 651-6228.
Sincerely yours,
For additional copies of any circular please contact the Public Affairs Department at (214) 651-6289. Banks and others are
encouraged to use the following incoming WATS numbers in contacting this Bank (800) 442-7140 (intrastate) and (800)
527-9200 (interstate).
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
For immedi at e r e l e a s e
March 7, 1985
The Fe d e r a l Re s e r v e Board t o d a y i s s u e d f o r p u b l i c comment r e v i s i o n s t o
R e g u l a t i o n B (Equal C r e d i t O p p o r t u n i t y ) t h a t would s i m p l i f y t h e r e g u l a t i o n and
u p d a t e some of i t s p r o v i s i o n s .
In a d d i t i o n , t h e r e v i s i o n s would b r i n g t h e d a t a c o l l e c t i o n r e q u i r e m e n t s
f o r d w e l l i n g - r e l a t e d l o a n s i n t o g r e a t e r u n i f o r m i t y wi t h t h e r u l e s imposed by t h e
C o m p t r o l l e r of t h e C u r r e n c y , t h e Fe d e r a l Home Loan Bank Boar d, and t h e Feder al
Deposit Insurance Corporation.
The major p o r t i o n s of t h e e x i s t i n g r e g u l a t o r y
p r o v i s i o n s , however , remain v i r t u a l l y unchanged.
Comment i s r e q u e s t e d by J u n e 14, 1985.
R e g u l a t i o n B p r o h i b i t s c r e d i t o r s from d i s c r i m i n a t i n g i n any c r e d i t t r a n s
a c t i o n be c a u s e of t h e a p p l i c a n t ' s r a c e , n a t i o n a l o r i g i n , s e x , m a r i t a l s t a t u s , age or
certain other c h a r a c te ris tic s .
ment P r o j e c t .
The B o a r d ' s a c t i o n i s p a r t of i t s R e g u l a t o r y Improve
Under t h i s p r o j e c t , t h e Board i s r e v i e wi n g and r e v i s i n g a l l
its
r e g u l a t i o n s t o u p d a t e them, s i m p l i f y t h e i r l a n g ua g e and e l i m i n a t e o b s o l e t e or
unneeded l a n g u a g e or p r o v i s i o n s .
In a d d i t i o n t o s i m p l i f y i n g t h e r e g u l a t i o n , t h e pr opos ed r e v i s i o n s would:
t
r e v i s e t h e d e f i n i t i o n of a c r e d i t a p p l i c a n t t o i n c l u d e g u a r a n t o r s .
•
r e q u i r e c r e d i t o r s t o c o l l e c t i n f o r m a t i o n on t h e r a c e , n a t i o n a l o r i g i n , and
sex of t h e a p p l i c a n t f o r d w e l l i n g - r e l a t e d l o a n s , i n c l u d i n g home improvement
and mobi l e home l o a n s .
•
p r o v i d e a d d i t i o n a l sampl e forms t o c r e d i t o r s f o r i n f o r mi n g a p p l i c a n t s of t h e
reasons for c r e d i t d e n i a l .
To f a c i l i t a t e c r e d i t o r c o mp l i a n c e , t h e Board i s a l s o i s s u i n g a pr oposed
s t a f f commentary.
A summary o f t h e B o a r d ' s n o t i c e i s a t t a c h e d .
The co mpl e t e t e x t may be ob
t a i n e d from t h e Fe d e r a l Res er v e Banks o r t h e B o a r d ' s P u b l i c a t i o n s S e r v i c e s .
At t achment
10890
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
FEDERAL RESERVE SYSTEM
12 CFR Part 202
[Regulation B; Docket No. R-0541 ]
Equal Credit Opportunity; Revision of
Regulation B; Official Staff
Commentary
AGENCY: Board of Governors of the
Federal Reserve System.
a c tio n : Proposed rule and proposed
official staff interpretation.
SUMMARY: The Board is publishing a
proposal to revise Regulation B, its
regulation implementing the Equal
Credit Opportunity Act (ECOA). This
proposal stems from the Board’s review
of Regulation B, pursuant to its policy of
reviewing periodically all of its
regulations. The Board’s review
considered ways the regulation could be
simplified to ease the burdens imposed
on creditors, consistent with the Board’s
jesponsibility for implementing the
ECOA, and whether the regulation could
more effectively carry out the purposes
of the act. The Board proposes some
changes in the data collection
requirements applicable to dwellingrelated mortgage loan application, and a
change in the definition of “applicant"
to give guarantors (who already have
certain protections under Regulation B)
legal standing in the courts when there
is an alleged violation of the regulation.
The Board also proposes to update some
provisions and revise others to facilitate
creditor compliance. The revisions
proposed include streamlined
procedures for dealing with incomplete
applications and a broader selection of
sample forms for informing applicants of
the reasons for credit denials.
The major portions of the existing
regulatory provisions, however, remain
virtually unchanged. This result is in
keeping with the Board’s analysis and
with comments from creditors,
enforcement agencies, and consumer
and civil rights representatives, who
generally believe that the regulation is
achieving its intended goals and should
be maintained substantially in its
present form.
The Board is also publishing for public
comment an official staff commentary
that incorporates existing Board
interpretations and that addresses
questions about regulatory matters on
which creditors and enforcement
agencies have sought guidance over the
years.
d a te : Comments must be received by
June 14,1985.
ADDRESS: Comments may be mailed to
William W. Wiles, Secretary, Board of
Governors of the Federal Reserve
System, Washington, D.C. 20551, or
delivered to the C Street entrance, 20th
and C Streets, NW., Washington, D.C.
between 8:45 a.m. and 5:15 p.m.
Comments may be inspected in Room B1122 between 8:45 a.m. and 5:15 p.m. All
material submitted should refer to
Docket No. R-0541.
FOR FURTHER INFORMATION CONTACT:
Regarding the proposed regulatory
amendments and staff commentary,
Lucy H. Griffin or John C. Wood (Senior
Attorneys), Adrienne D. Hurt (Staff
Attorney), or James K. Baebel (Senior
Review Examiner), Division of
Consumer and Community Affairs,
Board of Governors of the Federal
Reserve System, Washington, D.C. 20551
(202-452-2412); regarding the economic
impact analysis, Glenn Canner
(Director, Micro-Consumer Projects) or
Robert D. Kurtz (Staff Economist),
Division of Research and Statistics,
Board of Governors of the Federal
Reserve System, Washington, D.C. 20551
(202-452-2910).
SUPPLEMENTAL INFORMATION: (1)
General. The Equal Credit Opportunity
Act (15 U.S.C. 1691 et seq.), signed into
law in 1974, made it unlawful for
creditors to discriminate in any aspect
of a credit transaction on the basis of
sex or marital status. Under
amendments enacted by Congress in
1976, the act also bars discrimination on
the basis of race, color, religion, national
origin, age, receipt of public assistance,
and the good-faith exercise of rights
under the Consumer Credit Protection
Act. The Federal Reserve Board was
given rule-writing authority to issue
implementing regulations, and issued
Regulation B (12 CFR Part 202) In
October 1975, amending it in December
1976 to incorporate the act’s expanded
coverage.
The Board’s policy under its
Regulatory Improvement Project calls
for the periodic review of each Board
regulation. In keeping with that policy,
the Board has made a detailed review to
consider whether Regulation B could be
simplified to ease the burdens imposed
on creditors, consistent with the Board’s
iesponsibility for implementing the
ECOA, and to consider also whether the
regulation could more effectively carry
out the purposes of the ECOA. The
Board published a notice of intent to
review the regulation in June 1983 (48 FR
28285), in order to ensure the
participation of interested parties early
in the review.
The initial phase of the review ha»
now been completed. The Board
believes, on the basis of public
comments and other available
information, that the other regulation is
achieving its intended goals. The
Federal Reserve Banks and the other
federal enforcement agencies report no
major compliance problem. As a rule,
creditors appear to consider the
Regulation B requirements to be
manageable, and review the regulations
as providing certainty about how to
comply with the ECOA. Civil rights and
consumer advocates continue to view
the regulation as providing important
protections. To the extent that
consumers’ views can be discerned from
board-sponsored surveys, consumers
appear satisfied with the treatment they
are receiving in the credit market.
Based on its review, the Board is now
proposing a number of revisions to
regulation B. One proposed revision
would modify the coverage of the data
collection requirements for certain
dwelling-related loans. The modification
would establish greater uniformity
among financial regulatory agencies, as
discussed under section 202.13, below.
Another proposed change would expand
the definition of “applicant” to cover
guarantors, in order to give legal
standing to persons who have certain
rights under Regulation B but who do
not currently have a legal remedy when
there is a violation of those rights. (Refer
to the discussion under section 202.2(e),
below.)
The Board also is proposing technical
changes to the regulation to make
compliance easier for creditors without
diminishing consumer protections. The
revised regulation would, for example,
provide creditors with a streamlined
notification procedure for dealing with
incomplete applications, and would give
creditors a broader selection of sample
forms for notifying an applicant of a
credit denial and of the reasons for the
denial. (For a detailed discussion of
these proposals, see section 202.9 and
Appendix C, below.)
The proposed regulation is shorter
than current Regulation B by about onesixth—a reduction largely attributable
to the deletion of obsolete provisions
and to the transfer of explanatory
material to a proposed staff
commentary. The regulation also has
been improved by the rewriting of some
sections and the editing of others to
state the requirments more clearly. All
but two of the 19 footnotes contained in
the current regulations have been moved
to the proposed staff commentary,
making the regulation itself less
cumbersome to use.
In light of the indications that major
revisions are not needed, the proposal
leaves most of the regulatory provisions
unchanged. This is in contrast to the
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
extensive changes made when the Board
engaged in a similar review of
Regulation Z (Truth in Lending) and
Regulation C (Home Mortgage
Disclosure). The more limited nature of
the revisions to Regulation B comes
from the different circumstances that
have surrounded the review of the
regulation:
• The Board’s review of the Truth in
Lending and Home Mortgage Disclosure
regulations implemented statutory
amendments that, particularly in the
case of Truth in Lending, made
significant reductions in the disclosure
requirements. In contrast, there are no
statutory amendments of any kind to be
implemented under the ECOA.
• The volume of litigation under the
ECOA and Regulation B has been quite
limited, and by and large the court
decisions that have been reported do
not reflect the need for simplification of
requirements that was evident in the
case of Truth in Lending.
• It came apparent, in the course of
the review, that creditors consider
Regulation B’s current requirements to
be manageable. Many creditors may
find burdensome the notification
requirements for adverse action, but
they also generally recognize that these
provisions are drawn directly from the
statute. Some creditors encourage the
Board to provide clarification on some
points: others believe that the regulation
is working and express a preference for
leaving the regulation substantially
unchanged.
• Civil rights and consumer advocates
have opposed any diminution of ECOA
protections. Because the ECOA is civil
rights legislation, and not strictly a
consumer protection law, there is
particular concern that the Board not cut
back on any protections currently
provided.
• Vyhen issued in 1976, Regulation B
was written in nontechnical language,
and the regulation is for the most part
already easy to understand.
• Consequently, the following general
principles have been applied in the
review and revision of the regulation:
• Make changes to the regulation that
will facilitate compliance, provide
clearer guidance about the Board’s
intent, clarify the standards to be used
by the regulatory agencies, or enhance
the act’s protections.
• Minimize changes that would
provide only marginal (or no) benefit to
the industry; or that, similarly, would
not significantly clarify the regulation or
enhance protections.
In the review of the regulation, it was
frequently found that no substantive
change in regulatory provisions was
required—that elaborating on a given
point in a staff commentary could more
effectively facilitate creditor
compliance. Accordingly, an official
staff commentary has been prepared
and is being proposed for comment. It
provides needed guidance in a less
formal manner than the regulation. The
proposed commentary is discussed
further in section (4) of this notice.
An economic impact analysis of the
proposed regulatory revisions has been
prepared as required by section 603 of
the Regulatory Flexibility Act (5 U.S.C.
603). The analysis appears in section (3)
below.
In accordance with section 3507 of the
Paperwork Reduction Act of 1980, 44
U.S.C. Chapter 35, and 5 CFR 1320.13,
the proposed revisions to Regulation B
that pertain to third party disclosures
will be submitted to the Board for
review under Office of Management and
Budget delegated authority after
consideration of the comments received
during the 90-day public comment
period.
(2) Proposed changes to regulation.
The following discussion covers the
proposed revisions to Regulation B
section by section. In a number of
sections, changes are being proposed for
the purpose of simplification or
clarification of the text, with no
substantive change in the regulatory
requirements; where these changes are
self-evident from reading the proposed
text itself, they are not covered in the
discussion.
Section 202.1 Authority, Scope and
Purpose.
Proposed section 202.1 differs from the
existing section in that certain
provisions now appear elsewhere in the
proposed regulation. Existing
paragraphs (b), concerning
administrative enforcement, and (c), on
penalties and liabilities, appear in a new
section 202.14; existing paragraph (d),
regarding procedures for the issuance of
staff interpretations, is in new Appendix
D.
Paragraph (a), on authority and scope,
remains unchanged except for the
addition of a reference to the control
number assigned to Regulation B by the
Office of Management and Budget as
required by the Paperwork Reduction
Act; other minor changes include the
deletion of footnote 1 as unnecessary. A
new paragraph (b) is being added to
outline the purpose of Regulation B,
consistent with the format followed in
other board regulations.
Section 202.2 Definitions.
In this section, the Board proposes a
substantive change to the definition of
“applicant” and a change to the
10891
definition of “empirically derived,
demonstrably and statistically sound
credit system” that will broaden its
applicability. Other changes are
structural or editorial, without
substantive effect. Material deleted from
the regulation, for example, is being
incorporated into the proposed staff
commentary, as noted below.
The Board proposes to revise the
definition of "applicant” in paragraph
(e) to include guarantors, sureties,
endorsers, and similar parties. The
existing definition excludes them. The
principal effect of this change would be
to give guarantors and similar parties
standing under the act to seek legal
remedies when a violation occurs. The
existing regulation prohibits creditors, in
certain situations, from requiring an
applicant to obtain a guarantor, surety,
cosigner, or similar party. If a creditor
violates this provision, however, a
guarantor whose signature has been
illegally required currently has no legal
remedy because section 706 of the act
confers standing to sue only upon an
“aggrieved applicant.” Including
guarantors and similar parties within
the definition of “applicant” would
resolve the question of standing.
The Board believes that no
operational problems would be created
by the proposed change. Guarantors and
similar parties are already excepted
from the coverage of various sections of
the regulation. For example, under
section 202.9, a creditor need give a
notification only to a "primary
applicant,” which would exclude a
guarantor; under section 202.10, a
creditor is required to follow certain
procedures for reporting credit history
only as to persons who are contractually
liable "other than as a guarantor, surety,
endorser, or similar party.” The Board
requests comment, however, on whether
specific exclusion of guarantors from
coverage under other sections is
appropriate.
Under paragraph (f), which defines
"application” and “completed
application,” material dealing with
notice of incompleteness is being
deleted. It is being incorporated into
revised section 202.9(c), a new provision
dealing with incomplete applications.
The Board proposes to broaden the
definition in paragraph (p) of an
"empirically derived, demonstrably and
statistically sound credit system.” Credit
scoring systems that meet the standards
as stated in existing paragraph (p) will
continue to qualify under the proposed
definition. The existing language
appears to limit the applicability of the
definition to systems tL '
ie
allocation of points or the < ;ning of
10892
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
weights. The revised language makes
clear that a system will meet the
definition so long as the system is
developed using acceptable statistical
principles and methodology. Thus,
decision-tree and other types of credit
systems that meet these standards also
qualify. Other conforming technical
revisions result in no substantive
change.
Structural changes include the
proposed deletion of the following:
footnote 2 to the introductory material in
section 202.2; footnote 3 to paragraph
(z), the definition of “prohibited basis”;
paragraph (aa), the definition of "public
assistance program”; and the rules of
construction in paragraph (cc) and (dd).
Comparable material appears in the
proposed staff commentary. In
paragraph (c), the definition of “adverse
action,” the cross reference to
notification of action taken, statement of
reasons for denial, and record retention
is being deleted as unnecessary.
Section 202.3 Lim ited Exceptions for
Certain Classes o f Transactions.
The Board proposes to restructure this
section for easier reference. In the
proposed restructuring, the definition of
each type of credit is immediately
followed by the list of exceptions
applicable to it. There is no substantive
change to any of the existing provisions.
The definition of public utilities credit,
proposed paragraph (a), is slightly
revised and corresponds more closely to
the one in Regulation Z (Truth in
Lending). The list of exceptions
applicable to governmental credit,
proposed paragraph (e), is being
simplified without substantive change.
In paragraph (d) on business credit,
the provisions relating to notification of
credit denial and to record retention are
being placed in paragraph (d)(3), labeled
“modified requirements,” to emphasize
that they essentially modify the
procedures ordinarily required by
Regulation B, rather than provide total
exceptions. Paragraph (d)(3)(i)
incorporates official staff interpretation
EC-0009 to make clear that a creditor
that denies a business credit application
or takes other adverse action is required
to notify the applicant of the action
taken. The provision concerning record
retention has been edited to make clear
that the time period for requesting
record retention runs from the
notification of action taken.
Section 202.5 Rules Concerning Taking
o f Applications.
The Board proposes to formalize the
taking of written applications for the
types of credit subject to the data
collection requirements of section 202.13
(i.e., certain types of dwelling-related
loans); the requirement for written
applications appears in revised
paragraph (e). In all other types of credit
transactions, written applications *
continue to be optional. A creditor may
comply with the requirement by writing
down the information that it normally
considers in making a credit decision;
use of a form is not required. Further
discussion of written applications is
presented in the material relating to
section 202.13, below.
Other changes to this section are
merely structural. Catchlines are being
added to facilitate use of the regulation.
Some of the material contained in
existing paragraph (e) concerning the
use of the model application forms
contained in Appendix B is being moved
to the introductory section of Appendix
B.
In addition, existing footnote 4 is
being renumbered footnote 1; the part of
the footnote that is deleted from the
regulation appears in the commentary.
Footnote 5 and portions of exfsting
paragraphs (b)(3) and (d)(2) are also
being deleted; comparable material
appears in the proposed staff
commentary. Footnote 6 is being deleted
as obsolete.
Section 202.6 Rules Concerning
Evaluation o f Applications,
The few changes proposed in this
section are strictly structural. Catchlines
are being added to facilitate use of the
regulation. Existing footnote 7 is being
renumbered footnote 2. The last
sentence of the footnote, which
currently cites portions of the legislative
history of the act dealing with the
“effects test,” is being deleted from the
regulation. No substantive change
results; comparable material appears in
the proposed staff commentary. Existing
footnotes 8 and 9, as well as the
material in existing paragraph (b)(5)
regarding the factors that a creditor may
consider in determining the likelihood of
consistent payments, are also being
deleted from the regulation, with
comparable material appearing in the
proposed staff commentary.
One of the topics on which the Board
sought comment in the June 1983 Federal
Register notice concerned paragraph
(b)(6) of this section, which requires
creditors to consider information
pertaining to credit history shared with
a spouse. The Board asked whether the
regulation should be revised to more
specifically identify under what
circumstances and to what extent
information offered by the applicant
should be considered by the creditor.
Most of the comments on this issue
argued against any change in the
regulation. No change is being proposed
in the regulation. The proposed staff
commentary addresses some of the
issues raised.
Section 202.7 Rules Concerning
Extensions o f Credit.
Except for minor revisions to the rules
governing treatment of open-end
accounts, proposed revisions to this
section are structural or editorial,
without substantive effect, and include
the addition of catchlines for the
reader’s convenience.
The provisions of paragraph (c) on
existing open-end accounts are being
revised in minor ways. New language in
paragraph (c)(2) makes clear that the
provision applies only in the case of an
applicant who is contractually liable.
The term “earned by” is being deleted to
clarify that the provision applies to any
situation where the income of the
applicant’s spouse was relied upon in
granting the credit. “Information
available to the creditor” replaces
existing language because it is believed
to be a more appropriate basis for
determining whether a creditor may
require reapplication. “Current credit
limit” is substituted for existing
language because the credit limit is a
more appropriate test for determining
the applicant’s overall ability to repay
than the “amount of credit currently
extended.”
In the June 1983 Federal Register
notice, the Board solicited comment on
two specific areas regarding existing
open-end accounts. First, the Board
asked whether specific procedures
should be provided for reapplications.
The majority of commenters were
opposed to having procedures
established by the regulation. They
believed creditors should have the same
latitude to determine reapplication
procedures as for initial applications.
They also believed that a specific rule
would be counterproductive and
particularly burdensome because
application procedures vary widely
among creditors. In the absence of any
indication that there is a problem under
the procedures that creditors now use,
the Board proposes to leave the
regulatory provision unchanged. (See
the proposed staff commentary to
section 202.7(c).)
