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FEDERAL RESERVE BANK OF NEW YORK r Circular No. 7 9 2 4 n L July 28, 1976 J PROPOSED REVISION OF REGULATION B IMPLEMENTING THE 1976 AMENDMENTS TO THE EQUAL CREDIT OPPORTUNITY ACT T o A l l M e m b e r B a n k s , a n d O th e r s C o n cern ed , in the Second Federal Reserve D istrict: Following is the text of a statement issued July 15 by the Board of Governors of the Federal Reserve System: T he B oard of G overnors of the F ederal R eserve System today proposed for public comment a revision of its R egulation B, to im plem ent the 1976 A m endm ents to the Equal Credit O pportunity Act. T he B oard will receive w ritten com m ent on its proposals through Septem ber 1, 1976. T he B oard also announced it will hold a hearing on the proposals on A u g u st 12 and 13, 1976. T he 1976 A m endm ents to the Act prohibit discrim ination in extensions of credit based on race, color, religion, national origin, age, receipt of income from public assistance program s and good faith exercise of rights under the C onsum er C redit P rotection Act. T he A m endm ents become effective M arch 23, 1977. T he original E C O A , effective last O ctober 28, prohibited discrim ination on the basis of sex or m arital status. T he B o ard ’s Regulation B, im plem enting the original Equal C redit O pportunity A ct, and the proposed revision of the R egulation B announced today, were w ritten at the direction of Congress. T he proposed revision of the regulation would supersede the existing Regulation B. H ow ever, the existing regulation rem ains in effect until the effective date of the new am endm ents next M arch 23, and creditors are required to comply w ith it until then. T he B oard s regulation would continue to be enforced by the Federal agencies designated in the A ct.1 T he principal provisions of Regulation B, as proposed, would b e : # Coverage: T he regulation w ould cover anyone who regularly participates— in the ordinary course of business— in decisions w hether or not to extend credit. T his would include anyone, other than those who only occasionally extend credit, who provides or extends credit and participates in the credit decision. S e x a n d m a r i t a l s t a t u s : T he provisions of the existing regulation, dealing only w ith prohibitions of dis crim ination in extensions of credit based on sex and m arital status rem ain essentially unchanged in the p ro posed revision of R egulation B. A p p l i c a t i o n s : Since many creditors, particularly small creditors, have had difficulty designing credit application form s, the B oard proposed to assist them by supplying model forms. C reditors who used the model form s would be assured of being in compliance. H ow ever, creditors could continue to design their own forms, or could revise the model form s, but they would then bear responsibility for being in compliance w ith the inform ation requirem ents of the regulation. A d v e r s e a c t i o n : T his is a new definition in the B oard's proposed revised Regulation B. It describes actions th at would require a creditor to provide an applicant with a statem ent of reasons for an adverse action. It also would set in m otion fulfillment of requirem ents relating to w ritten notice of any adverse action taken notice of rights under E C O A and the requirem ents of the proposed regulation concerning retention of records! T he B oard proposed definitions both of w hat constitutes an adverse action, and what does not. A d v e r s e a c tio n h a s o c c u r r e d : — if a creditor refuses to g ran t credit in an am ount and on term s acceptable to the applicant. 1 Enforcement agencies a re : Comptroller of the Currency, Board of Directors n f th e P erW o i u t r r — if the creditor term inates an account or m akes an unfavorable change in the term s of an account so long as th e action does not affect all or a substantial portion of a class of the cred ito r’s accounts. — if an applicant has intentionally inform ed a cred ito r th at the applicant w ants his or her credit limit to be increased and the creditor refuses. A d v e r s e a c tio n h a s n o t o c c u r r e d : — if the applicant accepts am ounts and term s of credit different from those applied for. — if a cred ito r’s action is due to inactivity, default or delinquency by an applicant. — if a creditor who does not raise an applicant’s credit limit has not been made aw are that the applicant w ished to increase the limit. F o r instance, a refusal to authorize a point-of-sale transaction th at exceeds a p re viously established credit lim it w ould not be an adverse action. N o t i f i c a t i o n o f a c t i o n a n d s t a t e m e n t o f r e a s o n s : T h e Board proposed, to carry out requirem ents of the revised A ct, th at w henever an adverse action has been taken the applicant should receive notice of the action, a statem ent telling the applicant of rights under E C O A and a statem ent of specific reasons for the adverse action (o r disclosure of the applicant’s right to get such an explanation). T he content of all the notices is substantially the same as in the existing regulation, but they are to be provided together in o rder to enhance public understanding. A change from the existing regulation is a proposal th at the statem ent of rights under E C O A should be provided only to persons against whom an adverse action has been taken, rath er than supplying it to all applicants. T he proposal provides a sam ple notice of E C O A rights. U nlike the existing regulation, it need not be used verbatim but m ay be in language substantially the same as the language of the sample notice. T he te x t of the proposed sample notice is identical to the existing notice, except th at the prohibitions of the 1976 A m endm ents to the A ct have been added. T h e B oard also provided a sample statem ent of specific reasons for adverse action. T his is sim ilar to the existing statem ent of reasons for adverse action except for a change in the title, to indicate that it m ust be used in all cases of adverse action and not, as at present, only in cases of denial or term ination of credit. C reditors who use the sample form supplied w ould be in compliance w ith the regulation and the Act. T he A ct provides th a t creditors who received 150 or fewer applications for credit in the preceding year be