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FEDERAL RESERVE BAMIK
OF MEW YORK
[
Circular No. 10258 ~|
August 24, 1988
E Q U A L C R E D IT O P P O R TU N ITY
Proposed Preemption Determination Under Regulation B
Comment Invited by September 12
To A ll Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:
The Board o f Governors of the Federal Reserve System has issued for com m ent a proposed
determ ination that a provision in New York law relating to the offering o f special-purpose credit
program s should be preem pted by R egulation B. As indicated in the B oard’s notice in this m atter,
which has been reprinted from the F e d e r a l R e g is te r , a prelim inary determ ination has been made
that the New Y ork law is preem pted to the extent that it bars a creditor from offering a specialpurpose credit program .
Printed below is the text o f the B oard’s notice in this m atter. Com m ents thereon should be
subm itted by Septem ber 12, 1988 and may be sent to the Board, as indicated in the notice, or to
the C om pliance Exam inations Departm ent.
E. G e r a l d C o r r ig a n ,
P r e s id e n t.
FED ER A L R ESERVE S Y S TEM
12 Cm Part 202
[Re®.
Eqyai
Docket No. R-0642]
Preem pt
Opportunity; Horens ft®
York Lua
a©EMCY: Board of Governors of Federal
Reserve System.
z&evi@W! Notice of intent to make
preemption determination.
syram&w; The Board is publishing for
comment a proposed determination that
a certain provision in New York law,
Article 15, section 2SS~a, is inconsistent
with the Equal Credit Opportunity Act
and Regulations B. Any provision of
state law that is inconsistent with the
federal law, unless more protective, is
preempted.
The inconsistency in this case has to
do with the offering of special purpose
credit programs. Both the federal and
the New York state law prohibit credit
discrimination on the basis of race,
color, national origin, religion, sex,
martial status or age. (In addition, the
federal law bars discrimination based
on receipt of income from public
assistance programs or the good-faith
exercise of any rights under the
Consumer Credit Protection Act; and the
New York law bars discrimination
based on disability.] However, whereas
the federal law permits creditors to offer
special-purpose credit programs in
which program participants may be
required to share one or more of these
characteristics, New York law permits
no exceptions. The Board has made a
preliminary determination that the New
York law is preempted to the extent that
it bars a creditor from offering a specialpurpose credit program.
oats; Comments must be received on or
before September 12,1888.
^oPKESiis: Comments should be
mailed to William W. Wiles, Secretary,
Board of Governors of the Federal
Reserve System, Washington, DC 20551,
or delivered to the Mail Services
Courtyard Entrance on 20th Street
between C Street and Constitution
Avenue, NW., Washington, DC between
8:45 a.m. and 5:15 p.m. weekdays.
Comments should include a reference to
Docket No. R-0842. Comments may be
inspected in Room B-1122 between 8:45
a.m. and 5:15 p.m. weekdays.
FOR FURTHER RSFORSfATtOft ©OOT&gTfS
Linda Vespereny, Staff Attorney,
(OVER)
Division of Consumer and Comimmity
Affairs, Board of Governors of the
Federal Reserve System, Washington,
DC 20551, (202) 452-2412; for the
hearing-impaired only, contact
Eamestine Hill or Dorothea Thompson,
Telecommunications Device for t e Deaf
(TDD) at (202) 452-3544.
SUPPLEMENTARY INFORMATION.* (1)
G e n e r a l . The Board has been asked to
determine whether certain provisions of
New York, law are inconsistent with,
and therefore preempted by, the Equal
Credit Opportunity Act (ECOA) (15
U.S.C. 1601 e t s e q . ) and Regulation B (12
CFR Part 202). The request came from an
organization set up specifically to
guarantee loans made in the United
States to overseas Chinese residing in
the United States. This request is
available for public inspection and
copying, subject to the Board’s rules
regarding availability of information (12
CFR Part 201). Section 705(f) of the
ECOA authorizes the Board to
determine, for purposes of preemption,
whether an inconsistency exists
between a provision of the act and a
state law relating to credit
discrimination.
This notice of proposed preemption is
based on a review of the New York and
the ECOA provisions. It is issued under
authority delegated to the Director of the
Division of Consumer and Community
Affairs, as set forth in the Board’s rules
regarding delegation of authority (12
CFR Part 205).
(2)
D e t e r m i n a t i o n o f P r e e m p t i o n . Th«
ECOA and Regulation B prohibit
discrimination in any credit transection
on the basis of race, color, national
origin, religion, sex, marital states, age,
receipt of income from public assistance
programs, or the good-faith exercise of
any rights under the Consumer Credit
Protection Act. However, § 202M of the
regulation (which implements section
701(c) of the ECOA) permits a creditor
to extend special-purpose credit to
individuals who meet certain eligibility
requirements, and to consider one or
more common characteristics of
program participants (for example, race
or national origin) when extending
credit under these programs.