The Board also solicited comment as
to whether the terms “contractually
liable” and “authorized user” need
clarification or change. On the basis of
the comments, the Board believes that
the current use of the term
“contractually liable” as defined by the
regulation is sufficiently understood by
the industry, and is proposing no
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
change. The Board has similarly decided
not to define“authorizeduser,” in order
to allow creditors continued flexibility
in defining the rights and obligations of
such parties.
There are some proposed editorial
revisions in the signature rules, but no
substantive change. Paragraph (d)(2) is
being revised to make clear that, in
applications for unsecured credit, if the
applicant relies on jointly owned
property, die creditor may require the
signature of the co-owner only to assure
access to the property but not to impose
personal liability. The material
concerning factors that the creditor may
consider regarding property owned by
the applicant has been deleted in the
proposed version, but comparable
material is in the proposed staff
commentary.
Existing footnote 10 to paragraph
(d)(5) concerning guarantors and similar
parties is being deleted, but comparable
material appears in the proposed staff
commentary. Also, the last sentence of
existing paragraph (d)(5) now appears
as paragraph (d)(6), to better emphasize
that all of the signature rules (i.e.,
paragraphs (d)(1) through (d)(5)) apply
to guarantors.
The provisions regarding creditrelated insurance, paragraph (e),
prohibit a refusal to grant credit because
certain types of credit-related insurance
are not available due to the applicant’s
age. The coverage of this provision is
being broadened to include “other
credit-related insurance” as well as the
specific types (credit life, health, etc.)
already listed. The Board requests
comment on the effect of this change, if
any. The other provisions in existing
paragraph (e) regarding differentiation
in rates and the like are being deleted;
comparable material appears in the
proposed staff commentary.
Section 202.8 Special Purpose Credit
Programs.
The wording of this section is edited
in various places for clarity, without
substantive change.
Section 202.9 Notifications.
The Board proposes to add a now
paragraph (c) to provide a streamlined
procedure for dealing with incomplete
applications. Other proposed revisions
to this section are strictly structural or
editorial, without substantive change.
In the June 1983 Federal Register
notice concerning the review of
Regulation B, the Board solicited
comment regarding incomplete and
withdrawn applications. Some of the
commenters criticized what they
believed to be a double notice burden in
the case of incomplete applications:
notifying an applicant that the
application is incomplete, and later
notifying die applicant that credit has
been denied because the application
remains incomplete.
In response to these comments, the
Board proposes to streamline
procedures for dealing with incomplete
applications. Paragraph (c) provides that
if a creditor receives an application that
is incomplete regarding matters that the
applicant can complete, the creditor
shall either notify the applicant of its
decision within 30 days, in accordance
with section 202.9(a), or notify the
applicant within that time that
additional information is needed. The
latter notification would specify the
information needed, designate a time
period for the applicant to submit the
information, and inform the applicant
that unless the information is provided
there can be no further consideration of
the application. If the applicant failed to
respond within the designed time period,
the creditor would have no obligation to
provide further notification of any kind.
If the applicant provided the requested
information in a timely manner, the
creditor would then take action on the
application and give appropriate notice
in accordance with section 202.9 (a) and
(b). Paragraph (a)(1)(H). dealing with the
denial of an incomplete application, is
being revised to include conforming
language. Forms C-9 and C-10 in
Appendix C are sample forms for notice
of incompleteness under paragraph (c).
In response to public comment, the
Board proposes to make changes to
section 202.9 with respect to use of the
term “adverse action." The words
“denying” or “denial” of credit are being
substituted for the words “adverse
action.” The Board believes that use of
the term "adverse action” raises
unnecessarily negative connotations,
and has also led creditors to believe that
they must use that term in
communicating with applicants who
have been denied credit. The Board
believes that the provisions of
paragraphs (a) and (b) remain
sufficiently clear as to the creditor’s
obligation to notify an application when,
in instances other than the denial of an
application, the creditor takes action
that warrants the sending of a notice
under paragraph (b).
Other phanges to this section are
primarily editorial. The Board proposes
to delete material that appears in
existing paragraph (a)(l)(i), permitting
notification of approval to be either
express or implied; material in existing
paragraph (b)(1), allowing the model
ECOA notice to include references to
similar state law and a state
enforcement agency; existing paragraph
10893
(b)(3); permitting inclusion of other
required disclosures or other
information generally; and exirtin?
paragraph (f); which provides a
presumption of delivery. Comparable
material appears in the proposed staff
commentary. In existing paragraph
(b)(2), the model notice of reasons for
adverse action is being deleted. It is
being replaced by a number of model
notices in a new Appendix C, as
discussed below.
Existing paragraph (d) provides a
special rule on withdrawn applications
that the Board believes is not needed; it
is being deleted. There has also been
some restructuring of the section.
Existing paragraphs (c), (a)(3), (a)(4);
and (e) are renumbered (d) through (g),
respectively. That portion of existing
paragraph (a)(4) dealing with liability
for acts of third parties is being deleted;
comparable material appears in the
proposed staff commentary.
Section 202.10 Furnishing o f Credit
Information
This section is being totally rewritten
and restructured for clarity and to delete
obsolete material, but there is no
substantive change from the existing
rules. Footnote 11 to existing paragraph
(a)(1) and footnote 12 to existing
paragraph (a)(3) are being deleted;
comparable material appears in the
proposed staff commentary. Material in
existing paragraph (c), dealing with the
effect of signatures on liability and on
the names in which an account is
maintained, is being deleted, with
comparable material appearing in the
proposed staff commentary.
Section 202.11 Relation to State k m
Existing footnote 16 is being deleted
as unnecessary.
Section 202.12 Record Retention
The Board proposed to make minor
revisions to this section, as discussed
below.
Paragraph (a) permits the retention in
files, under certain circumstances, of
information that is generally prohibited.
Existing paragraph (a)(2) applies this
permission to information obtained from
credit bureaus, and existing paragraph
(a)(3) to information obtained from
credit bureaus, and existing paragraph
(a)(3) to information obtained from an
applicant or others without the specific
request of the creditor. These two
paragraphs are being merged into a
single paragraph (a)(2), so that the rule
of “without specific request" will also
apply to information from credit
bureaus. There appears to be no
justification for giving special
10894
Federal Register / Vol 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
protection, as the current rule seems to
do, if prohibited information is obtained
from a credit bureau at the specific
request of the creditor. There would be
no violation under the proposed
revision, however, if a creditor
requested a credit report which
happened to contain prohibited
information. The words “at any time”
are being deleted as unnecessary.
Existing footnote 17 to paragraph (a) is
being deleted as obsolete.
Paragraph (b)(1) requires retention of
records for 25 months after a creditor
notifies an applicant of action taken on
an application. The proposal revises this
provision to require the same record
retention after a notification of
incompleteness because, as discussed
under section 202.9 above, a notification
of incompleteness under section 202.9(c)
may substitute for notification of action
taken in certain instances. In addition,
existing footnote 18 to paragraph (b)(1)
is being deleted; comparable material
appears in the proposed staff
commentary.
A reference to the United States
Attorney General is being added to
paragraph (b)(3), to require retention of
records until final disposition of an
enforcement proceeding or investigation
conducted by the Attorney General.
Under existing paragraph (b)(4),
record retention is required in situations
where, because the application is
“shopped” among multiple creditors and
another creditor has granted credit, a
creditor does not have to notify the
applicant of action taken. As revised,
the record retention provision is
somewhat broader. It applies whenever
a creditor receives an application but is
not required to comply with notification
requirements, e.g., when an applicant
submits an application for credit but
then withdraws it prior to notification of
the creditor’s decision. This change
would ensure more complete records of
applications in order to better allow
regulatory agencies to assess creditors’
compliance.
Section 202.13 Information for
Monitoring Purposes
The Board proposes to revise this
section in several respects. In general,
the revisions relate to types of loans
covered and to the method of collecting
data on the applicant’s sex and race/
national origin.
Section 202.13 currently requires a
creditor that takes a written application
for a loan to purchase residential real
property, with a lien on that property as
security, to ask the applicant to note
certain personal characteristics; race/
national origin, sex, marital status, and
age. Applicants themselves may provide
the requested information if they
choose; however, they are not required
to do so. The data are requested to
assist the enforcement agencies in
determining if a creditor is approving or
denying credit in a prohibited manner.
The regulation permits other
enforcement agencies to adopt more
extensive data collection programs; the
Federal Deposit Insurance Corporation
(FDIC), the Federal Home Loan Bank
Board (FHLBB), and the Office of the
Comptroller of the Currency (OCC) have
done so.
The Board’s Consumer Advisory
Council issued a report in July 1983 on
the Federal Reserve’s implementation of
its responsibilities under the Community
Reinvestment Act (CRA). The Council
recommended a number of
enhancements to the Board’s efforts in
carrying out the mandate of CRA and
the antidiscrimination goals embraced
by the ECOA and the Fair Housing Act.
One recommendation was that the
Board seek out and use improved
methods for collecting and analyzing
data on personal characteristics of
applicants, so that examiners would be
better able to detect prohibited
discrimination. The Council also
suggested that the Board consider
requiring creditors to use written
applications to collect the data on
applicants’ personal characteristics.
When it considered the Council’s
recommendations, the Board also
considered public comment it had
received regarding the problems of bank
holding companies whose subsidiary
banks are subject to the jurisdiction of
different financial regulators. Depending
on which federal agency supervises the
particular banks, there are different data
collection rules. (The attached table
briefly outlines the types of credit
currently covered by the various agency
rules and also describes coverage under
the proposed rule, with emphasis
added.)
Believing that a single rule applicable
to all institutions would both reduce
compliance burdens and enable the
agencies to collect the data necessary to
monitor compliance with the ECOA and
the Fair Housing Act, the Board wrote to
the other financial supervisory agencies
and invited their participation in
developing uniform requirements on
data collection.
Comparison ofPresent and Proposed Coverage by Type of Loan
OCC Special Rule (national banks}........... • Any loan for the purpose of purchasing,construction-perma
nent financing, or refinancing of a house to be occupied as a
principal residence and which will secure the loan.
FDIC Special Rule (state-chartered non- • Any loan for the purpose of purchasing, constructing, iv fimember banks).
nancing, improving, or maintaining a dwelling to be occupied
as a principal residence and which will secure the loan,
FHLBB Special Rule (S&Ls)........................ • Any loan related to a dwelling.
Present Reg. B (member banks and all • Any written application for consumer credit for the purpose
other creditors).
of purchasing residential real property (including construc
tion-permanent financing) where the loan will be secured by
the property.
Proposed Rule.............................................. • Any application for credit primarily for the purchase (includ
ing construction-permanent financing), refinancing, repair, or
improvement of a dwelling occupied, or to be occupied, by
the borrower as a principal residence, where the extension of
credit will be secured by the dwelling.
Staff members of the FDIC, the
FHLBB, the OCC, the Board, and the
National Credit Union Administration
(NCUA) have met to review their
existing regulations and to consider a
uniform approach. The Board proposal
being published for public comment
incorporates many of the observations
made by this interagency staff group,
though none of the other agencies has
formally endorsed the proposal. The
proposal would decrease the compliance
burden for some creditors but increase
the burden for others.
Types of Covered Transaction
The Board proposes to modify section
202.13, which currently covers only
applications for residential purchase
money loans, to also cover refinancing,
repair, or improvement of a dwelling
that is or will be occupied by the
borrower as a principal residence, when
the credit will be secured by the
dwelling. The proposal would increase
the types of credit covered for state
member banks, credit unions, mortgage
bankers, and certain other lenders.
The focus of the proposal on credit
related to dwelling reflects the
longstanding national concern about
discrimination in housing-related credit.
The proposal would cover most of the
areas of credit that are subject to the
Fair Housing Act, representing a
significant portion of the housing related
credit extended in the country. Limiting
the proposal to credit related to
Federal Register / Vol. 50, No; 52
dwellings makes it less likely to impose
a substantial burden on creditors. If it
were expanded to cover types of credit
other than dwellings, as some persons
have suggested, the economic burden of
redesigning and purchasing new forms
would be severely increased.
Coverage of secured home
improvement loans is included because
they appear to be an important element
throughout the country in revitalizing
many older neighborhoods. Home
improvement lending is considered
essential to helping meet the housing
needs of many people in today’s housing
market.
Mobile home loans also would be
covered. In the U.S. Department of
Commerce’s 1981 Annual Housing
Survey, mobile homes accounted for 4.7
percent of the total number of homes in
the United States, yet they accounted for
10.3 percent of all owner-occupied
homes where the annual household
income was less than $12,500. A
significant portion of the lower-priced
housing market consists of mobile
homes purchased to be placed on lots
that are owned or rented by the
purchasers. Regulation B presently
excludes dewllings from coverage if
they are not considered real property
under state law. To exclude these
dwellings from coverage merely because
they are not defined by some state laws
as real property (9ince they are not
permanently attached to the ground)
appears to be unwarranted.
Rule for Obtaining of Data
The creditor would be required, under
the Board’s proposal, to request the
race/national origin, sex, marital status,
and age of the applicant, as in the
existing regulation. Unlike the present
rule, however, if the applicant did not
voluntarily provide the requested
information, the creditor would have to
note the sex and race/national origin of
the applicant on the basis of visual
observation or surname. This is the rule
currently used by the FDIC, the FHLBB,
and the OCC. Thus, the proposal would
represent a change for state member
banks, credit unions, and mortgage
bankers, allof which are currently
collecting the information only on a
voluntary basis. Requiring that creditors
note the race/national origin and sex of
applicants who choose not to do so
would: provide better data by which to
determine a creditor’s compliance with
the ECOA and the Fair Housing Act.
The requirement would also serve to
remind creditors that these factors may
not enter into determinations of
creditworthiness.
ft
Monday; March 18, 1985 / Proposed Rules
Written Applications
The Board also proposes to formalize
the taking of written applications for the
types of credit covered by section
202.13. (This requirement for written
applications appears in revised section
202.5(e)), A creditor may satisfy the
requirement by writing down the
information that it normally considers in
making a credit decision.) Enforcement
of civil rights would be enhanced
because enforcement agencies could
make more informed dieterminations
about a creditor’s compliance with the
ECOA and the Fair Housing Act if
application files contained better
documentation. Written credit
applications and other supporting
information that creditors generally use,
such as appraisals and credit histories,
would also assist in determining why a
particular course of action was taken on
an application.
Requiring written applications for
such loans does not appear to impose
any significant additional burden on
creditors, since virtually all creditors
already take written applications for
these types of credit. Most banks and
thrift institutions already are required to
take written applications or to maintain
equivalent records for most loans
covered by the data collection
provisions, under rules established by
the FDIC, OCC, FHLBB, and NCUA. In
addition, most mortgage bankers use
standardized loan documents, including
credit application forms, because of the
growth of the secondary market for
dwelling-related loans. FHLMC/FNMA
forms are readily available that would
meet the proposed requirements on data
collection.
Substitute Monitoring Programs
Existing section 202.13(d) authorizes
other enforcement agencies to adopt
substitute monitoring programs. If the
proposed rule were implemented, the
vast majority of the types of credit
presently covered by other financial
regulatory agencies’ special rules on
collection of monitoring data would also
be covered by Regulation B. To the
extent that these agencies continue to
engage in substitute monitoring, there
would be greater but not total
uniformity. The Board requests specific
comment on whether paragraph (d)
should be deleted.
Section 202.14 Enforcement, Penalties,
and Liabilities.
This is a proposed new section,
consisting of material from current
section 202.1 (b) and (c). The material
has been edited for purposes of
simplification, but there is no
19895
substantive change. Paragraph (a)
reflects the transfer of the enforcement
functions of the Civil Aeronautics Board
to the Secretary of Transportation (49
FR 50994, December 31,1984).
Appendix A —Federal Enforcement
Agencies
Appendix A, which lists the federal
enforcement agencies, is not being
republished at this time. Changes will be
made, when the Board publishes revised
Regulation B in final form, to reflect the
substitution of the Secretary of
Transportation for the Civil Aeronautics
Board.
Appendix B—Model Applica tion Forms
The introductory material to
Appendix B incorporates material from
existing section 202.5(e), so that all
directions for the proper use of the
model forms will appear in one place.
The existing portion of the introductory
material that permits creditors to add
three specific items to the model forms
is deleted, because creditors may add
any item not prohibited by section 202.5
(not merely these three). The discussion
of the FHLMC 65/ FNMA 1003 form is
deleted; comparable material appears in
the staff commentary. The Board is also
publishing a sample disclosure and
information request that would comply
with revised section 202.13. If the
proposal regarding monitoring data
discussed above is ultimately adopted,
this disclosure and request form would
become part of the model application
form for dwelling-related loans. The
model application forms themselves are
not being republished at this time
because no other change is proposed^
Comment is requested, however, on
what changes (if any) may be necessry
or appropriate in any of the model
forms.
Appendix C—Sample Notification
Forms
In the June 1983 Federal Register
notice, the Board requested comment
concerning the sample adverse action
notice, including what changes should
be made to the notice and whether more
than one form should be provided.
Based on the comments, the Board
proposes to replace the single existing
sample notice, which appears at section
202.9(b), with a number of sample
notices. This proposed new appendix to
the regulation contains ten sample
notificaiton forms. Forms C-l through
C-4 are sample statements of reasons
for credit denial or other adverse actioric
Forms C-5 and C-6 combine the
statement of reaons with notice of acounteroffer. Form G-7 is a sample
10896
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
notice for use with a credit scoring
consequently it is shorter and simpler
system; form C-8 is a disclosure of the
than existing Supplement I, but the
right to request a statement of reasons,
substance is largely unchanged.
(3) Economic impact analysis—
as provided for in section 202.9(a)(2)(ii).
Introduction. The Board’s review
Forms C-9 and C-10 are requests for
suggests that (1) the definition of
additional information, as provided for
applicant be expanded to cover
in proposed section 202.9(c).
As presented below, only forms C-4,
guarantors in order to give guarantors
C-6, and C-7 include the notice of rights
legal standing to sue when they believe
under ECOA required by section
a violation of their rights has occurred,
202.9(b)(1). In all of the other forms, the
(2) the effectiveness of compliance
creditor would add it as indicated by the enforcement can be enhanced if
notation. Forms C-9 and C-10, the
creditors are required to take written
sample notices requesting additional
applications for housing-related loans
information, do not require the ECOA
and to collect certain data regarding
notice because those forms do not relate personal characteristics of these loan
to a credit denial.
applicants, and (3) clarification and
Forms C-5 and C-6 as presented do
modification of the regulation are
not include the Fair Credit Reporting Act needed in the areas of incomplete and
notice; it would need to be added if
withdrawn applications.
applicable.
The potential benefits and costs of the
As stated in the introductory material
proposed revisions to Regulation B are
to proposed Appendix C, the sample
discussed in this initial economic impact
forms are illustrative. In developing its
analysis. Two appendices are attached.
own forms, a creditor would of course
Appendix A contains a summary of a
have to list the factors on which it based Board study of economies of scale in the
a credit denial.
cost of complying with the Truth in
Although ten samples forms are being
Lending Act and Equal Credit
published for comment, it may be that
Opportunity Act (ECOA). Appendix B
fewer than ten forms are needed. The
contains a summary of a Board study of
Board requests comment on which of the consumer perceptions regarding the
proposed forms would be most useful to
benefits of ECOA protections. These
creditors and most informative to
studies were examined for their
consumers.
implications regarding the Regulation B
The sample notices would be entirely
review.
optional for creditors, as is true of the
existing notice. Accordingly, if any or all Redefinition of “Applicant” to Include
Guarantors.
of the proposed forms are ultimately
An applicant has standing to sue
adopted in place of the existing sample
under Regulation B but a guarantor does
form, creditors may continue ot use the
not. The proposed rule would redefine
existing sample form (or any other
“applicant” in section 202.2 to include
notice form), provided that it sets forth
guarantors. This modification of the rule
accurately the factors the creditor
would allow guarantors, who believe
considers and is completed properly.
they have been injured by an ECOA
Appendix D—Issuance o f S ta ff
violation, to bring suit, thereby
Interpretations
enhancing consumer protections.