allowed to give the above notices orally. R e t e n t i o n o f r e c o r d s : R equirem ents under the B oard’s proposed revision of Regulation B for the preservation of records are essentially the same as in the existing regulation. T he chief difference is that the retention period proposed is 25 m onths (since the am ended A ct establishes a statute of lim itations of 24 m onths) instead of the present 15 m onths. A g e : T o im plem ent the prohibition of the A ct against assigning negative weight to advancing age of an applicant for credit, the B oard proposed that elderly applicants capable of contracting m ust not be assigned a low er score, on account of age, than applicants who get the best score for age. T h at is, if an applicant is 65 and the cred ito r assigns the highest value for age to applicants of 55 to 60 years, the 65-year-old applicant m ust get at least as good a score on account of age as do applicants of 55 to 60 years. H ow ever, advancing age could be used as a favorable element. T he am ended A ct provides th at a creditor may consider age in a properly developed empirically derivec credit system — credit scoring for age. T he B oard proposed that such a system be defined as one that predicts on the basis of a num erical score, an applicant’s probable willingness and financial ability to repay the requestet credit. T he score w ould be derived from points assigned to key questions determ ined and weighted ii accordance w ith past experience w ith applicants for credit. T he B oard also proposed standards for wha would constitute a dem onstrably and statistically sound credit system as one developed by the applicatioi of, and in accordance w ith, generally accepted sam pling procedures and principles, having a statisticall significant relation to credit risk under accepted standards of analysis, and developed for the purpose c predicting the creditw orthiness of applicants in relation to the legitim ate business interests of the creditoi such as to m inim ize bad debt losses and operating expenses. (Section 202.2(o ) ). Inquiries may be m ade concerning age in all cases, but the use of this inform ation would be re stric ts u n d er the B o ard ’s d raft rules, to the assessm ent of creditw orthiness and may not be used arb itrarily to ci off o r dim inish credit due to an applicant’s age. 2 T he proposal would forbid creditors to require a reapplication, change the term s of an account o r te r m inate an account because a person reaches a certain age or retires, if the applicant has not dem onstrated unw illingness o r inability to repay. T he B oard specified th at considerations of age would apply only to natural persons, not to businesses. C r e d i t o r s ’ r e q u e s t f o r i n f o r m a t i o n : W ith two additions, to conform to the 1976 A m endm ents to the A ct, the B oard s proposed rules w ith respect to cred ito rs’ requests for inform ation are approxim ately the same as in the existing regulation. T he tw o new rules proposed a r e : 1. E xcept for authorized data g ath erin g purposes and special purpose credit program s, a creditor m ay not request inform ation on an application as to race, color, religion, sex or national origin of the applicant, or others associated w ith the applicant in the application. 2. A creditor may not request inform ation concerning the exercise by the applicant of any rig h t under the C onsum er C redit P rotection Act. R u l e s f o r t h e u s e o f i n f o r m a t i o n o b t a i n e d : In m aking its proposals for the use of inform ation obtained the B oard noted th a t in the legislative history of the am ended Act, the courts are directed to take account of the “effects” test developed in em ploym ent discrim ination cases. T he Board interprets the use of an “effects” test w ith respect to credit to m ean : “ . . . the use of certain inform ation in determ ining creditw orthiness, even though such inform ation is not specifically proscribed, m ay violate the am ended A ct if the use of th at inform ation has the effect of denying credit to (a substantial portio n ) of a class of persons protected by the A ct . . . unless the credi to r is able to establish th at the inform ation has a m anifest relationship to creditw orthiness.” E ven then, the B oard s a id : . . . if an aggrieved applicant could show th at a creditor could have used a less discrim inatory m ethod which would serve the cred ito r’s need to evaluate creditw orthiness as well as the challenged method, a violation m ay be found to ex ist.” S p e c i a l p u r p o s e c r e d i t p r o g r a m s : In general, this proposed new section of the regulation would perm it otherw ise discrim inatory actions by creditors who offer certain types of special credit assistance program s intended to achieve social or economic goals. In such circum stances the creditor may refuse to extend credit solely because an applicant does not qualify under the special requirem ents of a particular program recog nized under the proposed regulation. T hese in clu d e: 1. ^ C redit assistance program s expressly authorized by F ederal or S tate law for the benefit of an economically disadvantaged class of persons. 2. C redit assistance program s adm inistered by a non-profit organization (as defined by the Internal R evenue Code, Section 5 0 1 (c ) as am ended), for the benefit of its mem bers or for the benefit of an econo mically disadvantaged class of persons. 3. A ny special purpose credit program offered by a for-profit organization to meet special social needs *hat).are *n accorc* w ith the provisions of the regulation regarding such program s. (Section 202 8 ( a ) ( 3 ) (l) ( n ) and ( l i i ) ). w v ' I n f o r m a t i o n o b t a i n e d f o r m o n i t o r i n g p u r p o s e s : Solely for the data should be obtained, and on how and w hat the data should d raft revised regulation th at would, if adopted, require real estate applicants to facilitate enforcem ent of the Equal C redit O pportunity purpose of generating com m ent on w hether be, the Board included a proposal in its creditors to note certain characteristics of Act. T h e B oard invited com m ent on the following issues for its consideration in the event th at requirem ents for data g athering are adopted as a m eans of m onitoring compliance w ith the E C O A . 1. Should such a requirem ent be limited to credit extended for residential real estate? 