Under section 705 of the ECOA and
§ 202.11 of Regulation B, state law
provisions that are inconsistent with the
requirements of the act and the
regulation are preempted. Section
202.11(b){v) of Regulation B also
provides that a state law is inconsistent
with the requirements of the federal law
to the extent that the state law prohibits
inquiries necessary to establish or
administer a special-purpose credit
program as defined by § 202.8.
(3)
C o m p a r is o n o f N e w Y o r k L a w a n d
R e g u l a t i o n B . Preemption
determinations generally are limited to
those provisions of state law identified
in the request for a Board determination.
New York Law, Article 15, section 298a(l) is the primary focus of this inquiry.
The language of this New York
provision is set forth below, along with
an analysis of it in light of Regulation B.
The relevant portions of section 298a(l) —"Unlawful discriminatory
practices in relation to credit” read as
follows:
It sh all b e an unlawful discrim inatory
practice for any creditor or any officer, agent
or em p loyee thereof:
*
*
*
*
*
(b) T o discrim inate m the granting,
w ithholding, e x t e n d i o r renewing, or in the
fixing o f the rates, terms or conditions of, any
farm o f credit, on the b asis o f race, creed,
color, national origin, age, se x marital statu s
or disab ility.
(c) T o use any form of application for credit
or use or m ake any record or inquiry w hich
ex p resses, directly or indirectly, any
lim itation, sp ecification , or discrim ination as
to race, creed, color, national origin, age. sex,
marital statu s or disab ility * 4 *.
This ssctkm of the New York Human
Rights law prohibits credit
discrimination based on an applicant’s
or class of applicants' race, creed, color,
national origin, sex, marital status or
disability. Moreover, creditors may not
make any record or inquiry regarding
these characteristics. Based on the
Board's analysis and discussions with
officials of New York agencies, neither
this nor any other section of the New
York law appears to permit exceptions.
The Board has made a comparison of
these provisions—New York statute
section 296-a(l) (b) and (c)—to § 202.8
of the Regulation B, which implement
section 701(c) of the federal statute.
Section 202.8 allows for taking a
prohibited basis into account when
certain special-purpose credit programs
are involved. It allows creditors to offer
credit assistance programs authorized
by federal or state law, or established
by a not-for-profit organization, for the
benefit of an economically
disadvantaged class of persons. It
allows not-for-profit organizations to
offer credit assistance programs for the
benefit of their members. In addition,
for-profit organizations may provide
special-purpose credit programs to meet
special social needs if the programs are
administered pursuant to a written plan
that identifies the class of persons the
particular program is designed to
benefit. In these special-purpose credit
programs, participants may be required
to share one or more common
characteristics, such as race, national
origin, or sex. If participants are
required to possess a common
characteristic, the creditor may request
and consider information regarding that
particular characteristic.
Under New York law the
establishment of a special-purpose
credit program, though permissible
under the ECOA and § 202.8, would be
unlawful since section 296-a (1) of the
Human Rights law prohibits, without
exception, discrimination on the basis of
the specified characteristics.
Furthermore, creditors are expressly
prohibited under New York law from
even inquiring about these
characteristics.
(4) P r o p o s e d D e t e r m i n a t i o n a n d E f f e c t
Based on its analysis, the
Board has made a preliminary
determination that the New York law on
credit discrimination is inconsistent
with federal law, and that it is
preempted by the ECOA and Regulation
B to the extent of the inconsistency.
Thus, if the preliminary determination is
ultimately adopted following the
comment period, the state of New York
would be barred from prohibiting
special-purpose credit programs that are
permissible under federal law.
The Board makes no determination,
however, as to whether a particular
program qualifies as a special-purpose
credit program under Regulation B. As
explained in comment 8(a)-l of the
official staff commentary to the
regulation (12 CFR Part 202, Supp. 1) the
agency or creditor administering or
offering the loan program must make the
determination.
(5) C o m m e n t R e q u e s t e d . Interested
persons are invited to submit comments
regarding the proposed finding that the
New York statute section 295-a is
preempted by ECOA and Regulation B.
After the close of the comment period
and an analysis of the comments
received, notice of final action will be
published in the Federal Register.
o f P r e e m p tio n .
Board o f G overnors o f the Federal R eserve
System . July 11,1988.
William W. Wiles,
Secretary o f the Board.
[FR D oc. 88-16025 Filed 7-15-88; 8:45 am]
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