The new provisions may increase
This proposed new appendix would
replace section 202.1(d) of the existing
creditor’s costs by increasing their
regulation, which deals with requests for exposure to litigation. Litigation would
increase to the extent guarantors sue
and issuance of staff interpretations of
regarding alleged Regulation B
Regulation B. Because of changes in the
violations, and the alleged violations
procedures for staff interpretations
would not have been litigated by
(particularly the introduction of the
applicants themselves. Initial analysis
official staff commentary as the vehicle
by the Division of Consumer and
for such interpretations), this appendix
Community Affairs suggests that this
differs from existing sections 202.1(d); it
situation would arise infrequently.
is modeled primarily on Appendix C to
Applicants would normally bring suit in
Regulation Z, which deals with staff
their own right; and guarantors (if they
interpretations under that regulation.
had standing to sue) would merely join
Appendix E—State Exemptions
in the lawsuit. (Guarantors are often the
Proposed Appendix E would replace
spouse or business associate of the
Supplement I to the existing regulation,
applicant.) If it becomes a matter of
which sets forth procedures relating to
course in legal actions involving
exemptions oil the basis of similar state
defaulted loans that both the applicant
law. The revised version is modeled on
and the guarantor claim injury from the
Appendix B to Regulation Z, which also
same alleged violation, litigation
provides state exemption procedures;
expense could be increased; the
increase probably would be small since
the same alleged violation is involved.
Written Applications and Collection of
Monitoring Data
Provisions in section 202.5 of the
proposed rule will for the first time
require covered creditors to take written
applications for certain housing-related
loans.1In addition, creditors would be
required by section 202.13 to collect
monitoring data on the race and other
personal characteristics of applicants
for these housing-related loans.2
Regulation B presently requires creditors
to request information from applicants
regarding their race, sex, age and
marital status only on written
applications for a home purchase loan to
be secured by the property. The current
regulation does not require written
applications for mortgage loans, nor
does it require loan officers to note
information on the personal
characteristics (race/national origin,
sex) of loan applicants if the customer
does not volunteer such information
upon request.
The proposed rule changes, to require
written applications and to collect
monitoring data, are expected to
enhance consumer protection through
more effective enforcement. They would
also provide greater uniformity.
Currently, banks and savings and loans
regulated by the FDIC, the OCC, and the
FHLBB are required by rules established
by these agencies to take written
applications and to collect monitoring
data on most housing-related
loans.3Commercial banks regulated by
the Federal Reserve System (FRS) are
not presently required to take written
applications nor record monitoring data
if not provided voluntarily by the
applicant. Federally chartered credit
unions are required by the National
Credit Union Administration to take
written applications but are not required
to collect monitoring data. Mortgage
bankers are not currently required to
take written applications. However,
since these firms generally sell loans
they originate in the secondary market,
they typically use standardized written
1 Section 202.5 provisions would require written
applications for credit requests covering loans
primarily for the purchase, construction/permanent
financing, repair or improvement of a dwelling
occupied or to be occupied by the borrower as a
principal residence. Only applications where the
extension of credit will be secured by the dwelling
are covered in the proposed rule.
2Data to be collected include race/national
origin, sex, martial status and age of all applicants.
3 Regulation B currently allows agencies charged
with ECOA enforcement responsibilities to
establish their own rules regarding the collection of
monitoring data.
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
application forms as a matter of course.
Consequently, the proposed rules are
unlikely to have a significant impact on
these firms.
Current ECOA enforcement
techniques call for the consumer
compliance examiners to use all
available data to test for the presence or
absence of discrimination on a
prohibited basis, such as race, sex,
marital status or national origin. The
primary data for examiners are creditor
loan files. In the case of the banks
supervised by the Federal Reserve
System, the absence of written
applications and information on
personal characteristics of loan
applicants in many cases substantially
reduces the examiners’ ability to
perform tests for possible
discrimination.4Adoption of the
proposed rules would therefore enhance
consumer potection by facilitating more
effective enforcement.
The extent to which the proposed rule
would enhance consumer protection is
uncertain. For example, the FDIC, OCC
and FHLBB have cited a very small
number of creditors for discrimination
on the basis of race or national origin
even though these agencies have access
to written applications and monitoring
data. The inability to detect ECOA
violations may reflect widespread
creditor compliance with ECOA
provisions. To some extent the low
number of violations may indicate that
discrimination is effectively deterred by
creditors’ knowledge that examiners
have access to written applications and
monitoring data. Under these
circumstances, the number of cases of
actual discrimination detected by
examiners would likely be small. To the
extent the deterrent effect is important,
adoption of the proposed rule would
enhance consumer protection.
A further benefit of the proposed rule
changes would be greater uniformity
among the regulatory agencies. As a
consequence, companies subject to
monitoring requirements of more than
one regulatory agency would benefit to
the extent they would be able to use
uniform application forms and employee
training procedures for all banks in their
company.
Since most creditors are currently
covered by rules that require written
housing-related loan applications and
the collection of monitoring data, the
proposed rule changes are unlikely to
impose significant costs on covered
institutions. The creditors most likely to
4 Survey results indicate that in 1980 about 25
percent of applications for housing-related loans
from banks examined by the Federal Reserve did
not contain monitoring data.
be affected by the proposed rule
changes are banks supervised by the
Federal Reserve System and credit
unions. According to information
available to the Board, most state
member banks currently use written
applications for housing-related loans. It
is estimated that about 10 percent of the
FRS supervised banks do not take
written applications on such loans; most
of these are small banks. Mortgage and
home improvement loan application
forms available from the Federal Home
Loan Mortgage Corporation or from the
Federal National Mortgage Association
cost about 20 cents per form.5 Using
data collected pursuant to the Home
Mortgage Disclosure Act, it is estimated
that state member banks received about
80,000 mortgage and home improvement
loan applications in 1983. Therefore, the
estimated total cost of forms for written
applications for these types of loans for
all member banks is approximately
$16,000 a year. The actual cost to obtain
forms because of the proposed rule
would be less to the extent member
banks already take written
applications.6
The proposal to require collection of
monitoring data also imposes costs on
creditors. Costs include employee
training expenses and costs to modify
existing written application forms if the
monitoring data is to be included on the
loan application form, or costs to print
and store for record retention a separate
form with the required monitoring data.
A final cost associated with a
requirement to collect monitoring data
involves the loss of personal privacy
some loan applicants may feel if
creditors note their personal
characteristics even though they choose
not to voluntarily supply such
information. Such costs are difficult to
quantify. However, information
available to the Board indicates that in
1980 at least 10 percent of the applicants
for housing-related loans at state
member banks refused to voluntarily
provide monitoring data when asked to
do so. Presumably, these individuals are
the most likely to be offended by the
proposed rule change.
Incomplete Applications
The current rule requires that adverse
action notification be given when
10897
reasonable efforts by creditors to obtain
missing information regarding an
application fail to elicit a response from
the applicant. Under the proposal,
creditors would not be required to
provide adverse action notification if the
applicant does not supply the
information needed to complete the
application within a reasonable period.
As a consequence, creditors would need
to provide one less notice in these
circumstances, reduced since applicants
who do not respond in a reasonable
time period to a creditor’s request for
additional information probably are no
longer interested in the loan from that
creditor, or expect to be denied credit
based on the lender’s evaluation of that
additional information.
Record Retention of Withdrawn
Applications
Under the current rule, there are no
record retention requirements with
respect to applications expressly
withdrawn by the applicant. As a result,
consumer compliance examiners are
unable to determine whether some
creditors are misclassifying denied
applications as withdrawn. The absence
of records on withdrawn applications
hampers an examiner’s investigation of
an unusally low application denial rate
which the creditor claims reflects a high
rate of withdrawn applications.
Therefore, the proposal to require record
retention of applications withdrawn by
the applicant may increase the
effectiveness of enforcement.
If the proposal were adopted, most
creditors would incur costs to expand
record storage space for applications
expressly withdrawn by the applicant.
The cost per record of additional storage
space will vary among creditors
depending on record storage technology
(mechanical versus electronic) and
current storage capacity utilization. If
examiners are correct in their belief that
in general there are few nonbusiness
applications expressly withdrawn by
applicants relative to denials, then
compliance costs of the proposal would
be small for most creditors. Business
applications expressly withdrawn
would not have to be retained under the
proposal because of the business credit
provisions in section 202.3.
Small Entities
5 The proposed regulation would not require
creditors to use these specific application forms;
however, use of these forms would satisfy the
requirement to use written application forms.
6 Available evidence indicates that many small
banks do not currently use written applications.
Consequently, the proposed rule requiring creditors
to take written applications will have a
disproportionate (although small) effect on smaller
creditors.
Recent research on compliance costs
for consumer protection regulations
suggests that the smallest commercial
banks have incurred the greatest
compliance costs per account (see
appendix A). Similarly, the potential
compliance costs associated with some
of the proposed revisions to the
10898
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
regulation would tend to fall
disproportionately on the smallest
banks. In particular, the proposed
requirement that creditors take written
applications for dwelling-related credit
would create additional costs for
creditors who currently do not do so.
According to the Board’s consumer
compliance examiners, about 10 percent
of the FRS supervised banks would need
to start using written application
procedures, and most of these banks are
relatively small. Although this proposal
rule will have a s6mewhat harsher effect
on small banks, the marginal costs of
this new requirement are not likely to be
large for any creditor.
Overall, the proposed revisions to
Regulation B are unlikely to have a
significant impact on small creditors’
compliance costs.
A Summary of an FRB Study of
Economies of Scale in the Cost of
Complying With the TILA and ECOA
(Appendix A)
This appendix summarizes the
implications for the Regulation B review
of a recent study of economies of scale
in the cost of complying with the Truth
in Lending and Equal Credit Opportunity
law.7
The data for the study are from a 1981
survey of financial institutions
conducted by the Federal Reserve Board
to determine compliance costs
associated with selected consumer
protection laws. Compliance costs in the
survey are reported for eight functional
areas of banks’ operations: (1)
Administration; (2) labor; (3) training of
officers and nonofficers; (4) legal
services; (5) printing or notices; (6)
postage; (7) premises, furniture, supplies,
and equipment; and (8) other costs.8
Compliance costs were not estimated for
the specific Regulation B provisions
under review. Nonetheless, by
considering the impact of specific
provisions on activities in these
functional areas, some general
conclusions on the effect of the
Regulation B proposals can be obtained.
The study examines economies of
scale in compliance costs for
Regulations Z and B combined. Only
about one-third of the respondents
reported compliance costs for
Regulations Z and B separately.
’ G. Elliehausen and R. Kurtz, “Economies of
Scale in the Cost of Complying with the Truth in
Lending and Equal Credit Opportunity Laws,"
Working Paper, Board of Governors of the Federal
Reserve System, March 1984.
'The survey does not attempt to measure
opportunity costs such as changes on loan losses
due to information restrictions in credit evaluations
or signature restrictions that affect contractual
liability or availability of collateral.
Consequently, the number of cases was
too small to permit statistical analysis of
each regulation separately. The major
finding of the study is that there are
economies of scale in compliance costs
for these regulations for commercial
banks at levels of output up to 375,000
consumer credit accounts, beyond which
there are small diseconomies of scale.
At the lowest output levels, there are
large unexploited scale economies. This
suggests that the regulations impose a
competitive disadvantage on banks with
small consumer credit portfolios. The
implication for the Regulation B review
is that there is a need to evaluate
changes to regulatory requirements in
terms of the relative burden on creditors
with different consumer credit portfolio
size.
The survey results indicate that labor
and administration expenses account for
about 50 to 70 percent of total
compliance costs at all levels of output
and that compliance costs increase
about proportionately with wage rates,
suggesting that compliance activities for
Regulations Z and B are labor intensive.
However, administrative costs account
for smaller shares of compliance costs at
moderate and higher output levels. This
result suggests that scale economies
may arise from a more efficient use of
high cost administrative personnel at
banks with larger consumer credit
portfolios. The implication for the
Regulation B review is that the
disproportionate impact of the
regulation can be reduced by designing
requirements that can be performed
routinely by nonadministrative
personnel and that do not require a high
level of supervision or monitoring.
Respondents to the survey were asked
for their perception of the most costly
regulatory requirement in Regulation B.
They reported the most costly
requirement in Regulation B to be
adverse action notification. The
implication for the Regulation B review
is that compliance costs might be
reduced if unnecessary adverse action
notices could be eliminated or
requirements modified to allow creditors
to provide notices at lower cost.
A Summary of FRB Studies of
Consumer Perceptions of Discrimination
and Effectiveness of the ECOA
(Appendix B)
Since passage of the ECOA, a number
of researchers have attempted to
examine credit market conditions before
passage of the antidiscrimination law.
Unfortunately, their efforts have been
hampered by a lack of adequate data.9
8 The following statistical studies provide
information on discrimination in consumer credit
The unavailability of adequate data for
testing for the existence of
discrimination has led researchers to
use survey data to study consumers'
perceptions of discrimination.
Perceptions of discriminatory treatment
cannot be regarded as proof that
discrimination exists or does not exist,
but perceptions may reflect consumers’
experience and provide some
information on the extent of any
problems.
In 1981-82, the Federal Reserve Board
sponsored survey questions to update
and expand on information on
perceptions of discrimination from the
1977 Consumer Credit Survey. First,
respondents were asked to identify
variables that they thought were
important to creditors in deciding to
grant credit. Applicants’ credit and
financial characteristics were mentioned
most frequently as important variables
in both 1981-82 and 1977, while personal
characteristics such as age, race, sex,
and marital status were mentioned
relatively infrequently (less than 10
percent of mentions). Although
respondents belonging to ECOAprotected groups were more likely than
nonprotected respondents to believe
that personal characteristics were
important to creditors, most ECOAprotected respondents did not believe
that personal characteristics were very
important to creditors in deciding
whether to grant credit. In both surveys,
ECOA-protected respondents generally
believed that credit would be more
difficult to obtain than other groups of
consumers. However, ECOA-protected
groups were less likely to believe credit
would be difficult to obtain in 1981 than
in 1977.
A second series of questions asked
respondents about credit tumdowns and
limitations. Responses to the 1981-82
and 1977 surveys are virtually identical.
Only a few respondents reported that
personal characteristics were given as
reasons for credit tumdowns and
markets: J. Marshall, “Discrimination in Consumer
Credit,” in A.A. Heggestad and J.J. Mingo, eds., The
Costs and Benefits of Public Regulation of
Consumer Financial Services (Abt Associates 1979);
R.L. Peterson, “An Investigation of Sex
Discrimination in Commercial Banks’ Direct
Consumer Lending," Bell Journal of Economics, vol.
12 (Autumn 1981), pp. 547-561; R.B. Avery,
“Discrimination in Consumer Credit Markets,”
Research Papers in BankiRg and Financial
Economics (Board of Governors of the Federal
Reserve System, Division of Research and
Statistics, Financial Studies Section, 1982); and
W.K. Brandt and R.P. Shay, "Consumer Perceptions
of Discriminatory Treatment and Credit Availability
and Access to Consumer Credit Markets,” in
Federal Reserve Bank of Boston, The Regulations of
Financial Institutions, Conference Series No. 21,
1979.
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
limitations. When asked directly
whether their age, race, nationality, sex.
or marital status may have been a
factor, over three-fourths of the
respondents who were turned down or
limited indicated that they did not
believe that these characteristics were
factors in the creditors’ decision.
In order to obtain information about
possible creditor screening, respondents
to the 1981-82 surveys were asked
whether they thought about using credit
but did not apply because they expected
that they might be turned down. About
10 percent of respondents reported that
they thought about applying for credit.
In most cases, the reasons respondents
thought they would be turned down
were related to their credit history or
financial characteristics. Personal
characteristics were seldom involved. In
about a quarter of the cases,
respondents indicated that the creditor
suggested that a turndown might occur.
Respondent to the 1981-82 surveys
were also asked about the usefulness of
disclosure of reasons for adverse action.
Although approximately half of the
respondents who had been turned down
or limited reported that they had thought
a turndown or limitation might happen,
for the reasons given, nearly threefourths of those who had been turned
down or limited indicated that
knowledge of the reasons for adverse
action had been useful to them.
Respondents indicated that the reasons
given were helpful because they wanted
to know why they were turned down
and to understand the credit granting
process. But respondents also reported
that the reasons given were often not
specific enough or did not tell them
anything they did not know already.
Respondents were also asked about
the usefulness of the written disclosure
statement. Receipt of a written
statement apparently was not as
important to consumers as knowledge of
reasons for adverse action. Respondents
who reported that they did not receive a
written statement were just as likely as
those who received written statements
to say that knowledge of reasons for
adverse action had been useful.
However, about half of those receiving a
written statement indicated that the
written statement was not useful, and a
third reported that verbal information
was just as good as a written statement.
(4) Discussion o f proposed official
sta ff commentary. The Board is
publishing a proposed commentary on
the regulation. The final commentary
will be issued as an official staff
interpretation providing creditors with
protection under section 706(e) of the
Equal Credit Opportunity Act. Under
that section, creditors acting in
conformity with an official staff
interpretation are protected from
liability for violations arising from those
actions.
The commentary format follows that
already used for other Board regulations
such as Regulation Z (Truth in Lending),
and Regulation M (Consumer Leasing).
The commentary will replace all existing
staff interpretations, both official and
unofficial, and official Board
interpretations, that have been issued in
response to individual inquiries or fact
situations. Thus the commentary will
replace six existing Board
interpretations, thirteen official staff
interpretations, and fifteen informal
staff letters. The commentary will be the
sole vehicle for interpreting the
regulation.
As is the case with other staff
commentaries, this commentary will
give more general guidance, rather than
the specific guidance given in letters. It
is designed, however, to assist creditors
in applying the regulation to specific fact
situations. Further, the commentary uses
material of general application to be
useful to the widest possible audience.
Following the format used in the
commentary to Regulation Z, each
paragraph in the commentary is
identified by the relevant section, and in
some cases by subsection, of the
regulation. For example, commentary to
§ 202.4 is labeled 4-1 while commentary
to § 202.7 is further broken down and
designated according to the particular
subsection addressed, such as
comments 7(c)-l and 7(d)(2)-l. Unlike
the commentary to Regulation Z, the
commentary to Regulation
The Board has previously determined
that several state laws are not
preempted by the ECOA and Regulation
B. These nonpreemption determinations
relate to laws that deal with the age of
majority, notices to unmarried cosigners,
and Spanish language translations of
credit documents. Following the rule in
Regulation Z, the Board proposes to
include in the commentary only those
determinations that result in the
preemption of a state law or regulation.
Consequently, the nonpreemption
determinations are being omitted from
the proposed staff commentary.
Three other Board interpretations—
202.601, 202.801, and 202.901—have been
integrated into the proposed staff
commentary.
*
Official staff interpretation EC-0009
has been incorporated into the text of
section 202.3(d) of the regulation, which
now makes clear that a creditor that
denies a business credit application
must give the applicant notice of that
denial within a reasonable time.
10899
Certain official staff interpretations
have been omitted for various reasons.
Interpretation EC-0001, which
addressed the requirements for sending
credit history notices by June 1977, is
obsolete. Interpretation EC-0004 is being
omitted because the subject matter—the
application of state laws governing
graduated rates, maximum loan ceilings,
and rate splitting—does not appear to
warrant the amount of detailed
treatment provided in that letter.
Others have been omitted because
they appear to have limited
applicability: EC-0011, which concluded *
that Regulation B generally does not
apply to a lending operation carried on
by a foreign corporation making loans
solely outside the United States; and
EC-0010, which dealt with the
permissibility of inquiries about a
potential customer's religion by a seller
of religious books.
Interpretations that approved certain
creditor forms—EC-0012 and EC-0015—
are being incorporated into the
commentary to Appendix B, which will
become the vehicle for approving credit
application forms used or distributed by
federal or state agencies or federally
chartered operations. EC-0013 related to
^ form no longer in use, and is omitted.
The answers provided in the other
official staff interpretations have served
as the basis for the sections of the
proposed staff commentary to which
they relate. Material from some of the 15
staff opinion letters originally published
as public information letters also has
been used.
Comment is welcomed on the
substance of the material contained in
the proposed commentary and on any
material which creditors believe should
also be included. Commenters are
encouraged to focus on material of
particular interest to them, and need not
address every provision.
List of Subjects in 12 CFR Part 202
Banks, Banking, Civil rights,
Consumer protection, Credit, Federal
Reserve System, Marital status
discrimination, Minority groups.
Penalties, Religious discrimination, Sex
discrimination, Wompn.
(5) Regulatory text. Certain
conventions have been used to highlight
the proposed revisions (except in
sections that have been revised in their
entirety). New language is shown inside
bold-faced arrows, while language that
would be deleted is set off with
brackets.
10900
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
PART 202—[AMENDED]
Pursuant to the authority granted
under section 703 of the Equal Credit
Opportunity Act (15 U.S.C. 1691b), the
Board proposes to amend 12 CFR Part
202 as follows:
1.12 CFR Part 202 would be amended
by removing the word “Part” every
place it appears and inserting in its
place the word “regulation"; by
removing the word “subsection" every
place it appears and inserting in its
place the word “paragraph”; and by
removing footnotes 1, 2, 3, 5, 6, and 8
through 19 and redesignating footnotes 4
and 7 as footnotes 1 and 2, respectively.