2. Should it be lim ited to notation of race, or sex, or both, or should other types of prohibited discrim i nation such as religion, also be noted ? 3 A 3. W h at system of classification should be used to note race— ‘W h ite ” and “ N on-W hite,” self descrip tion by the applicant, or a system using such term s as “A m erican In d ian ,” “A laskan N ative,” “A sian ,” “ Pacific Islan d er,” “ Black,” “ H isp an ic” and “ W h ite” ? 4. Should any required inquiries be incorporated in the application form, or be on a separate sheet ? 5. Should applicants be required to answ er questions as to race and sex? If the applicant declines, should the creditor be required to note his own observations? Should a personal interview be required as p a rt of the application for the purpose of this notation for m onitoring compliance ? A re there other preferable approaches to m onitoring compliance ? 6. Should economic as well as dem ographic data be gathered, and if so, w hat economic data? W hat economic data do creditors norm ally obtain ? Should creditors be required to note income, num ber of dependents, etc? T he B oard included for com m ent an illustrative exam ple of possible regulatory language that could be used to institute a requirem ent th at creditors m ust obtain inform ation on the characteristics of persons apply ing for real estate credit, as a m eans of m onitoring compliance. E x e m p t i o n s : T h e am ended A ct provides that the Board may exem pt from one or more provisions of the A ct credit transactions “not prim arily for personal, family or household purposes” if the B oard finds that such an exem ption would not interfere w ith carrying out the purposes of the Act. T h e Board, consequently, requested com m ent on a series of questions as to w hat classes of credit tra n s actions, if any, should be exem pted. T hese questions a r e : Should an exem ption be related to the am ount of a borrow er’s or cred ito r’s assets? O r to the am ount of the transaction (fo r exam ple, one involving an am ount of $200,000 or m ore or $500,000 or m ore) ? O r to the cred ito r’s volum e of business? W h a t other factors may be relevant in distinguishing between those classes of transactions th a t should rem ain subject to the am ended A ct and those which m ay be exem pted in whole or in p a rt? F o r exam ple, should non-consum er transactions be treated differently regarding reten tion of records, notification of action taken, reasons for adverse action, and other procedural requirem ents? In addition to possible exem ptions for business credit, the B oard invited com m ent on the question as to how securities, incidental and utilities credit should be handled. i n c o n s i s t e n t S t a t e l a w s : T h e am ended Act authorizes the B oard to determ ine if State laws dealing with credit discrim ination are inconsistent with Federal law or regulation. Due to the great variety of State laws on this subject, the B oard proposed th at all State laws on credit discrim ination should be considered inconsistent until review ed by the B oard and determ ined to be inconsistent or consistent. L ater supplem ents to the B oard’s proposal, to be p repared before the effective date of the A ct and the regulation (M arch 23, 1977) will set forth criteria the B oard will use in m aking its determ inations and will provide procedures by which State officials m ay seek review of th eir laws. Printed below is an excerpt from the Federal Register (Vol. 41, No. 140) of July 20, 1976, containing the text of the proposal. Comments thereon should be submitted by September 1, 1976, and may be sent to our Bank Regulations Department. P aul A. V olcker, President. FEDERAL RESERVE SYSTEM [ 12 CFR Part 202 ] | D o c k e t N o. R -0 0 3 1 | EQUAL CREDIT OPPORTUNITY Notice of Proposed Rulemaking and Notice of Hearing The Board of Governors is considering amendments to Regulation B, Equal Credit Opportunity (12 CFR 202), to implement the 1976 Amendments to the Equal Credit Opportunity Act (Pub. L. 94-239). The original Equal Credit Op portunity Act (hereinafter referred to as the “Act”), which went into effect on October 28, 1975, prohibits discrimina tion in any aspect of a credit transaction on the basis of sex or marital status. The 1976 Amendments to the Act were signed into law on March 23, 1976, and became effective on March 23, 1977. They extend the Act’s prohibition of discrimination to include discrimination based on race, color, religion, national origin, age (pro vided the applicant has the capacity to contract), receipt of income from a pub lic assistance program and the good faith exercise of rights under the Consumer Credit Protection Act. Since the Amend ments substantially change the Act, numerous changes in existing Regulati B are necessary. The existing regulation remains in c feet, however, until March 23, 1977, a creditors are required to comply with provisions until that time. On April 27, 1976, the Board helc preliminary hearing to receive put comments and suggestions relating implementation of the Amendmer The Board will hold a hearing on Aug 12 and 13 on the p r o p o s e d amendme to Regulation B. REGISTER, V O l. 41, NO. 140— TUESDAY, JULY 20, 4 1976 S e c t io n 202.1—A u t h o r i t y , fo rcem en t, S cope, E n P e n a l t ie s a n d L i a b il it ie s This section includes material con tained in §§ 202.1, 202.12 and 202.13 of the existing regulation. S e c t i o n 202.2— D e f i n i t i o n s a n d R u l e s of C o n s t r u c t io n Section 202.2(a)—Definition of "Ac count". The Board proposes a minor change in the definition in existing Reg ulation B to clarify that, when the word “use” is employed in relation to the word "account” in the regulation, it refers only to open end credit accounts. Section 202.2(b)—Definition of "Act” . The definition of Act is unchanged from existing Regulation B, except to substi tute for the statutory citation a reference indicating that the Equal Credit Oppor tunity Act is Title VII of the Consumer Credit Protection Act, as amended. Section 202.2(c)—Definition of "Ad verse Action". This is a new definition. It is drawn from section 701(d) (6) of the amended Act. The definition describes the actions of a creditor which will trig ger the requirement imposed by section 701(d)(2) of the amended Act to pro vide an applicant against