2. Section 202.1 would be revised to
reads as follows:
► § 202.1 Authority, scope and purpose.
(a) Authority and scope. This
regulation is issued by the Board of
Governors of the Federal Reserve
System pursuant to Title VII (Equal
Credit Opportunity Act) of the
Consumer Credit Protection Act, as
amended (15 U.S.C. 1601 et seq.). Except
as otherwise provided herein, it applies
to all persons who are creditors, as
defined in § 202.2(1). Informationcollection requirements contained in this
regulation have been approved by the
Office of Management and Budget under
the provisions of 44 U.S.C. 3501 et seq.
and have been assigned OMB No. 71000192.
(b) Purpose. The purpose of this
regulation is to require creditors to make
credit equally available to all
creditworthy customers without regard
to race, color, religion, national origin,
sex, marital status, or age (provided the
applicant has the capacity to contract);
the fact that all or part of the applicant’s
income derives from any public
assistance program; or the fact that the
applicant has in good faith exercised
any right under the Consumer Credit
Protection Act. The regulation prphibits
certain creditor practices that would
discriminate on the basis of one of these
factors. The regulation also requires
creditors to notify applicants of action
taken on their applications, to report
credit history in the names of both
spouses on an account, and to retain
records of credit applications. To assist
enforcement efforts, the regulation
requires creditors to collect monitoring
information for certain loans in which
the creditor takes a security interest in
the applicant’s principal dwelling, d
3. Section 202.2 would be amended by
revising the title and paragraphs (e), (f),
and (p); removing existing paragraphs
(aa), (cc), and (dd); and redesignating
paragraph (bb) as paragraph (aa), to
read as follows:
S 202.2 Definitions [and rules of
construciton],
*
*
*
*
*
(e) Applicant means any person who
requests or who has received an
extension of credit from a creditor, and
includes any person who is or may
[ b e ] ► b e c o m e s contractually liable
regarding an extension of credit [other
than a guarantor, surety, endorser, or
similar party]. ► T h e term includes
guarantors, sureties, endorsers and
similar parties.
(f) Application means an oral or
written request for an extension of
credit that is made in accordance with
procedures established by a creditor for
the type of credit requested. The term
does not include the use of an account
or line of credit to obtain an amount of
credit that does not exceed a previously
established credit limit. A completed
application for credit means an
application in connection with which a
creditor has received all the information
that the creditor regularly obtains and
considers in evaluating applications for
tHe amount and type of credit requested
(including, but not limited to, credit
reports, any additional information
requested from the applicant, and any
approvals or reports by governmental
agencies or other persons that are
necessary to guarantee, insure, or
provide security for the credit or
collateral)**.<4[; provided, however,
that the creditor has exercised] ►T h e
creditor shall exerciser reasonable
diligence in obtaining such information.
[W here an application is incomplete
respecting matters that the applicant
can complete, a creditor shall make a
reasonable effort to notify the applicant
of the incompleteness and shall allow
the applicant a reasonable opportunity
to complete the application.]
* * * * *
(p) Empirically derived >-and
other ^cred it system *-s m . (1) [The
term means a ] ► A - * credit scoring
system ^ i s any system s that evaluates
an applicant’s creditworthiness
[primarily by allocating points (or by
using a comparable basis for assigning
weights) to] ►mechanically, based
o n d key attributes describing the
applicant and other aspects of the
transaction [. In such a system, the
points (or weights) assigned to each
attribute, and hence the entire score:
(i) Are derived from an empirical
comparison of sample groups or the
population of creditworthy and non
creditworthy applicants of a creditor
who applied for credit within a
reasonable preceding period of time;
and
(ii) Determine] ► , and that
determines <4, alone or in conjunction
with an evaluation of additional
information about the applicant,
whether an applicant is deemed
creditworthy.
(2) A ^-n empirically derived, ■<
demonstrably and statistically sound [,
empirically derivedj credit system is a
system:
(i) d in which the data are derived
from an empirical comparison of sample
groups or the population of credit
worthy and noncreditworthy applicants
of a creditor who applied for credit
within a reasonable preceding period of
time; a n d ^ [in which the data used to
develop the system, if not the complete
population consisting of all applicants,
are obtained from the applicant file by
using appropriate sampling principles;]
(ii) Which is developed for the
purpose of [predicting] devaluating^
the creditworthiness of applicants with
respect to the legitimate business
interests of the creditor utilizing the
system, including, but not limited to,
minimizing bad debt losses and
operating expenses in accordance with
the creditor’s business judgment;
(iii) Which [, upon validation using
appropriate statistical principles,
separates creditworthy and non
creditworthy applicants at a statistically
significant rate;] d is developed using
acceptable statistical principles and
methodology;^ and
(iv) Which is periodically revalidated
as to its predictive ability by the use of
appropriate statistical principles dan d
methodology^ and is adjusted as
necessary to maintain its predictive
ability.
(3) A creditor may use [ a ] d a n
empirically derived,► demonstrably
and statistically sound [, empirically
derived] credit system obtained from
another person or may obtain credit
experience from which such a system
may be developed. Any such system
must satisfy the tests set forth in
[subsection (1) and] ^paragraph (p)^
(2); provided that, if a creditor is unable
during the development process to
validate the system based on its own
credit experience [in accordance with
subsection (2)(iii), then] the system
must be validated when sufficient credit
experience becomes available. A system
that fails this validity test shall
[henceforth be deemed not to be a ]
d n o longer be an empirically derived, ►
demonstrably and statistically sound [,
empirically derived] credit system for
that creditor.
* * * * *
[(aa) Public assistance program
means any Federal, State, or local
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
governmental assistance program that
provides a continuing, periodic income
supplement, whether premised on
entitlement or need. 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 Income, and
unemployment compensation. J
£(bb)J d ( a a ) ^ State means any
state, the District of Columbia, the
Commonwealth of Puerto Rico, or any
territory or possession of the United
States.
[(cc) Captions and catchlines are
intended solely as aids to convenient
reference, and no inference as to the
substance of any provision of this Part
may be drawn from them.
(dd) Footnotes shall have the same
legal effect as the text of the regulation,
whether they are explanatory or
illustrative in nature.J
4. Section 202.3 is amended as
follows”
A. Paragraph (a) introductory test,
(a)(1) and (a)(2) would be removed, new
(a)(2) introductory text would be added,
B. Paragraph (b) introductory text
would be revised and redesignated as
paragraph (a)(1), paragraph (b) (1), (2)
and (3) would be redesignated as
paragraphs (a)(2) (i), (ii) and (iii), new
paragraph (b)(2) introductory text would
be added,
C. Paragraph (c) introductory text
would be revised and redesignated as
paragraph (b)(1), paragraph (c)(l)-(8)
would be redesignated as (b)(2)(i)-(viii),
new paragraph (c)(2) introductory text
would be added,
D. Paragraph (d) introductory text
would be revised and redesignated as
paragraph (c)(1), paragraph (d)(1)—(8)
would be redesignated as paragraph
(c)(2)(i)-(viii),
E. New paragraph (d) would be added,
paragraph (e) would be revised and
paragraph (f) would be removed.
§ 202.3 Limited exceptions for certain
classes of transactions.
(a) Public utilities credit.—(1)
Definition. For purposes of this section,
public utilities credit refers to
extensions of credit that involve public
utility services provided through pipe,
wire, or other connected facilities, or
radio or similar transmission (including
extentions of such facilities), if the
charges for service, delayed payment,
and any discount for prompt payment
are filed with or regulated by any
government unit.
(2) Exceptions. The following
provisions of this regulation shall not
apply to public utilities credit:-^ * * *
► ( b ) Securities credit.—(1) Definition.
For purposes of this section, securities
credit refers to extensions of credit
subject to regulation under section 7 of
the Securities Exchange Act of 1934 or
extensions of credit by a broker or
dealer subject to regulation as a broker
or dealer under the Securities Exchange
Act of 1934.
(2) Exceptions. The following
provisions of this regulation shall not
apply to securities credit: d * * *
► (c) Incidental Credit.—(1)
Definition. For purposes of this section,
incidential credit refers to extensions of
consumer credit, other than of the types
described in paragraphs (a) and (b) of
this section:
(1) That are not made pursuant to the
terms of a credit card account;
(ii) On which no finance charge as
defined in § 226.4 of this Title
(Regulation Z, 12 CFR 226.4) is or may
be imposed; and
(iii) That are not payable by
agreement in more than four
installments.
(2) Exceptions. The following
provisions of this regulation shall not
apply to incidental credit: d * * *
► (d) Business credit.—(1) Definition.
For purposes of this section, business
credit refers to extensions of credit
primarily for business or commercial
purposes, including extensions of credit
primarily for agricultural purposes, but
excluding extensions of credit of the
types described in paragraph (a) and (b).
(2) Exceptions. The following
provisions of this regulation shall not
apply to business credit:
(i) Section 202.5(d)(1) concerning
information about marital status; and
(ii) Section 202.10 relating to
furnishing of credit information.
(3) M odified requirements. The
following provisions of this regulation
apply to business credit as specified
below:
(i) Section 202.9 (a) and (b) relating to
notifications: the creditor shall notify
the applicant, orally or in writing, when
credit is denied or when other adverse
actions have been taken; the creditor
need provide a written statement of the
reasons and the ECOA notice specified
in section 202.9(b) only if the applicant
makes a written request for the reasons
within 30 days of that notification;
(ii) Section 202.12(b) relating to record
retention: the creditor shall retain
records as provided in § 202.12(b) if the
applicant, within 90 days after
notification that adverse action has
been taken, requests in writing that
records be retained.
(e) Governmental credit.—(1)
Definition. For purposes of this section,
governmental credit refers to extensions
10901
of credit made to governments or
governmental subdvisions, agencies, or
instrumentalities.
(2) Applicability o f regulation. Except
for § 202.4, the general rule prohibiting
discrimination on a prohibited basis, the
requirements of this regulation do not
apply to governmental credit, m
* * * * *
5.
Section 202.5 would be amended by
revising paragraphs (b)(2), (b)(3), (d)(2),
and (e); revising footnote 1 to paragraph
(b)(1); revising the headings for the
section and for paragraphs (b), (d), and
(e): and adding headings to paragraphs
(b)(2),(b)(3),(c)(2),(c)(3), and (d)(1)
through (d)(5), to read as follows:
§ 202.5 Rules concerning ► taking of m
applications.
(b) [ General rules"\ Rules concerning
requests for information. (1) Except as
otherwise provided in this section, a
creditor may request any information in
connection with an application.1
(2) ► Exception for required collection
o f information, d Notwithstanding [any
other provision of ] ► t h e limitations
imposed b y d this section, a creditor
shall request ►inform ation aboutd an
applicant’s race/national origin, sex,
and marital status ► f o r monitoring
purposes^ as required in § 202.13
[(information for monitoring
purposes)] ► f o r credit related to
certain loans secured by the applicant’s
dwellings. In addition, a creditor may
obtain such information as may be
required by a regulation, order, or
agreement issued by, or entered into
with, a court or an enforcement agency
(including the ►U .S .d Attorney
General or a similar state official) to
monitor or enforce compliance with the
act, this regulation, or other federal or
state statute or regulation.
(3) [The provisions of this section
limiting permissible information
requests, are subject to the provisions of
§ 202.7(e) regarding insurance and
§ 202.8 (c) and (d) regarding special
purpose credit programs.] * Exception
for special purpose credit. A creditor
may also obtain information that is
otherwise restricted to determine
eligibility for a special purpose credit
program, as provided in § 202.8. m
(c) Information about a spouse or
former spouse. * * *
(2) * Permissible inquiries,
* * *
'This [subsection is not intended to] ►d o e s
not <4 limit or abrogate any federal or state law
regarding privacy, privileged information, credit
reporting limitations, or similar restrictions on
obtainable information. [Furthermore, permission
to request information should not be confused with
how it may be utilized, which is governed by §202.6
(rules concerning evaluation of applications).]
10902
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
(3) ►O fA er accounts o f the
applicant. M * * *
(d) [ Information a creditor m ay not
request] ^O th e r limitations on
information requests, s — [1)^ Marita I
status. s * * *
(2) ► Disclosure about income from
alimony, child support, separate
maintenance. s A creditor shall not
inquire whether any income stated in an
application i$ derived from alimony,
child support, or separate maintenance
payments, unless the creditor
appropriately discloses to the applicant
that such income need not be revealed if
the applicant does not desire the
creditor to consider such income in
determining the applicant’s
creditworthiness. Since a general
inquiry about income, without further
specification, may lead an applicant to
list alimony, child support, or separate
maintenance payments, a creditor shall
provide an appropriate notice to an
applicant before [inquiring] ►m aking
such an inquiry s about the source of an
applicant’s i n c o m e [ ,] ^ .s [unless the
terms of the inquiry (such as an inquiry
about salary, wages, investment income,
or similarly specified income) tend to
preclude the unintentional disclosure of
alimony, child support, or separate
maintenance payment.]
(3) ► Sex.M * * *
(4) ► Childbering, childrearing. s
*
*
*
(5) ► Race, color, religion, national
origin. s * * *
(e) [Application form s.] ► Written
applications. A creditor shall take
written applications for the types of
credit covered by section 202.13(a).s A
creditor need not [u s e ] ►ta k e -*
written applications ► f o r other types of
credits. If a creditor [chooses to use]
►u s e s -* [w ritten] ►a p p lic a tio n s
forms, it may design its own ► forms s ,
use forms prepared by another person,
or use the appropriate model application
forms contained in Appendix B. [If a
creditor chooses to use an Appnedix B
form, it may change the form:
(1) By asking for additional
information not prohibited by this
section:
(2) By deleting any information
request: or
(3) By rearranging the format without
modifying the substance of the inquiries;
provided that in each of these three
instances the appropriate notices
regarding the optional nature of courtesy
titles, the option to disclose alimony,
child support, or separate maintenance,
and the limitation concerning marital
status inquiries are included in the
appropriate places if the items to which
they relate appear on the creditor’s
form. If a creditor uses an appropriate
Appendix B model form or to the extent
that it modifies such a form in
accordance with the provisions of
clauses (2) or (3) of the preceding
sentence or the instructions to Appendix
B, that creditor shall be deemed to be
acting in compliance with the provisions
of subsections (c) and (d)].
6. Section 202.6 would be amended by
revising paragraph (b)(5): revising
footnote 2 to paragraph (a); and adding
headings to paragraphs (b)(2) through
(b)(7), to read as follows:
applicant who is contractually liable i f s
the credit granted was based ► i n whole
or in p a r ts on income [earned by]
► o f s the applicant's spouse ► a n d s if
►inform ation available to the creditor
indicates th a ts the applicant’s income
[alone at the time of the original
application would] ► m a y s not
support the [amount of] ► c u r r e n t s
credit [currently extended.] ► l i m i t .s
(d) Signature o f spouse or other
person.—(1) ►f l u /e for qualified
applicant, s * * *
(2) ► Unsecured credit, s If an
§ 202.6 Rules concerning evaluation of
applicant requests unsecured credit and
applications.
relies in part upon property [to
(a) General rule concerning use of
establish creditworthiness, a creditor
information. * * *2
may consider state law; the form of
(b) Specific rules concerning use of
ownership of the property; its
information. * * *
susceptibility to attachment, execution,
(2) >-Age, receipt o f public
severance, and partition; and other
assistance .s * * *
factors that may affect the value to the
(3) ► Childbearing,
creditor of the applicant’s interest in the
childrearing. s * * *
property. If necessary] ► t h a t the
(4) ► Telephone listing, s * * *
applicant owns jointly with another
(5) Income. * * * [Factors that a
creditor may consider in determining the p ersons to satisfy the creditor’s
standards of creditworthiness, the
likelihood of consistent payments
creditor may require the signature of the
include, but are not limited to, whether
[applicant’s spouse o r] other person
the payments are received pursuant to a
► o n l y s on [any instrument] ► t h e
written agreement or court decree; the
instrument(s)s [necessary, or
length of time that the payments have
reasonably believed by the creditor to
been received; the regularity of receipt;
be necessary, under applicable State
the availability of procedures to compel
law to make the property relied upon
payment; and the creditworthiness of
the payor, including the credit history of available to satisfy the debt in the event
of default.] ►th a t , under the law of the
the payor where available to the
state in which the property is located,
creditor under the Fair Credit Reporting
would enable the creditor to reach the
Act or other applicable laws.]
(6) Credit history. M * * *
property being relied upon in the event
(7) ► Immigration status. s * * *
of the death or default of the
* * * * *
applicant, s
(3) ^-Unsecured credit—community
7. Section 202.7 would be amended by
property state, s * * *
revising paragraphs (c)(2), (d)(2), (d)(5),
(4) * Secured credit, s * * *
and (e); adding a new paragraph (d)(6);
(5) Guarantors, co-signers, s * * *
and adding headings to paragraphs
[For the purposes of subsection (d), a
(c)(1), (d)(1), (d)(3), and (d)(4) to read as
creditor shall not impose requirements
followrs:
upon an additional party that the
§ 202.7 Rules concerning extensions of
creditor may not impose upon an
credit.
applicant.]
* * * * *
►
(6) Rights o f guarantors, co-signers.
(c) Action concerning existing open
For the purposes of this paragraph, a
end accounts.
creditor shall not impose requirements
(1) ^Lim itations, s * * *
upon a guarantor, co-signer, or similiar
(2) ► Requiring reapplication. s A
additional party that the creditor is
creditor may require a reapplication
prohibited from imposing upon an
regarding an open end account on the
ap p lica n ts
basis of a change in [a n applicant’s ]
(e) Insurance. ►Differentiation in the
► t h e s marital status [w h ere] ► o f an
availability, rates, and terms on which
credit-related casualty insurance or
2 The legislative history of the act indicates that
credit life, health, accident, or disability
the Congress intended An "effects test" concept, as
insurance is offered or provided to an
outlined in the employment field by the Supreme
applicant shall not constitute a violation
Court in the cases of Griggs v. Duke Power Co., 401
U.S. 424 (1971), and Albemarle Paper Co. v. Moody.
of the Act of this Part; but a ] ► A s
422 U.S. 405 (1975), to be applicable to a creditor’s
creditor shall not refuse to extend credit
determination of creditworthiness. [See Senate
and shall not terminate an account
Report to accompany H.R. 6516, No. 94-589, pp. 4-5;
because credit life, health, accident,
House Report to accompany H.R. 6516, No. 94-210,
p. 5.J
[ o r ] disability ► , or other credit-
Federal Registei / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
10903
applicant if the applicant during those 90
re la ted s insurance is not available on
origin, or s e x )s and if the [special
days has not expressly, accepted or
the basis of the applicant’s age.
purpose credit] program otherwise
[Notwithstanding any other provision
satisfies the requirements of pargraph
used the credit offered;
of this Part, information about the age,
(a), then, notwithstanding the
(2) Content o f notification ► when
sex, or marital status of an applicant
prohibitions of §§ 202.5 and 202.6, the
credit is denied or terminateds . Any
may be requested in an application for
creditor may request of an applicant and notification given to an applicant
insurance.]
may consider, in determining eligibility
[against whom] ►w h e n credit is
8.
Section 202.8 would be amended by for such program, information regarding
denied or when o th e rs adverse action
revising paragraphs (a) introductory,
the common characteristic(s). [required
is taken shall be in writing and shall
text (b), and (c), to read as follows:
for eligibility. In such circumstances, the contain: a statement of the action taken;
solicitation and consideration of that
a statement of the provisions of section
§ 202.8 Special Purpose Credit Programs.
information shall not constitute
“701(a) of the act; the name and address
(a) Standards for programs. Subject to unlawful discrimination for the purposes of the federal agency that administers
the provisions of paragraph (b), the act
of the Act or this Part.]
compliance concerning the creditor
and this [part are not violated if]
* * * * *
giving the notification; and
► regulation perm its a creditor
(1) A statement of specific reasons for
9. Section 202.9 is amended as follows:
[refuses] to extend ►sp e c ia l
A. Paragraphs (a)(1) and (a)(2) are
the action taken; or
purposes credit to [ a n ] applicant
revised,
(ii) A disclosure of the applicant's
► s s [solely because the applicant
B. Paragraph (b)(1) introductory text,
right to a statement of reasons within 30
does not qualify under the special]
the flush paragraph at the end of (b)(1)
days [after receipt by the creditor of a
►w h o meet eligiblitys requirements
and (b)(2) are revised. (The sample
request made] ► , if it is requesteds
[that define eligibility for ] ► u n d ers
ECOA notice which follows (b)(1)
within 60 days of [such ] ► t h e
the following types of [special
remains unchanged.)
creditor’s s notification; the disclosure
purpose] credit programs: * * *
C. Paragraphs (b)(3), (d) and (f) are
[ t o ] ► sh a lls include the name,
(b) [ Applicability o f other rules. J
removed,
address,
and telephone number of the
► Rules in other sections, s (1)
D. Paragraph (c) is redesignated as
person or office from which the
► General applicability, s All of the
new paragraph (d), and the heading for
statement of reasons can be obtained. If
provisions of this regulation shall apply
newly designated paragraph (d) is
the creditor chooses to provide the
to each of the special purpose credit
revised, a new paragraph (c) is added,
[statement of] reasons orally, the
programs described in paragraph (a) [to
E. Paragraph (e) is redesignated as
[notification shall also include a
the extent that those provisions are not
paragraph (g),
disclosure of] ►c red ito r shall also
inconsistent w ith] ►e x c e p t as modified
F. Paragraph (a)(3) is redesignated as
discloses the applicant’s right to [have
b y s the provisions of this section.
new paragraph (e), and (a)(4) would be
any
oral statement of reasons] ►h av in g
(2) ►C om m on characteristics.s A
revised and redesignated as new
th em s confirmed in writing within 30
program described in paragraphs (a)(2)
paragraph (f).
days [after a written] ► o f the
or (a)(3) shall qualify as a special
The amended and revised portions of
applicant’s s request [for confirmation
purpose credit program [under
§ 202.9 read as follows:
is received by the creditor].
subsection (a)] only if it was
(b) Form o f ECOA notice and
§202.9 Notifications.
established and is administered so as
not to discriminate against an applicant
(a) Notification o f action taken, ECOA statement o f specific reasons.—(1)
ECOA notice. CA creditor satisfies]
on [the basis of race, color, religion,
notice, and statement o f specific
► T o satisfys the requirements of
national origin, sex, marital status, age
reasons.
paragraph (a)(2) regarding [ a statement
(provided that the applicant has the
(1) Notification o f action taken. A
of] the provisions of section 701(a) of
capacity to enter into a binding
creditor shall notify an applicant of
the act [an d the name and address of
contract), income derived from a public
action taken within:
the
appropriate federal enforcement
assistance program, or good faith
(i) 30 days after receiving a completed
agency if it provides] ► , the creditor
exercise of any right under the
application concerning the creditor’s
shall provides the following notice or
Consumer Credit Protection Act or any
approval [of, or adverse action
one that is substantially similar:
state law upon which an exemption has
regarding,] ► o r denial o f s the
* * * * *
been granted therefrom by the Board;
application [(notification of approval
except that] ► a n y prohibited basis;
[The sample notice printed above may
may be express or by implication,
be modified immediately following the
however, s all program participants
where, for example, the applicant
may be required to share one or more
required references to the federal act
receives a credit card, money, property,
and enforcement agency to include
[o f those] ►c o m m o n s characteristics
or services in accordance with the
references to any similar state statute or
► (for example, race, national origin, or
application)];
s e x )s so long as the program was not
regulation and to a state enforcement
(ii) 30 days after [taking adverse
agency.]
established and is not administered with action on] ► denyings an
the purpose of evading the requirements
(2) Statement o f specific reasons.
[uncompleted] application ► t h a t is
of the act or this regulation.
LA] ► T h e s statement of reasons for
incomplete, unless notice is provided in
(c) Special rule concerning requests
adverse action [sh a ll] ►req uired by
accordance with § 202.9(c)(2)s;
and use o f information. If ail
paragraph (a)(2)(i) m u sts be [sufficient
(iii) 30 days after [taking adverse
participants in special purpose credit
if it is] specific and indicate [ s ] the
action regarding] ►term inating or
program described in paragraph (a) are
principal reason(s) for the adverse
changing adversely the terms o f s an
or will be required to possess one or
action. [A creditor may formulate its
existing account; [a n d ] ► o r s
more common characteristics [relating
(iv) 90 days after [the creditor has
own statement of reasons in checklist or
to race, color, religion, national origin,
letter form or may use all or a portion of
notified] ►n o tify in g s the applicant of
sex, marital status, age, or receipt of
an offer to grant credit other than in
the sample form printed below, which, if
income from a public assistance
substantially the amount or on
properly completed, satisfies the
program] ► ( f o r example, race, national
substantially the terms requested by the
requirements of subsection (a)(2)(i).]
10904
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
Statements that the adverse action was
based on the creditor’s internal
standards or policies or that the
applicant failed to achieve the
qualifying score on the creditor's credit
scoring system are insufficient. ► A
creditor may formulate its own
statement of reasons in checklist or
letter form; sample forms and clauses
are provided in Appendix C .s
[(3) Other information. The
notification required by section (a)(1)
may include other information so long
as it does not detract from the required
content. This notification also may be
combined with any disclosures required
under other titles of the Consumer
Credit Protection Act or any other law,
provided that all requirements for clarity
and placement are satisfied; and it may
appear on either or both sides of the
paper if there is a clear reference on the
front to any information on the back. J
►
(c) Incomplete applications. (1)
Within 30 days after receiving an
application that is incomplete regarding
matters that an applicant can complete,
the creditor shall notify the applicant
(unless the applicant has expressly
withdrawn the application) either:
(1) Of action taken, in accordance with
§ 202.9(a); or
(ii) Of the incompleteness, in
accordance with paragraph (c)(2).
(2) A creditor shall send a written
notice to the applicant (a sample of
which is provided in Appendix C)
stating that additional information is
needed from the applicant and
specifying the information that is
needed; designating a reasonable period
of time for the applicant to provide the
information; and informing the applicant
that the failure to provide the
information requested will result in no
further consideration being given to the
application. The creditor shall have no
further obligation under this section if
the applicant fails to respond within the
designated period of time. Should the
applicant supply the requested
information within the designated
period of time, the creditor shall take
action on the application in accordance
with paragraph (a)..
(3) At its option, a creditor may inform
the applicant orally that additional
information is needed, but if the
application remains incomplete the
creditor shall send a notice in
accordance with paragraph (c)(1). s
t(d) Withdrawn applications. Where
an applicant submits an application and
the parties contemplate that the
applicant will inquire about its status, if
the creditor approves the application
and the applicant has not inquired
within 30 days after applying, then the
creditor may treat the application as
withdrawn and need not comply with
subsection (a)(1).]
|( c ) ] ► ( d ) s Oral notifications ►A y
small-business creditorss . * * *
1(a)(3)] ► ( e ) s Multiple
applicants. * * *
[(f) Notification. A creditor notifies
an applicant when a writing addressed
to the applicant is delivered or mailed to
the applicant’s last known address or, in
the case of an oral notification, when
the creditor communicates with the
applicant.]
[(a)(4)] ► (f) s Multiple creditors.
[If a transaction involves more than
one creditor and the applicant expressly
accepts or uses the credit offered, this
section does not require notification of
adverse action by any creditor. If a
transaction involves more than one
creditor and either no credit is offered or
the applicant does not expressly accept
or use any credit offered, then each
creditor taking adverse action must
comply with this section. The required
notification may be provided indirectly
through a third party, which may be one
of the creditors, provided that the
indentity of each creditor taking adverse
action is disclosed. Whenever the
notification is to be provided through a
third party, a creditor shall not be liable
for any act or omission of the third party
that constitutes a violation of this
section if the creditor accurately and in
a timely manner provided the third party
with the information necessary for the
notification and was maintaining
procedures reasonably adapted to
avoide any such violation.] ►W h e n an
application on behalf of the applicant is
made to more than one creditor and the
applicant expressly accepts or uses
credit offered by one of the creditors,
notification by any of the other creditors
is not required. If no credit is offered or
if the applicant does not expressly
accept or use any credit offered, each
creditor taking adverse action must
comply with this section, directly or
through a third party. In the case of
notification by a third party, the identity
of each creditor taking adverse action
shall be disclosed.m
C(e)3 M g M Failure of
compliance. * * *
10. Section 202.10 would be revised to
read as follows:
§ 202.10 Furnishing of credit information.
► (a) Designation o f account.—(1)
New account. Upon establishing an
account, a creditor that furnishes credit
information shall designate the account
to reflect the participation of both
spouses if the applicant’s spouse is
permitted to use or is contractually
liable on the account (other than as a
guarantor, surety, endorser, or similar
party).
(2) Existing account. Within 90 days
after receipt of a written request, a
creditor shall designate an account to
reflect the participation of both spouses.
(b) Routine reports to consumer
reporting agency. If a creditor furnishes
credit information to a consumer
reporting agency concerning an account
designated to reflect the participation of
both spouses, the creditor shall furnish
the information in a manner that will
enable the agency to provide access to
the information in the name of each
spouse.
(c) Reporting in response to request. If
a creditor furnishes credit information in
response to an inquiry concerning an
account designated to reflect the
participation of both spouses, the
creditor shall furnish the information in
the name of the spouse about whom the
information is requested.
(d) Failure o f compliance. A failure to
comply with this section shall not
constitute a violation when caused by
an inadvertent error; provided that, on
discovering the error, the creditor
corrects it as soon as possible and
commences compliance with the
requirements of this section.s
11. Section 202.12 would be amended
by revising paragraph (a) and (b)(1)
introductory text and (b)(l)(i) (3) and (4J,
to read as follows:
§ 202.12 Record retention.
(a) Retention o f prohibited
information. Retention in a creditor’s
files of any information, the use of
which in evaluating applications is
prohibited by the act or this regulation,
shall not constitute a violation [o f the
act or this part where] ► i f s such
information was obtained;
(1) From any source prior to March 23.
1977; or
(2) [A t any time] from consumer
reporting agencies [; or (3) at any time
from] ► . s an applicant ► , s or others
without the specific request of the
creditor; or
[(4)] ► ( 3 ) s [A t any time] as
required to monitor compliance with the
act and this regulation or other federal
or state statutes or regulations.
(b) Preservation o f records.—(1) For
25 months after the date that a creditor
notifies an applicant of action taken on
an application ► ( o r of incompleteness,
under § 202.9(c))s, the creditor shall
retain as to that application in original
form or a copy thereof:
(i) Any application [form ] that it
receives, any information required to be
obtained concerning characteristics of
an applicant to monitor compliance with
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
the act and this regulation or other
similar law, and any other written or
recorded information used in evaluating
the application and not returned to the
applicant at the applicant’s request;
(ii)* * *
(iii)* * *
* * * * *
(3) In addition to the requirements of
paragraphs (b)(1) and (2), [a n y ] ► a s
creditor [th a t] ► s h a l l retain
information as required by those
paragraphs if i t s has actual notice that
it is under investigation or is subject to
an enforcement proceeding for an
alleged violation of the act or this
regulations, by the U.S. Attorney
General o r s by an enforcement agency
charged with monitoring that creditor’s
compliance with the act and this
regulation, or [th a t] ► i f i t s has been
served with notice of an action filed
pursuant to section 706 of the act and
[§ 202.1(b) or (c)] ► § 20.14s of this
regulations[ , ] , ► . The creditors shall
retain the information [required in
subsection (b)(1) and (2)] until final
disposition of the matter, unless an
earlier time is allowed by order of the
agency or court.
(4) [In any transaction involving more
than one creditor any] ►W h e n a s
creditor ►rece iv es an application but
i s s not required to comply with ► t h e
notification requirements o f s
§ 2 0 2 .9 ^,s [(notifications)] ► t h e
creditors shall retain for [th e time
period specified in subsection (b)] ^25
months s all written or recorded
information in its possession concerning
the applicant, including [ a ] ► a n y s
notation of action taken [in connection
with any adverse action].
* * * * *
12. Section 202.13 would be revised, to
read as follows:
§ 202.13 Information for monitoring
purposes.
► ( a ) Information to be requested.—
(1) Any creditor that receives an
application for credit primarily for the
purchase, refinancing, repair or
improvement of a dwelling occupied or
to be occupied by the applicant as a
principal residence, where the extension
of credit will be secured by the dwelling,
shall request as part of any application
for such credit the following information
regarding the applicant(s):
(i) Race/national origin, using the
categories American Indian or Alaskan
Native; Asian or Pacific Islander; Black;
White; Hispanic; Other (Specify);
(ii) Sex;
(iii) Marital status, using the
categories married, unmarried, and
separated; and
(iv) Age.
(2) "Dwelling” means a residential
structure that contains one to four units,
whether or not that structure is attached
to real property. The term includes, but
is not limited to, an individual
condominium unit, cooperative unit and
manufactured (mobile) home.
(b) Obtaining o f information.
Questions regarding race/national
origin, sex, marital status, and age may
be listed, at the creditor’s option, on the
application form or on a separate form
that refers to the application. The
applicant(s) shall be asked but not
required to supply the requested
information. If the applicant(s) chooses
not to provide the information or any of
it, that fact shall be noted on the form.
The creditor must then also note on the
form, to the extent possible, the race of
national origin and sex of the
applicant(s) on the basis of visual
observation or surname.
(c) Disclosure to applicant(s). The
creditor shall inform the applicant(s) in
writing that the information regarding
race/national origin, sex, marital status,
and age is being requested by the
federal government for the purpose of
monitoring compliance with federal
statutes that prohibit creditors from
discriminating against applicants on
those bases. The written disclosure shall
also inform the applicant(s) that the
creditor is required to note the race/
national origin and sex of the
applicant(s) on the basis of visual
observation or surname if the
applicant(s) chooses not to provide the
information. Sample disclosures are
contained in Appendix B.
(d) Substitute monitoring program.
Any monitoring program required by an
agency charged with administrative
enforcement under section 704 of the act
may be substituted for the requirements
contained in paragraphs (a), (b), and
(c).s
13. Section 202.14 would be added, to
read as follows:
§ 202.14 Enforcement, penalties and
liabilities.
(a) Administrative enforcement. (1)
As set forth more fully in section 704 of
the act, administrative enforcement of
the act and this regulation regarding
certain creditors is assigned to the
Comptroller of the Currency, Board of
Governors of the Federal Reserve
System, Board of Directors of the
Federal Deposit Insurance Corporation,
Federal Home Loan Bank Board (acting
directly or through the Federal Savings
and Loan Insurance Corporation),
National Credit Union Administration,
Interstate Commerce Commission,
Secretary of Agriculture, Farm Credit
Administration, Securities and
10905
Exchange Commission, Small Business
Administration, and Secretary of
Transportation.
(2) Except to the extent that
administrative enforcement is
specifically committed to other
authorities, compliance with the
requirements imposed under the act and
this regulation will be enforced by the
Federal Trade Commission.
(b) Penalties and liabilities. (1)
Sections 706(a) and (b) and 702(g) of the
act provide that any creditor who fails
to comply with any requirement
imposed under the act or this regulation
is subject to civil liability for actual and
punitive damages in individual or class
actions. Liability for punitive damages is
restricted to nongovernmental entities
and is limited to $10,000 in individual
actions and the lesser of $500,000 or 1
percent of the creditor’s net worth in
class actions. Section 706(c) provides for
equitable and declaratory relief, and
section 706(d) authorization for the
awarding of costs and reasonable
attorney’s fees to an aggrieved applicant
in a successful action.
(2) Sections 706(g) and (h) provide
that, if the agencies responsible for
administrative enforcement are unable
to obtain compliance with the act or this
regulation, they may refer the matter to
the Attorney General. On such referral,
or whenever the Attorney General has
reason to believe that one or more
creditors are engaged in a pattern or
practice in violation of the act or this
regulation, the Attorney General may
bring a civil action, s
* * * * *
14. Appendix B would be amended
by revising the introductory material, by
removing the “Voluntary Information
For Government Monitoring Purposes”
portion from the “Residential Loan
Application”, and by inserting in its
place “Information For Governmenta
Monitoring Purposes”, to read as set
forth below:
Appendix B—Model Application Forms
This appendix contains five model credit
application forms, each designed for use in a
particular type of consumer credit transaction
as indicated by the bracketed caption on
each form (which should be removed prior to
reproduction). The first sample form is
intended for use in open end, unsecured
transactions: the second for closed end,
secured transactions; the third.for closed end
transactions, whether unsecured or secured;
the fourth for use in transactions involving
community property or occuring in
community property states; and the fifth for
use in secured residential real estate
transactions. [The real estate form should be
used only when a lender’s representative is
available to assist an applicant in completing
the form.] ►T h e appendix also contains a
10906
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
model disclosure for use in complying with
the disclosure requirements of § 202.13 for
certain dwelling-related loans, s
The forms contained in this appendix are
models; their use by creditors is optional. In
all instances, the use or modification of these
forms is governed by [202.5(e) of this Part
and J the directions contained in this
appendix.
►
If a creditor chooses to use the forms
contained in this appendix it may change the
forms:
(1) By asking for additional information not
prohibited by § 202.5;
(2) By deleting any information request; or
(3) By rearranging the format without
modifying the substance of the inquiries;
provided that in each of these three instances
the appropriate notices regarding the optional
nature of courtesy titles, the option to
disclose alimony, child support, or separate
maintenance, and the limitation concerning
marital status inquiries are included in the
appropriate places if the items to which they
relate appear on the creditor's form.*
[In addition to deleting any information
request printed on the forms or rearranging
their format, as specified in section 202.5(e), a
creditor is expressly permitted to modify any
of the model forms contained in this
Appendix by adding any of the follow ing
three items:
(1) an inquiry about the names in which the
applicant has previously received credit as
authorized in § 202.5(c)(3);
(2) A request to designate a courtesy title
as authorized in § 202.5(d)(3); or
(3) an inquiry about an applicant’s
permanent residence and United States
immigration status as authorized bv
§ 202.5(d)(5).3
► I f a creditor uses an appropriate
Appendix B model form or to the extent that
it modifies such a form in accordance with
the provisions and instructions contained in
this appendix, that creditor shall be deemed
to be acting in compliance with the
provisions of paragraph (c) and (d) of § 202.5
of this regulation.-*
[The fifth form contained in this appendix,
the model residential real estate mortgage
loan application, was prepared in conjunction
with the Federal Home Loan Mortgage
Corporation and the Federal National
Mortgage Association. It is substantially
identical to the joint FHLMC 65/FNMA 1003
Rev. 3/77 form, except for type face and the
inclusion of the FHLMC/FNMA form of
certain items required by the Federal Home
Loan Mortgage Corporation and the Federal
National Mortgage Association. If a creditor
wishes to participate in the secondary
mortgage market involving the Federal Home
Loan Mortgage Corporation, Federal National
Mortgage Association, or Government
National Mortgage Association, it should
either modify the model form as specified by
the Federal Home Loan Mortgage
Corporation and Federal National Mortgage
Association or use form FHLMC 65/FNMA
1003 (Rev. 3/77) with supporting schedule
FHLMC 65A/FNMA 1003A. Use of the
FHLMC 65/FNMA 1003 (Rev. 3/77) form
constitutes full compliance with paragraphs
(c) and (d) of § 202.5 of this Part.]
*
*
*
*
*
INFORMATION FOR GOVERNMENT MONITORING PURPOSES
The f o l l o w i n g I n f o r m a t i o n I s r e g u e s t e d by t h e f e d e r a l government f o r
a l oan r e l a t e d t o a d w e l l i n g i n o r d e r t o mo ni t or t h e l e n d e r ' s compl i ance wi t h
equal c r e d i t o p p o r t u n i t y and f a i r h o u si n g l a ws .
t h i s I n f o r m a t i o n , but a r e en co u ra ge d t o do so .
Vou a r e not r e q u i r e d t o f u r n i s h
The law p r o v i d e s t h a t a l e n de r
may n e i t h e r d i s c r i m i n a t e on t h e b a s i s of t h i s i n f o r m a t i o n , nor on whet her you
choos e t o f u r n i s h 1 t .
However, i f you choos e not t o f u r n i s h t h e i n f o r m a t i o n ,
u nder f e d e r a l r e g u l a t i o n s t h i s l e n d e r i s r e q u i r e d t o n o t e r a c e and sex on t h e
b a s i s of v i s u a l o b s e r v a t i o n or surname.
I f you do not wish t o f u r n i s h t h e
i n f o r m a t i o n , p l e a s e i n i t i a l below.