whom adverse action is taken with a statement of rea sons for the action. In addition, the de finition sets in motion the requirements of § 202.9(b) of the proposed regulation relating to written notice of the ad verse action taken and the ECOA notice, and the requirement under § 202.12(b) of the proposed regulation to retain records. Under the proposed definition, adverse action occurs if a creditor refuses to grant credit in an amount and on terms acceptable to the applicant. Thus, a re fusal to grant the amount of credit or the terms requested is not adverse action if the applicant accepts the amount and terms offered. An additional point to note is th at adverse action as defined in section 701(d)(6) of the amended Act includes not only unfavorable action at the time of application but also unfavor able action after the initial credit exten sion. Hence, adverse action also occurs if the creditor terminates an account or makes an unfavorable change in the terms of an account where the creditor’s action does not affect all or a substantial portion of a class of the creditor’s ac counts. The phrase “or an unfavorable change in the terms of an account which does not affect all or a substantial >ortion of a class of the creditor’s ac counts” allows a creditor to make a change in the terms of all of its open end iccounts or in a class of those accounts such as its credit card acounts but not ts overdraft loan accounts) without the change being deemed adverse action. As >roposed, adverse action also includes a efusal to increase the amount of credit available to an applicant who has inormed the creditor that the request for uch increase is intentional. Under this tandard, a refusal to increase the credit [mit of an applicant who has applied or the increase in accordance with the reditor’s customary application proedures would be adverse action. The proposed definition also indicates what action does not constitute adverse action. Adverse action does not occur if an applicant agrees to an unfavorable change in the terms of the acoount. Thus, an inrease in the annual percentage rate pursuant to the terms of a variable in terest rate, or the elimination of a pre ferred annual percentage rate upon termination of employment pursuant to the agreement establishing the preferred rate would not be adverse action. Nor does adverse action occur if a creditor’s action is taken because of inactivity, de fault, or delinquency by an applicant. A creditor may terminate an account or de cline to renew a credit card because of non-use in acordance with its customary standards for such action, refuse to re finance a loan which is in default, or re fuse to authorize credit pursuant to a credit card which has been revoked for nonpayment without taking adverse ac tion. Finally, adverse action does not oc cur if the creditor has not been made aware that the applicant wishes to in crease a previously established credit limit. Under this exclusion, a refusal to authorize a point-of-sale transaction that exceeds an existing credit limit for the applicant would not be adverse action. Board believes th at defining a completed application in this fashion is a reason able interpretation of the applicable statutory language and th at the defini tion obviates the need to specify different notification periods for different situa tions. Section 202.2(g)—Definition of "Board". This la a new definition in corporating the statutory definition of Board in section 702(c) of the amended Act. Section 202.2(h)—Definition of “Con sumer Credit” , This definition is sub stantially similar to th at in existing Reg ulation B, but the phrase “offered o r ' has been deleted since section 702(d) of the amended Act defines credit in terms of an actual debt, and the con cept of offering credit is encompassed in the definition of credit transaction. Section 202.2(i)— Definition of “ Con tractually Liable". The Board proposes to delete the words “having signed” from this definition as it appears in existing Regulation B. The Board believes th at this proposal does not constitute a sub stantive change and would underscore the point that the definition includes those situations in which the use of a credit card by a person pursuant to terms made known to the user imposes liability Section 202.2(d)—Definition of "Age”. upon that person for all debts arising This is a new definition. It indicates on the account, even though th at per that the amended Act’s protection son has not actually signed an agree against discrimination based on age ex ment with the card-issuing creditor. Section 202.2 (j) —Definition of tends only to natural persons and not to "Credit” . Except for minor editorial business entities. Section 202.2(e)—Definition of “ Ap changes, this definition is identical to plicant". The Board proposes a minor that in existing Regulation B. Section 202.2(h)—Definition of "Credit editorial change in the definition of ap plicant in existing Regulation B to ex Card” . This definition is Identical to th at press more succinctly the fact th at the in existing Regulation B. Section 202.2(1)—Definition of "Credi term includes both a person who requests credit and a debtor. The Board also pro tor” . The Board proposes to combine in poses to add the phrase “and includes this definition the definitions of “a r any person who is or may be contrac range for the extension of credit” tually liable with respect to an exten (§ 202.3(e)) and “creditor” (§ 202.3(j)) sion of credit” in order to make clear as they appear in existing Regulation B that the amended Act’s protection by defining a creditor as anyone who reg against discrimination on a prohibited ularly participates in the decision of basis extends to persons such as whether or not to extend credit. Thus, guarantors. any person who regularly provides or ex Section 202.2(f)—Definition of "Ap tends credit and participates in the credit plication". The definition of application decision is a creditor, unless that per remains substantially unchanged from son’s participation is limited to honoring a credit card. The Board also proposes to that in existing Regulation B. The Board proposes to add a new defi add the phrase “in the ordinary course of nition of a “completed application for business” before the word “regularly." credit” in accordance with section 701 The Board believes that this effectuates (d)(1) of the amended