BORROWER:
1 do not wish t o f u r n i s h t h i s i n f o r m a t i o n { i n i t i a l s ) ____________
RACE/
[ ) American I n d i a n , Alaskan N a t i v e
NATIONAL
[ ) b l ac k
[ ] Hispanic
ORIGIN
[ ] O t h e r ( s p e c i f y ) _______ _______
[ ) Asian, P a c i f i c Islander
[ ] White
stx
CO-BORROWER:
RACE/
[ ) FEMALE
[ ] MALE
I do n ot wi sh t o f u r n i s h t h i s i n f o r m a t i o n ( i n i t i a l s ) ______
[ ] American I n d i a n , Al askan N a t i v e ,
NATIONAL
[ ] Black
[ ] Hispanic
ORIGIN
[ ] O t h e r ( s p e c i f y ) _________ _
[ ] Asian, P a cific Islander
U White
SEX
15. Appendices C and D would be
added, to read as follows:
► Appendix C—Sample Notification Forms
This appendix contains ten sample
notification forms. The sample forms in C-l.
through C-8 are intended for use in notifying
an applicant that credit has been denied. The
sample forms are illustrative and may not be
appropriate for all creditors. They were
designed to include some of the factors that
creditors most commonly consider.
If the reasons listed on the forms are not
the factors actually used, a creditor will not
satisfy the notice requirement by simply
checking the closest identifiable factor listed.
□
FEMALE
□ MALE
For example, dome creditors consider only
bank references (and disregard finance
company references altogether); their
statement of reasons should disclose
“insufficient bank references” (not
“insufficient credit references"). Similarly, a
creditor that considers bank references and
other credit references as separate factors
should treat the two factors separately and
disclose them as appropriate. The creditor
should either add those other factors to the
form or check “other” and include the
appropriate explanation. The creditor need
not, however, describe how or why a factor
adversely affected the application. For
example, the notice may say "length of
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
residence” rather than “too short a period of
residence.”
The sample forms in C-9 and C-10 are
designed for use in notifying an applicant
that their application is incomplete and is
subject to denial or no further consideration
if not completed. Use of these forms
constitutes full compliance with paragraph (c)
of § 202.9.
Appendix C
Form C -l—Notification of Action Taken
Statement of Credit Denial, Termination, or
Change
Date ----------------------------------------- -—
Applicant’s Name: ----------------------------------Applicant’s Address:-------------------------------Description of Account, Transaction, or
Requested Credit:
Description of Action Taken:
Part I—Principal Reason(s) for Credit
Denial, Termination, or Other Action Taken
Concerning Credit. This section must be
completed in all instances.
___ Credit application imcomplete
___ Provided too few credit references
___ Credit references are insufficient
___ Unable to verify credit references
___ Temporary or irregular employment
___ Unable to verify employment
___ Length of employment
___ Amount of credit requested excessive
for income
----- Excessive obligations in relation to
income
___ Unable to verify income
___ Length of residence
----- Temporary residence
___ Unable to verify residence
___ No credit history
___ Insufficient credit history
___ Poor past credit performance with us
___ Delinquent past or present credit
obligations with others
----- Garnishment, attachment, foreclosure,
repossession, collection action, or
judgment
___ Bankruptcy
----- Value of type of collateral not sufficent
___ Other, specify:
Part II—Disclosure of Use of Information
Obtained From an Outside Source. This
section need only be completed if the credit
decision was based in whole or in part on
information that has been obtained from an
outside source.
___ Our credit decision was based in whole
or in part on information obtained in a
report from the consumer reporting
agency listed below. The reporting
agency that provided information played
on part in the creditor's decision and is
unable to supply specific reasons why
credit was denied. You do, however,
have a right to inspect and receive a
copy of the information in your credit file
at the consumer reporting agency, upon
making a request.
Name:---------------------------------------------------Address:
Telephone number:---------------------------------___ Our credit decision was based in whole
or in part on information obtained from
an outside source other than a consumer
reporting agency. Under the Fair Credit
Reporting Act, you have the right to
make a written request, no later than 60
days after you receive this notice, for
disclosure of the nature of the adverse
information obtained from an outside
source other than a consumer reporting
agency.
If you have any questions regarding this
notice, you should contact:
Creditor’s nam e:------------------------------------Creditor’s address:---------------------------------Creditor’s telephone number: ------------------You should know that: [ADD ECOA
NOTICE]
Form C-2—Notification o f Action Taken
Statement of Credit Denial, Termination, or
Change
Date ------------------------------------------Applicant’s Name: ---------------------------------Applicant's Address:------------------------------Description of Account, Transaction, or
Requested Credit:
Description of Action Taken:
Part I—Principal Reason(s) For Action
Taken Concerning Credit. This section must
be completed in all instances.
___ Offered down payment insufficient
___ .Provided us with insufficient bank
references
___ Appraised value of property insufficient
___ .Other, specify:___________
Part II—Disclosure of Use of Information
Obtained From Outside Source. This section
need only be completed if the credit decision
was based in whole or in part on information
that has been obtained from an outside
source.
-----In evaluating your application, we
contacted the credit reporting agency
listed below, and the information they
provided affected our decision. You have
a right to know the information they
provided to us. To learn about this
information, please contact:
Nam e---------------------------------------------------Address------------------------------------------------___ In evaluating your application, we
obtained information about you from a
person or business, and the information
they provided affected our decision. You
have a right to know the information
provided to us by that person or business
if you write to us and request it within 60
days. Please write to us at our office
address.
| ADD ECOA NOTICE]
Form C-3—Notification o f Action Taken
Date ------ t------ ---------------------------- --------Applicant’s Name and Address ----------------Dear Applicant: Thank you for recent
application. Your request for [a loan/a credit
card/ an increase in your credit limit] was
carefully considered, and we regret that we
are unable to approve your application at this
time, for the following reason(s):
10907
Your Income:
___is below our minimum guidelines.
-----is insufficient to sustain payments on the
amount of credit requested.
-----.reveals that current obligations are
excessive in relation to income.
___ could not be verified.
Your employment:
___length of employment is not sufficient to
qulaify at this time.
. — could not be verified.
Your Credit history:
— history of making payments when due
was not satisfactory.
— could not be verified:
Your Application:
___ lacks sufficient credit references.
Other:---------------------------------------------------The consumer credit reporting agency
contacted that provided information which
influenced our decision in whole or in part
was [name, address and telephone number of
the credit bureau]. Any questions regarding
information contained on your consumer
credit report should be directed to [credit
bureau].
If you have any questions regarding this
letter you should contact us at [creditor’s
name address and telephone number].
You should know that: [ADD ECOA
NOTICE]
Form C-4—Statement o f Denial
Date ---------------------------------------------------Dear Applicant: Thank you for your request
of June 14,19XX for a loan in the amount of
$9,500 to purchase a new automobile.
I regret that we cannot grant you the funds
you requested. We require that loan
customers have a satisfactory history of
repaying previous debts in a timely fashion.
Your credit report showed that you have not
paid previous borrowings on time.
In considering your application we
obtained a credit report from the XYZ Credit
Bureau located at XXX Main Street,
Anytown, Anystate, which affected our
decision. Their telephone number is XXXXXXX.
You should know that the federal Equal
Credit Opportunity Act prohibits creditors
from discriminating against credit applicants
on the basis of race, color, religion, national
origin, sex, martial status, age (with certain
limited exceptions), because all or part of the
applicant’s income derives from any public
assistance program; or because the applicant
has in good faith exercised any right under
the Consumer Credit Protection. The federal
agency that administers compliance with this
law concerning this creditor is (name and
address as specified by the appropriate
agency listed in Appendix A).
I regret that we could not be of service to
you at this time.
Sincerely,
Credit Officer
Form C-5—Statement o f Denial and
Counteroffer
D a t e ----------------------------------------------------
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
10908
Dear Applicant: We have received your
application for credit. We are unable to offer
you credit on the terms that you requested for
the following reasonfs):
We can, however, offer you credit on the
following terms:
If this offer is acceptable to you, please notify
us within [amount of time].
[Add FCRA disclosure, if applicable]
[ADD ECOA NOTICE]
Form C-6—Statement o f Denial and
Counteroffer
Date ---------------------------------------------------Dear Applicant: Thank you for your
application for a home improvement loan in
the amount of $45,000.
I regret that we are unable to grant you the
amount of credit you have requested. It is the
policy of our firm to grant home improvement
loans for a maximum term of 15 years and
you have requested the loan for 20 years.
We would be pleased to make you the loan
in the amount you requested for a term of 15
years at a rate o f ___ %which would require
monthly payments of $___ for 180 months. If
you would like to accept this offer please
notify us no later than----- You should know that the federal
government prohibits creditors, such as
ourselves, from discriminating against credit
applicants on the basis of their race, color,
religion, sex, marital status, age or because
they receive income from a public assistance
program or because they may have exercised
their rights under the Consumer Credit
Protection Act. If you believe there has been
discrimination in handling your application
you should contact the [name of agency],
XXX Street, Anytown, Anystate XXXXX,
(XXX)
We look forward to hearing from you
b y -----Sincerely,
Credit Officer
xxx-xxxx.
Form C-7—Statement o f Reasons for Denial
(Credit Scoring)
'
Date ---------------------------------------------------Dear Applicant: Thank you for your recent
application for
We regret that we are unable to approve your
request.
Your application was processed by a credit
scoring system which assigns a numerical
value to the various items of information we
consider in evaluating an application. These
numerical values are based upon the results
of analyses of repayment histories of large
numbers of customers.
The information you provided in your
application did not score a sufficient number
of points for approval of the application. The
areas in which you did not score well
compared to other applicants were:
* Bank references
* Occupation
* Credit rating
In evaluating your application we obtained
information from a credit reporting agency
that in whole or in part influenced our
decision. The credit reporting agency played
no part in our decision other than providing
us with credit information about you. You
have a right to know the information
provided to us. It can be obtained by
contacting:
Name:-------- —— ----------------------------------Address: ---------------------------------------------—
’g
--------------- -------------------------------------------------------------------------------------
Telephone: ------------------------------------------Sincerely,
Notice: The federal Equal Credit
Opportunity Act prohibits creditors from
discriminating against credit applicants on
the basis of race, color, religion, national
origin, sex, marital status, age (provided that
the applicant has the capacity to enter into a
binding contract), because all or part of the
applicant's income derives from any public
assistance program: or because the applicant
has in good faith exercised any right under
the Consumer Credit Protection Act. The
federal agency that administers compliance
with this law concerning this creditor is
(name and address as specified by the
appropriate agency listed in Appendix A).
Form C S —Disclosure o f Right To request
Specific Reasons for Credit Denial
Date — — -------- ---------------------------------Dear Applicant: Thank you for applying to
us for
After carefully reviewing your application,
we are sorry to advise you that we cannot
[open account/grant loan/increase credit
limit] to you at this time.
If you would like a statement of specific
reasons why your application was denied,
please contact us within 60 days of the date
of this letter. We will provide you with the
reasons within 30 days after your request.
Please contact us at:
Creditor’s name
Creditor’s address
Creditor's telephone number
If a consumer reporting agency was used in
connection with your application, its name,
address, and telephone number is shown
below. You can find out about the
information contained in your file (if one was
used) by contacting:
Credit Bureau:
Phone:
Sincerely,
[ADD ECOA NOTICE]
Form C-9—Notice Regarding Incompleteness
o f Application and Request for Additional
Information
Date ---------------------------------------------------Dear Applicant: We have received your
application for credit. The following
information is needed to make a decision on
your application:
We need to receive this information by
(date). If we do not receive it by that date, we
will regrettably be unable to grant you the
credit requested.
Sincerely,
Credit Officer
Form C-10—Notice Regarding Incomplete
Application and Request for Additional
Information
Date ---------------------------------------------------Dear Applicant: Thank you for your
application for a loan in the amount of $8,500
to purchase a new car.
In order to make a decision on whether we
can grant you the amount you have requested
we need some additional information about
your income. Since you are self employed we
would like to have copies of your tax returns
for the past two years. As soon as we receive
this information we will resume
consideration of your request.
If we do not receive the information from
b y ___ , I regret we will be unable to grant
you the loan on the basis of the current
application.
Sincerely,
Credit Officer*
►A p p en d ix D—Issuance of Staff
Interpretations
Official Staff Interpretations
Officials in the Board’s Division of
Consumer and Community Affairs are
authorized to issue official staff
interpretations of this regulations. These
interpretations provide the protection
afforded under section 706(e) of the act.
Except in unusual circumstances, such
interpretations will not be issued separately
but will be incorporated in an official
commentary to the regulation, which will be
amended periodically.
Requests for Issuance of Official Staff
Interpretations
A request for an official staff interpretation
should be in writing and addressed to the
Director, Division of Consumer and
Community Affairs, Board of Governors of
the Federal Reserve System, Washington.
D.C. 20551. The request should contain a
complete statement of all relevant facts
concerning the issue, including copies of all
pertinent documents.
Scope o f Interpretations
No staff interpretations will be issued
approving creditors’ forms or statements.
This restriction does not apply to forms or
statements whose use is required or
sanctioned by a government agency.*
16. Supplement I is revised and
redesignated as Appendix E, to read as
follows:
►A p p en d ix E—State Exemption
Application
Any state may apply to the Board for a
determination that a class of transactions
subject to state law is exempt from the
requirements of the act and this regulation.
An application must be in writing and signed
by the appropriate state official. It should be
addressed to the Secretary, Board of
Governors of the Federal Reserve System,
Washington, D.C. 20551.
Supporting Documents
An application should be accompanied by:
(1) The test of the state statute or
regulation that is the subject o f the
application, and any other statute, regulation,
or judicial or administrative opinion that
implements, interprets, or applies it.
(2) A comparison of the state law with the
corresponding provisions of the federal law.
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
(3) The text of the state statute or
regulation that provides for civil and criminal
liability and administrative enforcement of
the state law.
(4) A statement of the provisions for
enforcement, including an identification of
the state office that administers the relevant
law, information on the funding and the
number and qualifications of personnel
engaged in enforcement, and a description of
the enforcement procedures to be followed,
including information on examination
procedures,-practices, and policies. If an
exemption application extends to federally
chartered institutions, the applicant must
furnish evidence that arrangements have
been made with the appropriate federal
agencies to ensure adequate enforcement of
state law in regard to such creditors.
(5) A statement of reason to support the
applicant’s claim that an exemption should
be granted.
Public Notice o f Application
Notice of an application will be published,
with an opportunity for public comment, in
the Federal Register, unless the Board finds
that notice and opportunity for comment
would be impracticable, unnecessary, or
contrary to the public interest and publishes
its reasons for such decision.
Subject to the Board’s Rules Regarding
Availability of Information (12 CFR Part 261),
all applications made, including any
documents and other material submitted in
support of the application, will be made
available for public inspection and copying.
A copy of the application also will be made
available at the Federal Reserve Bank of
each District in which the applicant is
situated.
Fuvorable Determination
If the Board determines on the basis of the
information before it that an exemption
should be granted, notice of the exemption
will be published in the Federal Register, and
a copy furnished to the applicant and to each
federal official responsible for administrative
enforcement.
The appropriate state official shall inform
the Board within 30 days of any change in its
relevant law or regulations. The official shall
file with the Board such periodic reports as
the Board may require.
The Board will inform the appropriate state
official of any subsequent amendments to the
federal law, regulation, interpretations, or
enforcement policies that might require an
amendment to state law, regulation,
interpretations, or enforcement procedures.
A dverse Determination
If the Board makes an initial determination
that an exemption should not be granted, the
Board will afford the applicant a reasonable
opportunity to demonstrate further that an
exemption is proper. If the Board ultimately
finds that an exemption should not be
granted, notice of an adverse determination
will be published in the Federal Register and
a copy furnished to the applicant.
Revocation o f Exemption
The Board reserves the right to revoke an
exemption if at any time it determines that
the standards required for an exemption are
not met.
Before taking such action, the Board'will
notify the appropriate state official of its
intent, and will afford the official such
opportunity as it deems appropriate in the
circumstances to demonstrate that revocation
is improper. If the Board ultimately finds that
revocation is proper, notice of the Board’s
intention to revoke such exemption will be
published in the Federal Register with a
reasonable period of time for interested
persons to comment.
Notice of revocation of an exemption will be
published in the Federal Register. A copy of
such notice will be furnished to the
appropriate state official and to the federal
officials responsible for enforcement. Upon
revocation of an exemption, creditors in that
state shall then be subject to the
requirements of the federal la w .*
(6) Text o f proposed official staff
commentary. The proposed Official Staff
Commentary on Regulation B (ECO-1, Supp. I
to 12 CFR Part 202) reads as follows:
10909
covered by Regulation B even though it may
not be a credit transaction covered by Truth
in Lending (Regulation Z). 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 Truth in
Lending. Moreover, the act, and regulation
apply to all methods of credit evaluations,
whether performed judgmentally or by use of
a credit scoring system.
1(b) Purpose.
1. Footnotes. Footnotes shall have the same
legal effect as the text of the regulation,
whether they are explanatory or illustrative
in nature.
Section 202.2 Definitions.
2(c) Adverse action.
Paragraph 2(c)(l)(ii).
1. Termination. When a credit card issuer
terminates the open-end account of a
customer because the customer has moved
out of the card issuer’s service area, the
termination is “adverse action” for purposes
of the regulation unless termination on this
OFFICIAL STAFF COMMENTARY—ECO-1
ground was explicity provided for in the
credit agreement between the parties. In
Introduction
cases where termination is adverse action,
1. Official status. Section 706(e) of the
notification is required under § 202.9.
Equal Credit Opportunity Act protects a
2. Classification o f accounts. Under the
creditor from civil liability for any act done
“classification of accounts” exception, a
or omitted in good faith in conformity with an
creditor that terminates an entire category of
interpretation issued by a duly authorized
credit plans, such as all overdraft checking
official of the Federal Reserve System. This
lines or an open-end credit card program, has
commentary is the vehicle by which the
not taken adverse action on the accounts
Division of Consumer and Community Affairs
of the Federal Reserve Board issues official - terminated. But a creditor must give adverse
action notices when the classification
staff interpretations of Regulation B. Good
terminated is only a narrow group or
faith compliance with this Commentary
affords protection under section 706(e).
subgroup of accounts. For example, if a
2. Issuance o f interpretations. Any person
creditor terminates revolving credit accounts
may request an official staff interpretation.
that have low credit limits (e.g., under $400)
Interpretations will be issued at the staffs
but keeps open other accounts with higher
discretion and incorporated in this
credit limits, the creditor must comply with
commentary following publication for
the adverse action notification provisions as
comment in the Federal Register. Official
to the accounts terminated.
staff interpretations will be issued only by
Paragraph 2{c)(2)(ii).
means of this commentary.
1. Exercise of due-on-sale clauses. If a
3. Status o f previous interpretations.
mortgagor sells or transfers mortgaged
Interpretations of Regulation B previously
property without the consent of the
issued by the Federal Reserve Board and its
mortgagee, and the mortgagee exercises its
staff have been incorporated into this
contractual right to accelerate the mortgage
commentary as appropriate. All other
loan, the mortgagee may treat both the
previous Board and staff interpretations,
mortgagor and the transferee as being in
official and unofficial, are superseded by this
default. It does not have to give an adverse
commentary, effective-------- .
action notice to either party. (See
4. Comment designations. Each comment in
commentary to § 202.2(e) for treatment of a
the commentary is identified by a number
purchaser who request to assume the loan.)
and the regulatory section or paragraph that
Paragraph 2(c) (2) (iii).
it interprets. The comments are designated
1. Point-of-sale transactions. Denial of
with as much specificity as possible
credit at the point of sale does not constitute
according to the particular regulatory
adverse action except for circumstances that
provision addressed. For example, some of
are specified in the regulation. For example,
the comments to § 202.7(d) are further
denial at point of sale is not adverse action in
divided by subparagraph, such as comment
the following situations:
7(d)(3)—1 and 7(d)(3)-2.
• A credit cardholder presents an expired
Section 202.1 Authority, Scope, and
card or a card that has been reported to the
purpose.
card issuer as lost or stolen.
• The amount of a transaction exceeds a
1(a) A uthority and scope.
1. Scope. The Equal Credit Opportunity Act cash advance or credit limit.
• The circumstances (such as excessive
and Regulation B apply broadly to all credit—
use of a credit card in a short period of time)
commercial as well as personal—without
suggest that fraud is involved.
regard to the nature or type of the credit or
creditor. If a transaction provides for the
• The card issuer’s authorization facilities
deferral of the payment of a debt, it is credit
are not functioning.
10910
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
• Billing statements have been returned to
the creditor for lack of a forwarding address.
Paragraph 2(c) (2) (v).
1. Type o f credit for credit plan. Denial of
credit is not adverse action if the credit terms
requested differ so much from a creditor’s
normal credit programs as to represent a type
of credit or credit plan not offered by the
creditor. For example:
• An applicant requests an open-end line
of credit secured by equity in the applicant's
home. The creditor makes equity loans but
does not offer any open-end credit plan.
However, if the applicant requests a type
of credit offered by the creditor but on terms
that the creditor does not offer, the creditor’s
denial of the application is adverse action.
For example:
• An applicant requests mortgage credit
and requests a loan guarantee under a
particular government program. Although the
creditor does not participate in that particular
guarantee program, it does make mortgage
loans.
• An applicant requests an unsecured loan
to buy a boat. Although the creditor requires
that it receive a security interest in the boat,
it does make boat loans.
The creditor’s rejection of these
applications requires notification under
§ 202.9(a)(1) and (2).
2(e) Applicant.
1. Request to assume loan. If a mortgagor
sells or transfers the property securing a
mortgage loan and buyer/transferee makes
an application to the creditor to assume the
mortgage loan, the creditor must treat the
buyer/transferee as a new applicant.
2(f) Application.
1. General. A creditor has the latitude
under the regulation to establish its own
application process and to decide the type
and amount of information it will require
from credit applicants.
2. “Procedures established. ” The term
refers to the actual practices followed by a
creditor for making credit decisions—not just
its formally stated application procedures.
For example, if a creditor has a stated policy
requiring all applications to be in writing on
the creditor’s application form, but does
make credit decisions based on oral requests,
that creditor takes both oral and written
applications, and must act in accordance
with § 202.9 for both types of applications.
3. When an inquiry becom es an
application. A creditor is encouraged to
provide consumers with information about
loan terms. If, however, when giving
information to the consumer the creditor also
evaluates information about the applicant,
determines to decline the request and
communicates this to the applicant, it has
treated the inquiry as an application and
must then provide the applicant with the
reasons for denial. Thus, whether the inquiry
becomes an application depends on how the
creditor responds to the applicant, not on
what the applicant says or asks, as illustrated
below:
• If a consumer calls to ask about loan
terms and an employee explains the
creditor’s basic loan terms, such as interest
rates, loan to value ratio, and debt to income
ratio, no application has occurred. The
employee has only given out information
about the creditor’s policies.
• If a consumer calls to ask about interest
rates for car loans, and, in order to quote the
appropriate rate, the loan officer asks for the
make and sales price of the car and amount
of the downpayment, then gives the consumer
the rate, no application has occurred. The
loan officer asked and used information
about the transaction only to give the correct
interest rate.
• If a consumer asks about terms for a loan
to purchase a home and tells is the loan
officer her income and intended
downpayment, but the loan officer only
explains the creditor’s loan to value ratio
policy and other basic lending policies, no
application has occurred. The loan officer has
provided the consumer with information but
has not told the consumer whether or not she
qualifies for the loan.
• If a consumer calls to ask terms for.#
loan to purchase vacant land and states his
income, 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,
explains that he would need to look at all of
the applicant’s qualifications before making a
decision and offers to send an application
form to the consumer, no application has
occurred. However, should the employee
instead explain to the caller that his stated
income is not sufficient to qualify for the loan
amount he is requesting, an application has
occurred. The employee has made a credit
decision and communicated it to the
consumer. The employee should then explain
to the consumer that the loan cannot be
approved because of the debt to income ratio
and offer to send the consumer a written
notice of denial if the consumer wishes to
receive it.
4. Completed application—diligence
requirement. The regulation defines
completed application in terms that give a
creditor the latitude to establish its own
information requirements, but the creditor
must act with diligence to collect any
information needed to complete the
application. For example, the creditor should
request information from third parties, such
as credit report, promptly after receiving the
application. If additional information is
needed from the applicant, such as an
address or telephone number needed to
verify employment, the creditor should
contact the applicant promptly.
2(j) Credit.
1. General. Regulation B covers a wider
range of credit transactions than Regulation
Z because the definition of credit is broader
than the definition of credit in Regulation Z
(Truth in Lending). For purposes of
Regulation B a transaction is credit if there is
a right to defer payment of a debt—
regardless of whether the credit is for
personal or commercial purposes, the number
of installments required for repayment, or
whether the transaction is subject to a
finance charge. There is no numerical test as
in the case of Regulation Z.
2(1) Creditor.
1. Officers and employees. The term
“creditor” includes employees or officers of
the creditor who regularly participate in
deciding whether to extend credit. Such
individuals can be held personally liable for
violations of the act or regulation.
2. 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 it will purchase the obligation if the
transaction is consummated. The term also
includes a purchaser who makes its credit
fcriteria known to the credit originator.
3. 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 applicants to creditors, or who
select or offer to select creditors to whom
credit requests can be made. These persons
need comply only with § 202.4, the general
rule prohibiting discrimination, and with
$ 202.5(a) on discouraging applications.
2(p) Empirically derived and other credit
system s.
1. Purpose o f definition. The definition
under § 202.2(p)(2) sets forth the criteria that
a credit system must meet in order to use age
as a predictive factor. Credit systems that do
not meet these criteria are judgmental
systems, and may consider age only for the
purpose of determining a “pertinent element
of creditworthiness.” Either system may
favor an elderly applicant. (See § 202.6(b)(2).)
2. Periodic revalidation. The regulation
does not specify how often credit scoring
systems must be revalidated. To meet the
requirements for statistical soundness, the
credit scoring system should be revalidated
frequently enough to assure that it continues
to meet recognized professional statistical
standards.
2(z) Prohibited basis.
1. Persons related to applicant. “Prohibited
basis" as used in this regulation refers to the
race, color, religion, national origin, sex,
marital status, or age of an applicant (or
officers of an applicant in the case of a
corporation). The term also refers to the
characteristics of individuals with whom an
applicant is affiliated or with whom the
applicant associates. This means, for
example, that under the general rule stated in
§ 202.4, a creditor may not discriminate
against an applicant because of that person’s
business dealings with members of a certain
religion, because of the national origin of
persons to whom the extension of credit
relates (e.g., the tenants in the apartment
complex being financed), or because of the
race of other residents in the neighborhood
where the property offered as collateral is
located.
2. National origin. A creditor may not
refuse to grant credit because an applicant
comes from a particular country, but may
take the applicant’s immigration status into
account. (See the commentary to
§ 202.6(b)(7).) A creditor may also take into
account any applicable law, regulation, or
executive order restricting dealings with
citizens (or governments) of certain countries,
or imposing limitations regarding credit
extended for their use. Regulation B does not
directly address whether a creditor could
deny credit on the grounds that the applicant
is not a United States citizen, but such a
policy could violate 42 U.S.C. 1981 (Civil
Rights Act of 1866).
Federal Register / Vol. 50, No. 52 / Monday, .March 18, 1985 / Proposed Rules
3. Public assistance program. Any federal,
state, or local governmental assistance
program that provides a continuing, periodic
income supplement, whether premised on
entitlement or need, is “public assistance” for
purposes of the regulation. The term includes
(but is not limited to) Aid to Families with
Dependent Children, food stamps, rent and
mortgage supplement or assistance programs,
Social Security and Supplemental Security
Income, and unemployment compensation.
Only physicians, hospitals, and others to
whom the benefits are payable must consider
Medicare and Medicaid as public'assistance
income.
Section 202.3 Lim ited exceptions for certain
classes of transactions.
1. Scope. The reduction in requirements
provided in this section relieves burdens on
several types of credit for which full
application of the procedural requirements
would be inappropriate. All classes of
transactions remain subject to the general
rule against discrimination on a prohibited
basis, and any other provision not
specifically excepted.
3(a) Public utilities credit.
1. Definition. This definition applies only to
credit for the purchase of the utility service,
such as electricity, gas, or telephone service.
Credit provided or offered by a public utility
for some other purpose—for financing the
purchase of durable goods, such as a gas
dryer or telephone equipment, or for home
improvements such as insulation—is not
exempt.
2. Security deposits. A utility company is a
creditor if it supplies utility service and bills
the user after the service has been provided.
Hence a requirement for a security deposit,
for example, is a credit term subject to the
regulation.
3(c) Incidental credit.
1. Examples. If a service provider (such as
a hospital, doctor, lawyer or small retailer)
allows the client or customer to defer the
payment of a bill, this deferral of a debt is
credit for purposes of the regulation, even
though there is no finance charge and no
agreement for payment in installments.
Because of the exceptions provided by this
section, however, these particular credit
extensions are exempt from compliance with
many of the procedural requirements of the
regulation.
3(d) Business credit.
1. Definition. The test for deciding whether
a transaction qualifies as business credit is
one of primary purpose. If it is not clear that
a transaction is primarily for business,
commercial, or agricultural purposes, then the
transaction does not qualify under this
section. For example, credit for the purchase
or improvement of rental property may not be
business credit unless it is clear that the
applicant is in the business of dealing in
rental property. Similarly, an open-end credit
account used for both personal and business
purposes should not be treated as business
credit unless the predominant purpose of the
account is business-related.
Paragraph 3(d)(3).
1. Notification. A creditor must in all cases
notify the business credit applicant of a
credit denial or other adverse action. This
notification may be written or oral, but it
must be given within a reasonable time after
the decision is made.
3(e) Governmental credit.
1. Credit to governments. The exception
relates to credit extended to (not by)
governmental entities. For example, credit
extended by a creditor in the private sector to
a local government is covered by this
exception, but credit extended by a federal or
state housing agency to consumers does not
qualify for special treatment under this
category.
Section 202.4 General rule prohibiting
discrimination.
1. Scope o f section. Other provisions of the
regulation identify specific practices that are
expressly prohibited by the act or that are
impermissible because they could result in
credit discrimination on a basis prohibited by
the act. The general rule stated in this section
covers all dealings, without exception,
between an applicant and a creditor, whether
or not addressed by other provisions of the
regulation. It covers, for example: application
procedures, criteria used to evaluate
creditworthiness, communications with the
applicant, administration of accounts, and
treatment of delinquent or slow accounts.
Thus, a credit practice that differentiates
among applicants on a prohibited basis
violates the act because it violates the
general rule set forth in this section—even
though the practice is not specifically
prohibited in the regulation.
Section 202.5 Rules concerning taking of
applications.
5(a) Discouraging applications.
1. Potential applicants. Generally, the
regulation’s protections apply only to
applicants, persons who have requested or
received an extension of credit. In keeping
with the purpose of the act—to require that a
creditor not discriminate on a prohibited
basis in making credit equally available to all
credit-worthy persons—section 202.5(a)
covers certain acts or practices directed at
potential applicants. It bars the creditor from
an act or practice that would discourage
someone, on a prohibited basis, from
applying for credit. Examples of practices
prohibited by this section include:
• A statement that the applicant shouldn't
bother to apply, after the applicant states that
he is retired.
• A pattern of using advertisements
illustrated with people of only one race in a
community that is multi-racial.
• Use of phrases or symbols that are
known to exclude or offend a particular
racial or ethnic group.
2. Affirmative advertising. A creditor may
affirmatively solicit or encourage members of
protected groups to apply for credit,
especially groups that might not normally
seek credit from that creditor.
5(b) General rules concerning requests for
information.
Paragraph 5(b)(1).
1. Requests for information. This section
governs the types of information that a
creditor may gather. Section 202.6 governs
how information may be used.
5(d) Information a creditor m ay not
request.
10911
Paragraph 5(d)(1).
1. Indirect disclosure of prohibited
information. The fact that certain creditrelated information may indirectly disclose
marital status does not bar a creditor from
seeking such information. 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
basis 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
disclose the interest of a spouse.
Paragraph 5(d)(2).
1. Appropriate disclosure. The sample
application forms in Appendix B to the
regulation illustrate how a creditor can
inform applicants of their right not to disclose
alimony, child support, or separate
maintenance income.
2. Specific inquiry about income. When it
inquires about income, a creditor need not
give the disclosure about alimony and the
like if the inquiry is worded in a way that
would not lead the applicant unintentionally
to disclose alimony, child support or separate
maintenance payments. For example, an
inquiry asking the applicant to list specific
types of income such as salary, wages, or
investment income need not be prefaced by
the disclosure. But if the application form
asks for salary or wages, the creditor should
also provide space for the applicant to report
income from other sources.
„ 5(e) Application forms.
1. Requirement for written applications.
The requirement of written applications for
certain types of dwelling-related loans
specified in section 202.13 is intended to
assist the federal supervisory agencies in
monitoring compliance with the ECOA and
the Fair Housing Act. A creditor will satisfy
the requirement for taking written
applications by writing down the information
that it normally considers in making a credit
decision. Model application forms are
provided in Appendix B, although use of a
form is not required.
2. Telephone applications. A creditor who
accepts applications by telephone for
dwelling-related credit covered by § 202.13
can meet the requirements for written
applications by writing down the information
that is provided orally by the applicant. The
creditor should also note on the form or other
application record that the application was
received by telephone.
Section 202.6 Rules concerning evaluation
of applications.
6(a) General rule concerning use of
information.
1. Scope o f rule. When evaluating an
application for credit, a creditor may
generally use or consider any information
obtained. However, a creditor may not
consider in its evaluation of creditworthiness
any information that it is barred by § 202.5
10912
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
from obtaining. There are certain limited
exceptions for considering age, under
§ 202.6(b)(2), and other exceptions for special
purpose credit, under § 202.8.
2. Effects test. The effects test is a judicial
doctrine that was developed in a series of
employment cases decided by the Supreme
Court under Title VII of the Civil Rights Act
of 1964. Congress intended this doctrine to be
applicable to a creditor’s determination of
creditworthiness. This Congressional intent is
documented in the Senate Report that
accompanied H.R 6516, No. 94-589, pp. 4-5;
and in the House Report that accompanied
H.R. 6516, NO. 94-210, p. 5. Thus, the act and
regulation prohibit a creditor practice that is
discriminatory in effect because it has a
disproportionately negative impact on a
protected class, even though the creditor has
no intent to discriminate, and even though
the practice appears neutral on its face. The
fact that a credit standard has a
disproportionately negative impact on a
prohibited basis does not make it necessarily
unlawful if use of the standard meets a
legitimate business need that cannot be
achieved by means that are less disparate.
For example, requiring that applicants have
incomes in excess of a certain amount to
qualify for an overdraft line of credit could
mean that women and minority applicants
wil be rejected at a higher rate than men and
non-minority applicants. So long as there is a
demonstrable relationship between the
income requirement and creditworthiness for
the level of credit involved, use of the income
standard will likely be permissible. However,
to lessen the potential negative impact on
protected groups, a creditor might make
adjustments that will still serve its business
purposes, for example, by establishing a
lower credit limit for those with lower
incomes.
6(b) Specific rules concerning use of
information.
Paragraph 6(b)(1).
1. Prohibited basis—m arital status. A
creditor may not use marital status as a basis
for determining the applicant’s
creditworthiness. However, 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 example, in a secured
transaction involving real property, a creditor
could take into account whether state law
gives the applicant’s spouse an interest in the
property being offered as collateral.
2. Prohibited basis—special purpose credit.
A creditor may in some cases consider a
“prohibited basis” to determine whether the
applicant possesses the characteristic needed
for eligibility in a special-propose credit
program. (See § 202.8.)
Paragraph 6(b)(2).
1. Favoring the elderly. In any system of
evaluating creditworthiness, an creditor may
take age into account for the purpose of
favoring a credit applicant who is age 62 or
older.
2. Consideration of age in a credit scoring
system . Age may be taken directly into
account in a credit scoring system that is
“demonstrably and statistically sound," as
defined in § 202.2(p), with one limitation: an
applicant who is 62 years or older must be
treated at least as favorably as anyone who
is under age 62.
3. Consideration o f age in a judgmental
system . Any credit scoring system that does
not meet the definition in § 202.2(p)(2) is a
judgmental system. In a judgmental system, a
creditor may not take age directly into
account in any aspect of the credit
transaction. For example, a creditor may not
reject an application or terminate an account
because the applicant is approaching age 60,
nor base the number of years for maturity of
a mortgage on whether the applicant is 35 or
55 years old. But a creditor that uses a
judgmental system may relate the applicant’s
age to other information about the applicant
that the creditor considers in evaluating
creditworthiness. For example:
• A creditor may take into account
information such as the applicant’s
occupation and length of time to retirement to
ascertain whether the applicant's income
(including retirement income) will support the
extension of credit to its maturity.
. • A creditor may consider age to ascertain
the adequacy of a security offered when the
term of the credit extension exceeds the life
expectancy of the applicant and the cost of
realizing on the collateral could exceed the
applicant’s equity. (An elderly applicant
might not qualify for a 5 percent down, 30
year mortgage loan, but might qualify with a
large downpayment or a shorter loan
maturity.)
• A creditor may consider an applicant’s
age to assess the significance of the
applicant’s length of employment (a young
applicant may have just entered the job
market) or length of time at an address (an
elderly applicant may recently have retired
and moved from a long-time residence).
4. Use o f a com bined system . A creditor
that uses a credit scoring system that
qualifies under § 202.2(p) may also consider
other factors (such as a credit report or the
applicant’s cash flow) on a judgmental basis.
Doing so will not affect the classification of
the credit scoring system as “demonstrably
and satistically sound.” However, in the
judgmental evaluation, the creditor may
consider age only for the purpose of
determining a “pertinent element of
creditworthiness."
5. Consideration o f public assistance.
When considering income derived from a
public assistance program, a creditor may
take into account, 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 (e.g.. Aid to Families
with Dependent Children of Social 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 individual applicant.
Certain types of income—such as income
derived from part-time employment, alimony,
child support or separate maintenance,
retirement benefits, or public assistance—
must be evaluated on an individual basis, not
based on aggregate statistics. A creditor must
assess the relibility or unreliability of an
applicant’s income on the applicant’s actual
history, not on statistical measures derived
from a group.
2. Payments consistently made. In
determining the likelihood of consistent
payments of alimony, child support or
separate maintenance, a creditor may
consider factors such as whether payments
are received pursuant to a written agreement
or court decree; the length of time that the
payments have been received; whether the
payments are regularly received by the
applicant; the availability of procedures to
compel payment; and the creditworthiness of
the payor, including the credit history of the
payor when available to the creditor.
3. Consideration o f income. There are
several acceptable methods for considering
income, whether in a credit scoring on a
judgmental system:
•' A creditor can score or consider the
amount of all income stated by the applicant
without taking steps to evaluate the income.
• A creditor can evaluate each component
of the applicant’s income, and then score or
consider reliable income separately from
income that is not reliable, or the creditor
may disregard a portion of income to the
extent that it is not reliable before
aggregating it with reliable income.
• A creditor that does not evaluate all
income components for reliability must treat
as reliable any component of protected
income not evaluated.
In considering the separate components of an
applicant’s income, the creditor may not
automatically discount or exclude from
consideration any protected income.
4. Part-time employment, sources of
income. A creditor may take into account the
fact that an applicant has more than one
source of earned income—a full-time and a
part-time job or two part-time jobs. A
creditor may also score or treat earned
income from a secondary source differently
from earned income from a primary source.
However, the creditor may not score or
otherwise take into account the number of
sources with respect to income from
protected sources, e.g., retirement income,
social security, alimony. Nor may the creditor
treat negatively the fact that an applicant’s
only source of earned income is derived from
a part-time job.
Paragraph 6(b)(6).
1. Types o f credit references. A creditor
has the latitude to set reasonable restrictions
on the types of credit history and credit
references that it will consider, provided that
the restrictions are applied to all credit
applicants without regard to sex, marital
status, or any other prohibited basis.
However, a creditor may not refuse to
consider credit information solely because it
is from another creditor (such as a credit
union that does not regularly report credit
history) rather than from a credit bureau. If a
creditor denies an application because the
applicant’s credit references are not among
the types that the creditor accepts, the
statement of reasons given to the applicant
must be specific on this point. (See the
commentary to § 202.9)
Paragraph 6(b)(7).
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
1. N ational origin—immigration status. The
applicant’s immigration status and ties to the
community (such as employment and
continued residence in the area) could have a
bearing on a creditor's ability to obtain
repayment. Accordingly, the creditor may
consider and differentiate, for example,
between a noncitizen who is a long-term
resident with permanent resident status and
a noncitizen who is temporarily in this
country on a student visa.
Section 202.7 Rules Concerning Extensions
o f Credit
7(a) Individual accounts.
1. Open-end credit—authorized user. A
creditor may not require a creditworthy
applicant seeking an individual credit
account to provide additional signatures.
However, the creditor may condition the
designation by the account holder of an
authorized user on the authorized user’s
becoming contractually liable for the account,
as long as the creditor does not differentiate
on any prohibited basis.
2. Open-end credit—choice o f authorized
user. A creditor that permits ah account
holder to designate an authorized user may
not restrict this designation based on
relationships that discriminate on a
prohibited basis. For example, if the creditor
accepts the designation of an applicant’s
spouse as an authorized user, it may not
refuse to accept a non-spouse as an
authorized user.
3. Overdraft authority on transaction
accounts. If a transaction account includes an
overdraft line of credit, the creditor may
require that all persons authorized to draw
ort the account assume liability for any
overdraft.
7(b) Designation o f name.