Act, which re the intent of the Congress to exclude quires a creditor to notify an applicant from the class of covered creditors those of its action on the application within persons who only occasionally extend 30 days, or such longer reasonable time credit. As in existing Regulation B, as as set by the Board, after receipt of a signee, transferees or subrogees who completed application for credit. The participate in the credit decision are definition indicates that an application creditors, but under the proposal, such is not to be considered complete until a persons would not be liable for a violation creditor has had a reasonable opportu of the amended Act or the regulation by nity to obtain all of the information their assignor, transferor or subrogor if that it regularly obtains and employs they did not know or have reasonable in evaluating the type of application in notice of the violation. volved, such as credit reports, any ad Section 202.3 (m ) —Definitioji of ditional information from the applicant, "Credit Transaction". The Board pro and any necessary approvals by govern poses to add the phrase “in connection mental agencies. The last clause of the with a prospective or existing extension definition precludes a creditor from pur of credit” to the definition of credit tran posefully delaying an application. The saction as it appears in existing Regula- 5 r tlon B to emphasize the subsequent language In both the existing and pro posed definition: “including * * * solicitation of prospective applications by advertising or other means * * *” The Board also proposes to add the phrase “revocation, alteration or termination of credit” to enumerate further the aspects of a credit transaction that are covered. The Board does not believe that these additions effect any substantive change from the definition in existing Regula tion B. Section 202.2in )—Definition of “ Dis criminate Against An Applicant” . This definition is substantially similar to the definition in existing Regulation B. The Board proposes to delete the phrase “on the basis of sex or marital status” be cause, under the amended Act, a creditor may not discriminate on other bases be sides sex and marital status. Section 202.2(o)—Definition of “Em pirically Derived Credit System” . Under section 701(b) (3) of the amended Act, a creditor may consider age in an empiri cally derived credit system, if such system is demonstrably and statistically sound as determined in accordance with stand ards prescribed by the Board. The pro posed definition represents the Board’s interpretation of the statutory language and its understanding of the steps neces sary to insure the statistical validity and predictive ability of such a system. The proposal first defines what con stitutes an empirically derived credit system. Such a system is one that pre dicts, on the basis of a numerical score, an applicant’s probable willingness and financial ability to repay the requested credit. The score is derived from the points assigned to the applicant’s answers to key questions on the application. The key questions are determined and weighted in accordance with a creditor’s experience with past applicants, includ ing those who repaid as agreed, or repaid slowly, or did not repay at all. The ex perience used must be appropriate, that is, not outdated, and may be “borrowed” from a similarly situated creditor if a creditor does not have sufficient appro priate experience. In addition, the system may include a creditor’s individual judg ment of applicants as long as it is pri marily controlled by the empirically de rived aspect of the system, and the sys tem may include other information beyond the application, such as a credit report which is also scored. The proposed definition prescribes the Board’s standards for what constitutes a “demonstrably and statistically sound” system. First, if the entire applicant ex perience of the creditor is not used in developing the system, the sample of ap plicants must be obtained in accordance with generally accepted sampling princi ples and procedures, some of which are enumerated. Second, the key questions and related scores must be appropriately linked to determining creditworthiness under accepted standards of analysis. Third, the system must be validated either against a holdout sample of past applicants if the remainder of the credi tor’s past applicants were used in de veloping the system or against a sample of past applicants not used in developing the system, and must be revalidated against subsequent applicants of the creditor at appropriate intervals. The Board has not defined what constitutes an appropriate interval. A creditor should revalidate whenever any signif icant change occurs that leads that creditor to believe th at its system is significantly less predictive. Finally, a creditor must adjust its system based upon the validation or revalidation re sults. Note, however, that a creditor may, as a m atter of business judgment, set the acceptance score high or low depending upon whether it desires to minimize bad debt losses or increase credit volume. Section 202.2 (p) —Definitions of “Ex tend Credit" and “ Extension of Credit.” This definition is substantially the same as § 202.3(m) of existing Regulation B with a few editorial changes. For ex ample, the phrase “granted in the form of a credit card” has been replaced by “pursuant to an open end credit plan.” Section 202.2(q)—Definition of "Good Faith." This definition 1s new, being derived from section 1-201(19) of the Uniform Commercial Code. The amended Act prohibits discriminating against those who exercise rights under the Con sumer Credit Protection Act believing th at their complaint is valid. Section 202.2(r)—Definition of “Inad vertent Error” . This is a new definition. It is drawn from § 202.11(a) of existing Regulation B. Section 202.2(s)—Definition of “Judg mental System of Evaluating Appli cants” . This is a new definition. The purpose of the proposal is to create one definition to include all systems for pre dicting creditworthiness other than “demonstrably and statistically sound empirically derived credit systems.” The term is used in § 202.6(b) (1) (ii). Section 202.2(t)—Definition of “Mari tal Status” . This definition is identical to that contained in § 202.3 (n) of existing Regulation B. Section 202.2(u ) —Definition of Nega tive Factor or Value” . Section 