1. Single name on account. A creditor may
require that joint applicants on an open-end
account designate a single name for purposes
of administering the account and that a single
name be embossed on the credit card(s)
issued on the account. But the creditor may
not require that the name be the husband’s
name. (See § 202.10 for rules governing the
furnishing of credit history on accounts held
by spouses.)
7(c) Action concerning existing open end
accounts.
Paragraph 7(c)(1).
1. Termination coincidental with m arital
status change. When there is a change in an
account holder's marital status, a creditor
generally may not terminate an account
unless it has evidence that the account holder
is unable or unwilling to repay. But the
creditor may terminate an account on which
both spouses are jointly liable, even if the
action coincides with a change in the account
holder's marital status, when one or both
spouses:
• Repudiate responsibility for future
charges on the account.
• Request separate accounts in their own
names.
• Request that the account be closed.
Paragraph 7(c)(2).
1. Procedure pending reapplication. A
creditor may require a reapplication from a
contractually liable party, even when there is
no evidence of unwillingness or inability to
repay, if the credit was based on the
qualifications of an applicant who is no
longer available to support the credit. The
creditor may specify a reasonable time period
within which the consumer must submit the
required information. 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
terminate, suspend, or otherwise restrict
access to a contractually liable party only as
permitted by § 202.7(c)(1).
2. Updating information. A creditor may
periodically request updated information
from applicants, but may not use events
related to a prohibited basis—such as an
applicant’s retirement or change in name,
marital status, or age—to make such a
request.
7(d) Signature o f spouse or other person.
1. Qualified applicant. The signature rules
assure that qualified applicants are able to
obtain credit in their own names. Thus, when
an applicant requests individual credit, a
creditor may not require the signature of
another person unless the creditor has first
determined that the applicant alone does not
qualify for the credit requested.
2. Unqualified applicant. When an
applicant 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 commentary to § 202.7(d)(5) and
(6).)
Paragraph 7(d)(1).
1. Joint applicant. The term “joint
applicant” refers to someone who applies
contemporaneously with the applicant for
shared or joint credit. It does not refer to a
person whose signature is required by a
creditor as a condition for granting credit
under § 202.7(b)(5).
Paragraph 7(d)(2).
1. Jointly ow ned property. In determining
the value of the applicant’s interest in jointly
owned property, a creditor may consider
factors such as the form of ownership and the
property’s susceptibility to attachment,
execution, severance, or partition 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:
• Offering the signature of the co-owner of
the property on an instrument to assure
access to the property, but not to impose
personal liability. ’
• Requiring an additional party under
§ 202.7(d)(5).
• Offering to grant the applicant's request
on a secured credit basis.
Paragraph 7(d)(3).
1. Permissible questions. In assessing the
creditworthiness of a person who applies for
credit in a community property state, a
creditor may:
• Assume that the applicant is a resident
of the state, unless the applicant indicates
otherwise.
• Ask the applicant’s marital status.
• Obtain any information about the spouse
of an applicant that may be requested about
an applicant.
10913
2. Consideration o f community income.
Under the equal management laws of some
community property states each spouse,
acting alone, may have the power to manage
and control all of the community property,
including the earnings of the other spouse. In
such a state, if one spouse requests
unsecured credit relying on the
nonapplicant's earnings, a creditor must treat
the income as community property. It may
not require the signature of the nonapplicant
spouse on the application, note, or other
credit instrument
Paragraph 7(d)(4).
1. Creation o f enforceable lien. Some state
laws require that both spouses join in
executing any instrument by which real
property is encumbered. If an applicant offers
such property as security for credit, a creditor
may require the applicant’s spouse to sign the
instruments necessary to create a valid
security interest in the property. The creditor
may not require the spouse to sign the note
evidencing the credit obligation if signing the
mortgage or other security agreement is
sufficient to make the property available to
satisfy the debt in the event of default.
However, if under state law both spouses
must sign the note to create an enforceable
lien, the creditor may require them to do so.
2. Need for signature—reasonable belief.
Generally, a signature to make the secured
property available will only be needed on a
security agreement. A creditor’s reasonable
belief that, to assure access to the property,
the spouse's signature is needed on an
instrument that imposes personal liability
should be supported by a 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
integrated instrument if the signature is only
needed to perfect the security. But the spouse
could be asked to sign an integrated
instrument which makes clear that the
spouse’s signature is only to perfect security
and that signing the instrument does not
impose personal liability. For example, a
legend placed next to the spouse's signature
could make clear that the signature is only to
perfect security and does not impose
personal liability.
Paragraph 7(d)(5).
1. Qualifications o f cosigners. In
establishing guidelines for eligibility of
cosigners, a creditor may restrict the
applicant’s choice of cosigners but may not
discriminate on the basis of sex, marital
status or any other prohibited basis. For
example, the creditor could require that the
cosigner live in the creditor's market area,
but not that the spouse be the cosigner.
2. Income o f another person. An applicant
who requests individual credit relying on the
income of another person (such as a spouse)
may be required to provide the signature of
that other person to make the income
available to pay the debt. In community
property states, the signature may be
required if the applicant relies on the
separate income of another person, i.e.,
10914
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
income or other property that, as a matter of
state law, is not community property.
3. Renewals. When a fixed-term credit
obligation is renewed, a creditor may not
carry forward, or continue to require the
signature of a cosigner or other additional
party unless the creditor determines the
applicant’s creditworthiness at renewal
continues to warrant an 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 contained in § 202.7(d)
bar a creditor from requiring the signature of
a guarantor’s spouse in the same way that
they bar the credit from requiring the
signature of an applicant’s spouse. For
example, when all officers of a closely held
corporation are required to personally
guarantee a corporate loan, an officer who is
married may not be required to provide the
signature of the spouse if no additional
signatures would be sought from an
unmarried officer.
7 (e) Insurance.
1. Differentiation. Differentiation in the
availability, rates, and terms on which creditrelated casualty insurance or credit life,
health, accident, or disability insurance is
offered or provided to an applicant does not
violate Regulation B.
2. Insurance information. A creditor may
obtain information about an applicant's age,
sex, or marital status for insurance purposes.
The information may only be used, however,
for determining eligibility and premium rates
for insurance, and not in making the credit
decision.
Section 202.8 Special Purpose Credit
Programs
8(a) Standard qualified programs.
1. Determining qualified programs. The
Board does not determine whether individual
programs qualify for special purpose credit
status, or whether a particular program
benefits an “economically disadvantaged
class of persons." The agency or creditor
administering or offering a loan must make
these decisions regarding the status of its
program.
2. Compliance with program authorized by
federal or state law. A creditor does not
violate Regulation B when it complies in good
faith with a regulation promulgated by the
administering government agency
implementing a special-purpose credit
program under § 202.8(a)(1). The
responsibility lies with the administering
agency to promulgate a regulation that is
consistent with applicable federal and state
law.
3. E xpressly authorized. A credit program
expressly authorized by federal or state law
includes programs authorized by federal,
state and local statute, regulation or
ordinance, or by judicial or administrative
order.
8(b) Rules in other sections.
1. A pplicability o f rules. A creditor that
denies an application because the applicant
does not meet the eligibility requirements
(common characteristic or financial need, for
example) must still notify the applicant of
action taken as required in § 202.9.
8(c) Special rule concerning requests and
use o f information.
1. Example. Examples of programs under
which the creditor can ask for and consider
information related to a prohibited basis are:
• Energy conservation improvements
credit programs for the elderly, for which the
creditor must consider the applicant’s age.
• Programs under a Minority Enterprise
Small Business Investment Corporation, for
which a creditor must ask and consider the
applicant’s minority status.
8(d) Special rule in the case o f financial
need.
1. Examples. Examples of programs in
which financial need is a criterion are:
• Housing subsidy programs for low to
moderate income households, for which a
creditor may have to consider the applicant’*
receipt of alimony or child support, the
spouse's income, etc.
• Student loan program based on the
family’s financial need, for which a creditor
may have to consider the spouse’s financial
resources.
2. Student loans. In a guaranteed student
loan program, a creditor may obtain the
signature of a parent as guarantor when it is
required by federal or state law or agency
regulation, or when the student does not meet
the creditor’s standards of creditworthiness.
(See § 202.7(d)(1) and (5).) A signature may
not be required when a student has a work or
credit history that satisfies the creditor’s
standards.
Section 202.9 Notifications
1. Withdrawn applications. If an applicant
expressly withdraws a credit application, the
creditor is relieved of the notification
requirements under § 202.9. The creditor
must, however, comply with the record
retention requirements of the regulation. (See
§ 202.12(b)(4).)
2. Form o f notice. The information for
notifications required under § 202.9 may
appear on either or both sides of a paper if
there is a clear reference on the front to any
information on the back.
9(a) N otification o f action taken, ECOA
notice, and statem ent o f specific reasons.
Paragraph 9(a)(1).
1. Timing. Once a creditor has obtained all
the information it normally considers in
making a credit decision, the application is
complete and the creditor has 30 days in
which to notify the applicant of the credit
decision.
2. Notification o f action. Notification
occurs when a creditor delivers or mails a
notification to the applicant's last known
address or, in the case of an oral notification,
when the creditor communicates with the
applicant.
3. N otification o f approval. Notification of
approval may be express or by implication.
For example, the creditor will satify the
notification requirement if it gives the
applicant the credit card, money, property, or
services requested.
4. Incomplete application. A creditor that
receives an application that is incomplete,
but that contains sufficient information on
which to base a credit decision, may deny the
application and notify the applicant of the
denial in accordance with § 202.9(a)(1). It
need not follow the alternative notice
procedure contained in § 202.9(c).
5. Timing o f counteroffer. A creditor must
notify an applicant of a counteroffer within
30 days of receiving a completed application.
6. Counteroffers. Section 202.9(a)(l)(iv)
does not require a creditor to hold a
counteroffer open for 90 days or for any
particular length of time.
7. Counteroffer—combined notice. A
creditor that gives the applicant a combined
counteroffer and adverse action notice that
complies with § 202.9(a)(2) need not send a
second adverse action notice if the applicant
does not accept the counteroffer.
9(b) Form o f ECOA notice and statem ent of
specific reasons.
Paragraph 9(b)(1).
1. Substantially sim ilar notice. The ECOA
notice sent with a notification of a credit
denial will comply with the regulation if it is
“substantially similar" to the notice
contained in § 202.9(b)(1). For example, a
creditor may add a reference to the fact that
the ECOA permits age to be considered in
certain credit'scoring systems. In addition, a
creditor may include as part of the notice 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 specific number of reasons be
disclosed, but disclosure of more than four
reasons is not likely to be helpful to the
applicant.
2. Source o f specific reasons. The specific
reasons disclosed under § 202.9 (a)(2) and
(b)(2) must relate to and accurately describe
the factors actually considered or scored by a
creditor.
3. Specificity of reason. Creditors neet not
describe how or why a factor adversely
affected an applicant. For example, the notice
may say “length of residence” rather than
“too short a period of residence."
4. Credit scoring system . If a creditor bases
the denial on a credit scoring system, the
reason disclosed must relate only to those
factors actually scored in the system.
Moreover, no factor that was considered may
be excluded from disclosure. The creditor
must disclose reasons actually considered
(for example, “age of automobile") even if the
relationship of that factor to predicting
creditworthiness may not be clear to the
applicant.
•5. Judgmental system . If a creditor uses a
judgment system, the reasons for the denial
must relate to those factors in the applicant's
record actually reviewed by the person
making the decision.
6. Combined credit scoring/judgmental
system . If a creditor denies an application
based on a credit evaluation system that
employs both credit scoring and judgment
components, the reasons for the denial must
come from the ^omponent of the system that
the applicant failed. For example, if a creditor
initially credit score an application and
denies the credit request as a result of that
scoring, the reasons disclosed to the
applicant must relate to the factors actually
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
score 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.
7. Autom atic denial. Some credit decision
methods contain features that call for
automatic denial because 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) cannot be offset by
other information about the applicant. When
a creditor denies the credit request because
of an automatic factor, the creditor must
disclose that specific factor.
8. Credit scoring—method for selecting
reasons. The regulation does not require that
any one method be used for selecting reasons
for credit denial that is based on a credit
scoring system. Various methods will meet
the requirements of the regulation. One
method is to identify the factors for which the
applicant’s score fell furthest below the
average score for each of those factors
achieved by applicants whose total score
was at or slightly above the minimum passing
score. Another method is to identify the
factors for which the applicant’s score fell
furthest below the average score for each of
those factors achieved by all applicants.
These average scores could be calculated
during the development or use of the system.
Any other method that produces results
substantially similar to either of these
methods is also acceptable under the
regulation.
9. Combined ECOA-FCRA disclosures.
Sample forms C -l through C-8 of Appendix C
provide for two disclosures, one under the
ECOA and the other under the Fair Credit
Reporting Act (FCRA). The ECOA requires
disclosure of the principal reasons for
denying an application for an extension of
credit. The FCRA requires that when a
creditor has based a decision in whole or in
part on information from a source other than
the applicant or the creditor, that fact must be
disclosed. Disclosing that a credit report was
obtained and used to deny the application—
the disclosure under FCRA—does not satisfy
the requirement under the ECOA for
disclosure of specific reasons. For example, if
the applicant’s credit history reveals
delinquent credit obligations and the
application is denied for that reason, to
satisfy § 202.9(b)(2) the creditor must disclose
that the application was denied because of
the applicant’s deliquent credit obligations.
To satisfy the FCRA requirement, the creditor
must also disclose that a credit report was
obtained and used to deny credit.
9(c) Incomplete applications.
Paragraph 9(c)(2).
1. Reapplication. If the information
requested is submitted after the expiration of
the time period designated by a creditor, the
creditor may require the applicant to make a
new application.
Paragraph 9(c)(3).
1. Oral inquiries for 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 perfod specified
in | 202.9(c)(1) and (c)(2). If the applicant
does provide the information, the credit shall
iake action on the application pursuant to
section 202.9(a).
9(f) M ultiple creditors.
1. Third-party notice—content. If a single
adverse action notice is being provided to an
applicant on behalf of several creditors, and
they are under the jurisdiction of different
federal enforcement agencies, the notice need
not name each agency; disclosure of any one
of them will suffice.
2. Inadvertent error. When a notice is to be
provided through a third party, a creditor is
not liable for any 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
adopted to prevent such violations.
Section 202.10 Furnishing o f Credit
Information
1. Scope. The requirements of section
202.10 for designating and reporting credit
information apply only to creditors that
furnish credit information to credit bureaus or
to other creditors. There is no requirement for
a creditor to engage in such reporting.
2. Reporting on all accounts. The
requirements of § 202.10 apply only to
accounts held or used by spouses. However,
a creditor has the option of designating all
joint accounts (or all accounts with an
authorized user) to reflect the participation of
both parties, whether or not the accounts are
held by persons married to each other.
3. Designating accounts. In designating
accounts and reporting credit information, a
creditor need not distinguish between
accounts on which the spouse is an
authorized user and accounts on which the
spouse is a contractually liable party.
4. File and index system s. The regulations
does not require the creation or maintenance
of separate files in the name of each
participant on a joint or user account, or
require any other particular system of
recordkeeping or indexing. It requires only
that a creditor be able to report information
in the name of each spouse on accounts
covered by § 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. A
creditor may establish whatever system will
enable its employees to locate the credit file.
10(a). Designation o f accounts.
1. N ew parties. If a creditor learns that new
parties who are spouses have permanently
undertaken payment on an account, as in the
case of a mortgage loan assumption, the
creditor should change the designation on the
account to reflect the new 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 information 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.
10915
Section 202.12 Record Retention
12(a) Retention o f prohibited information.
1. Use o f retained information. Although a
creditor may retain information as provided
in § 202.12(a), its use of the information
remains subject to the limitations of § 202.6.
12(b) Preservation o f records.
1. Copies. A copy of the original record
includes carbon copies, photo copies,
microfilm or microfiche copies, or copies
produced by any other accurate retrieval
system, such as documents stored and
reproduced by computer.
2. Computerized decisions. A creditor that
enters information items from a written
application into a computerized or
mechanized system and makes the credit
decision mechanically, based only on the
items of information entered into the system,
may comply with §202.12(b) by retaining the
information actually entered. It need not
store the complete written application, nor is
it required to enter the remaining items of
information into the system. If the transaction
is subject to § 202.13, however, the creditor is
required to retain the data on personal
characteristics in order to comply with the
requirements of that section.
Paragraph 12(b)(4).
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. In such
cases, the 25-month requirement runs from
the date of application, as when:
• An application is withdrawn by the
applicant.
• An application was submitted to more
than one creditor on behalf of the applicant,
and the application was approved by one of
the other creditors. .
12(c) Failure o f compliance.
1. Inadvertent errors. Inadvertent errors
include, but are not limited to, clerical
mistake, calculation error, computer
malfunction, and printing error. An error of
legal judgment is not a bona fide error under
the regulation.
Section 202.13 Information Requests for
Dwelling-Related Loans
13(a) Information to be requested.
1. Natural person. The requirements of
§ 202.13 apply only to applications from
natural persons.
2. Principal residence. The requirements of
§ 202.13 apply only if an application relates
to a dwelling that is or will be occupied by
the applicant as the principal residence. A
credit application related to a vacation home
or a rental unit is not covered. In the case of
a two-to-four unit dwelling, the application is
covered if the applicant intends to occupy
one of the units as a principal residence.
3. N ew principal residence. A person can
have only one principal residence at a time.
However, if a person buys or builds a new
dwelling that will become that person’s
principal residence within a year or upon
completion of construction, the new dwelling
is considered the principal residence for
purposes of § 202.13.
10916
Federal Register / Vol. 50, No. 52 / Monday, March 18, 1985 / Proposed Rules
4. Temporary financing. An application for
temporary financing to construct a dwelling
is not subject to § 202.13. But an application
for both a temporary loan to finance
construction of a dwelling and a permanent
mortgage loan to take effect upon the
completion of construction is subject to
§ 202.13.
5. Loan purpose. Only loans made for the
purposes stated in § 202.13 are covered. For
example:
• A loan to finance school expenses is not
for a covered purpose even though it is
secured by the applicant’s principal
residence.
• A loan to finance an addition to the
applicant’s principal residence, and secured
by it, to be used as a business office, if for a
covered purpose since it is for an
improvement to the dwelling.
• A loan to finance both an addition to the
upplicant's principal residence and a family
vacation is not for a covered purpose if the*
primary purpose of the loan is the vacation.
A creditor may rely on the statement of the
applicant about the primary purpose of the
loan to determine coverage.
6. Open-end home equity loans. An
application for an open-end line of credit
based upon the borrower’s equity in a
principal residence and secured by that
dwelling is not subject to § 202.13.
7. Refinancings. An application submitted
to the original creditor to change the term6
and conditions of an existing extension of
credit is not subject to § 202.13 if the
monitoring information was obtained on the
original application for credit or subsequent
financing. However, § 202.13 does cover an
application for refinancing that is made to
other than the original creditor.
13(b) Method of obtaining information.
1. Forms for collecting data. A creditor may
collect the information specified in
§ 202.13(a) either on an application form or
on a separate form refering to the application.
2. Written applications. The regulation
requires written applications for the types of
credit covered by § 202.13. (See the
commentary to § 202.5(e).)
3. Telephone, mail applications. If an
applicant does not apply in person for the
credit requested, a creditor does not have to
complete the monitoring information. For
example:
• A creditor that accepts applications by
telephone does nol have to request the
monitoring information in the course of the
telephone conversation.
• A creditor that accepts applications by
mail does not have to make a special request
to the applicant if the applicant fails to
complete the monitoring information on the
application form sent to the creditor.
However, if the applicant later appears in
person at the creditor's place of business to
complete the processing of the application or
to close the loan, the creditor should seek and
note the information at that time. (See
commentary to S 202.5(e)).
4. Applications through loan shopping
services. Wnen a creditor accepts
applications through an unaffiliated loan
shopping service, that application is not
subject to the requirements of § 202.13. (See
commentary to § 202.2(1).)
5. Inadvertent notations. If a creditor
inadvertently obtains the monitoring
information in a transaction not covered by
§ 202.13, the creditor may act on and retain
the application without violating the
regulation. (See § 202.12(a).)
13(c) Disclosure to applicant(s).
1. Procedures for providing disclosures.
The disclosures to an applicant regarding the
monitoring information must be provided in
writing. Appendix B contains a sample
disclosure. However, a creditor may devise
its own disclosure so long as it is
substantially similar. The creditor need not
orally request the applicant to provide the
monitoring information.
By order of the Board of Governors of the
Federal Reserve System, March 7,1985.
William W. Wiles.
Secretary o f the Board.
(FR Doc. 85-5877 Filed 3-15-85: 8:45 am]
BILLING CODE 6210-01-M
@FedFRASER