701(b) (3) of the amended Act forbirds assigning a negative factor or value to an elderly ap plicant’s age in the operation of a demonstrably and statistically sound empirically derived credit system. Under this definition, a creditor could not as sign a factor or value to the age of an elderly applicant that is less favorable than the value or factor assigned to the class of applicants most favored by the creditor on the basis of age. Thus, for example, if a creditor’s system assigned the highest weight to the 60-69 age class, then a 70-year-old (or older) applicant could not be assigned a lesser weight. A greater weight could be assigned, how ever, if appropriate under the creditor’s experience. Section 202.2 (to)—Definition of “ Per son” . This definition is identical to th at in § 202.3 (p) of existing Regulation B. Section 202.2 (x )—Definition of “Perti nent Element of Creditworthiness". This definition is new. Under section 701(b) (2) of the amended Act, a creditor may make inquiry concerning an applicant’s age or whether the applicant’s income derives from a public assistance program if such inquiry is for the purpose of de termining a pertinent element of creditworthiness. The Board proposes to define pertinent element of creditworthiness as that information that has a manifest relationship to creditworthiness. Section 701(b) (2) of the amended Act might be interpreted as prohibiting any inquiry about age except in limited cir cumstances but there are serious prac tical problems associated with such an approach. The Board is of the opinion that the statutory language also may be interpreted as permitting inquiries about age in all cases, while restricting the manner in which creditors may use the information thus obtained. The Board believes that the intent of the Congress was to prohibit creditors from arbitrarily cutting off credit on the basis of a per son’s fige. Section 202.2 (y)—Definition of “Pro hibited Basis” . This definition is new. It incorporates the characteristics th at a creditor may not use in any aspect of a credit transaction, except as otherwise provided in the amended Act and reg ulation. Section 202.2(z)—Definition of “Public Assistance Program” . This is a new defi nition. The phrase is defined in order to provide some examples of types of in come supplements which may not form a basis for discrimination by a creditor under section 701(a) (2) of the amended Act. Section 202.2(aa)—Definition oj “ State". This definition is identical tc that in existing Regulation B. Section 202.2 (bb)—Captions ant Catchlines. This section is new. Its p ur pose is to indicate the nonsubs tan tivi nature of the captions and catchline used in the regulation, and it is derive< from § 226.2(11) of Regulation Z. S e c t i o n 202.3—C l a s s e s o f T r a n s a c t io n E xem pted P art F rom P r o v is io n s of T hi This section has been reserved for th inclusion at some future date of provi sions exempting certain classes of trans actions from one or more provisions c the amended Act and regulation. Section 703(a) of the amended Ac provides that the Board may exemr from one or more provisions of th amended Act any class of credit trans actions “not primarily for persona family or household purposes.” In ord« to exempt such transactions, howeve the Board must make an express fine Section 202.2 (v)—Definition of "Open ing that “the applictaion of such pr< End Credit". This definition is identical vision or provisions would not contribu to that in § 202.3 (o) of existing Regula substantially to carrying out the pu tion B. poses of this title.” 6 The Board invites comment regarding which classes of transactions (if any) should be exempted from one or more provisions of the amended Act and Reg ulation B. If exemptions are to be granted, a number of questions about criteria arise: Should an exemption be related to the amount of a borrower’s assets? Or to the amount of the trans action (for example, one involving an amount of $200,000 or more or $500,000 or more) ? Or to the creditor’s volume of business (comparable to the exemp tion from the requirement of written notification and reasons for adverse action provided in section 701(d)(5) of the amended Act for creditors who act on 150 or fewer applications a year) ? The Board invites interested members of the public to address the question of what other factors may be relevant in distinguishing between those classes of transactions that should remain subject to the amended Act and those which may be exempted in whole or in part. For ex ample, should non-consumer transac tions be treated differently regarding re tention of records, notification of action taken, reasons for adverse action, and other procedural requirements? Section 202.10 of existing Regulation B provides for specialized treatment for business credit and for incidental, secu rities and utilities credit. The continua tion of the specialized treatment for such credit is dependent upon the Board's making an express finding that the ap plication of certain provisions of the amended Act or Regulation B would not contribute substantially to carrying out the ilftrposes of the Act. Therefore, the Board also invites the public to address the question of how securities, incidental and utilities credit should be addressed in the amended Regulation B. S e c t i o n 202.4—G e n e r a l R u l e C o n c e r n in g D is c r im in a t io n Section 202.4 incorporates the general prohibition against discrimination which is contained in section 701(a) of the amended Act. This general rule parallels the rule in § 202.2 of existing Regulation B, but reflects the amendments to the Act. In addition to sex and marital status discrimination, the general rule prohibits discrimination on the basis of race, color, religion, national origin, or age (pro vided that the applicant has contractual capacity), because all or part of an ap plicant’s income derives from a public assistance program, or because an appli cant in good faith has exercised any right under the Consumer Credit Protec tion Act. S e c t i o n 202.5—S p e c i f i c R u l e s C o n c e r n in g A p p l ic a t io n s Section 202.5(.a)—Discouraging Appli cations. This section is substantially the same as § 202.4(a) of existing Regulation B. The words “on a prohibited basis” have been substituted for the words "on the basis of sex or marital status” to indicate the broadened coverage of the amended Act Section 202.5(b)—General Rule Con cerning Requests for Information. Sec tion 202.5(b)(1) replaces 5 202.5(a) of existing Regulation B. The proposal makes clear that a creditor’s access to information is not limited to determining the probable continuity of income. Section 202.5(b)(2) provides that a creditor is not required to request any particular information regarding an ap plicant. The proposal sets forth two ex ceptions to this general rule. A creditor is required to request the race and sex of an applicant under proposed § 202.13 (information collection for monitoring purposes). A creditor may also be re quired to request certain information from applicants to comply with an order of, or enforcement agreement with, an enforcement agency or court. Such agree ment or order could arise in connection with the monitoring of compliance with the amended Act or some other law, such as the Fair Housing Act. Section 202.Sic)—Information About a Spouse or Former Spouse. This section and § 202.5(d) are specific limitations to the general rule stated in § 202.5(b) of the proposed regulation. Section 202.5(c) is substantially the same as § 202.5(b) of existing Regulation B, except that the words “and consider” have been deleted because, in the scheme of the proposed regulation, § 202.5 deals only with re quests for information, while § 202.6 treats consideration of information received. Section 202.5(d)—Information a Cred itor Cannot Request. Section 202.5(d) (1) restates the provisions of § 202.4(c) (1) and (2) of existing Regulation B. The Board proposes to delete the phrase “or as required to comply with State law governing permissible finance charges or loan ceilings.” The Board be lieves that this language is unnecessary because the amended Act preempts any such State laws insofar as they require inquiries into marital status. If an appli cant who has received joint credit from a particular creditor subsequently applies for a separate loan from the same credi tor, the creditor may be required to ag gregate the accounts to determine per missible finance charges. However, such aggregation must be done without regard to marital status. In a State with loan ceilings, the proposed regulation requires that the ceilings be applicable to the amount of credit which may be extended to an individual, without regard to that person’s marital status. Thus, to comply with this type of State law, the creditor needs to know only whether the applicant is already obligated to that creditor. The fact that a spouse is a co-obligor is not relevant. Proposed 5 202.5(d)(2) dealing with alimony, child support and maintenance payments replaces § 202.4(c) (3) and 5 202.5(d)(1) of existing Regulation B, The rewording does not represent any substantive change. It merely clarifies the fact that an applicant has the option of not disclosing the receipt of such income if the applicant chooses not to have the creditor utilize that income in determining the applicant’s creditworth iness. 7 Proposed § 202.5(d) (3) deals with In quiries about an applicant’s sex. Section 202.4(c) (4) of existing regulation B pro hibits such inquiries implicitly; proposed § 202.5(d) (3) expressly prohibits them except as required by § 202.13 (informa tion collectipn for monitoring purposes). The proposal also incorporates language from § 202.4(c) (4) of existing Regulation B regarding courtesy titles and the use of sex-neutral terms on application forms. Proposed § 202.5(d) (4) is substantially the same as the first sentence of § 202.5 (h) of existing Regulation B regarding questions relating to the bearing and rearing of children. (The second sentence of existing 5 202.5(h) would become § 202.6(b)(2> of this proposal). The words “or rearing” have been added to make the coverage of this section parallel to § 202.6(b) (2) of this proposal in recog nition of the fact that inquiries regard ing the rearing of children may consti tute an indirect inquiry into plans or in tentions regarding childbearing. This section does not preclude a creditor from inquiring about an applicant’s de pendent-related financial obligations, so long as the inquiries are made of all ap plicants and are not directed at a group or groups of applicants on the basis of sex, marital status or some other pro hibited basis. Except to the extent required by § 202.13, proposed § 202.5(d) (5) prohibits inquiries into the race, color, religion or national origin not only of the applicant but also of other persons indirectly in volved in the credit transaction. Since applicants are protected against discrimination on the basis of having exercised in good faith any right under the Consumer Credit Protection Act, pro posed § 202.5(d) (6) precludes a creditor from routinely inquiring into the exercise of such rights. However, where the creditor learns of a disputed account from a credit report, for example, this section does not prevent the creditor from requesting information relating to the circumstances of the dispute from the applicant or the creditor with whom the dispute arose. Section 202.5ie>—Application Forms. Many creditors have experienced diffi culty in designing application forms that comply with the requirements of existing Regulation B, and creditors have in curred substantial expense in procuring proper forms. The Board has included two sample forms in the proposed regu lation to facilitate compliance by credi tors, one for open end, unsecured credit and one for closed end, secured credit. Additional sample forms may be included in the final version of the revised regula tion. If these sample forms are adopted in the regulation, creditors would not be required to use them. If a creditor elected not to use the sample forms and decided to design its own forms, the creditor would bear responsibility for insuring that its forms were in compliance with the information restrictions of the regu lation. S e c t io n 202.6—S p e c i f i c R u l e s C o n c e r n in g E v a l u a t io n o f A p p l i c a t io n s Proposed § 202.6 deals with the use of information in evaluating credit applica tions. Many of the provisions are drawn from § 202.5 of existing Regulation B. The purpose of this restructuring is to group together material dealing with the evaluation stage of the credit-granting process. The proposal both incorporates and elaborates upon the substantive pro visions contained in section 701 (a) and (b) of the amended Act and represents what the Board believes are appropriate Interpretations of the statutory lan guage. Section 202.6(a)—General Rule Con cerning Use of Information. The Board proposes this section as a continuation of the general rule concerning the use of information stated in § 202.5(a) of ex isting Regulation B, with some changes to reflect the amendments to the Act. The basic provision of the section is that, in evaluating an application, a creditor may consider any information that it ob tains. This general rule is subject to two qualifications. First, a creditor may not use any information for the purpose of discriminating against an applicant on a prohibited basis, except as provided in § 202.8 regarding special purpose credit programs. Second, a creditor’s used of in formation is also curtailed by certain specific prohibitions contained in §§ 202.5 and 202.6 of the proposed regulation. As proposed, this section would subsume the first sentence of § 202.5(k) of exist ing Regulation B. The Board also pro poses to delete the phrase “concerning the probable continuity of an applicant’s ability to repay’’ found in § 202.5(a) of existing Regulation B as unnecessary in the proposal. The amended Act proscribes inten tional discrimination and also may be interpreted as prohibiting actions that have the effect of discriminating against applicants on any prohibited basis. Language similar to that contained in section 701(a) of the amended Act is found in Title VII of the Civil Rights Act of 1964 relating to prohibitions of dis crimination in employment, and has been interpreted as prohibiting the use of re quirements for employment or promotion that are discriminatory in effect even though neutral in purpose, unless such requirements are demonstrated to have a manifest relationship to the job in question. As explained in footnote 6 to proposed $ 202.6(a), the legislative history of the amended Act shows that Congress in tended certain judicial decisions enun ciating this “effects test” from the employment area to be applied in the credit area. The Board interprets the ap plication of an “effects test” to the credit area to mean that the use of cer tain information in determining creditworthiness, even though such informa tion is not specifically proscribed by pro posed § 202.6(b), may violate the amended Act if the use of that informa tion has the effect of denying credit to a class of persons protected by the amended Act at a substantially higher rate than persons not of that class, unless the creditor is able to establish that the information has a manifest relationship to creditworthiness. Even then, if an ag grieved applicant could show th at a creditor could have used a less dis criminatory method which would serve the creditor’s need to evaluate creditworthiness as well as the challenged method, a violation may be found to exist. The Board proposes to delete § 202.5 (b), (c) and (d) of existing Regulation B as unnecessary, since the Board be lieves that those provisions are subsumed into the general rule of proposed § 202.6 (a ). poses In (11) to allow an applicant to present Information to explain a lack of or a bad credit history because a credit history or its absence may not accurately reflect on applicant’s creditworthiness? S ection 202.7—S pec ific R ules C o n cerning E xtensions of C redit This section contains provisions drawn from 99 202.4, 202.5 and 202.7 of existing Regulation B. The final provision, 9 202 7(e), is new. Section 202.7(a)—Separate Accounts. This section Is substantially the same as 9 202.4(b) of existing Regulation B. The Board proposes to add a footnote to make clear th at a creditor may not refuse to grant a separate account on any basis Section 202.6(b)—Specific Rules Con prohibited by the amended Act, the sec cerning Use of Information. Proposed tion being Intended to highlight a com § 202.6(b) in part embodies the limita mon past discriminatory practice. Section 202.7(b)—Designation of tions on the use of information found in § 202.5 of existing Regulation B. Proposed Name. Proposed 9 202.7(b)(1) is identi § 202.6(b) (1) is a broadened and refined cal to 9 202.4(e) of existing Regulation version of existing § 202.5(f). It pro B. The Board proposes to add a new sec hibits a creditor from taking any pro tion indicating th at a creditor may ask hibited basis, not just sex or marital whether the applicant has applied for status, into account in evaluating credit- or received credit in another name. The worthiness. In accordance with section purpose of this new language is to allow 701(b) (2) and (3) of the amended Act, creditors to gain access to an applicant’s however, it expressly allows considera full credit history. tion of age and receipt of income from a Section 202.7(c)—Action Concerning public assistance program. Footnote 8 Open End Accounts. This section is de contains several examples in this respect rived from 9 202.5(i) of existing Regula to illustrate the scope of this exception tion B. The Board proposes to add lan to the proposed rule. Footnote 7 points guage to this section to protect persons out that the section does not preclude reaching a certain age or retiring. If consideration of age when utilized to adopted, this provision would prohibit favor an elderly applicant, or considera creditors from requiring a reapplication, tion of m arital status or source of in changing the terms of an account or ter come for the purpose of ascertaining a minating an account because a person creditor’s rights and remedies in accord has reached a certain age or has retired. ance with § 701(b) ( 1) and <4) of the This prohibition would protect only those amended Act. persons who are contractually liable on Proposed § 202.6(b) (2) incorporates an account and who have not demon the prohibition in 9 202.5(h) of existing strated an unwillingness or inability to Regulation B regarding a creditor’s con repay. A creditor could require a reap sidering assumptions or aggregate statis plication when credit was granted to an tics on childbearing and related matters. applicant based upon the income of the Proposed 9 202.6(b) (3) incorporates, applicant’s spouse. The Board also proposes to add a foot with a few changes, § 202.5(g) of exist ing Regulation B. The Board proposes to note explaining that a creditor may con delete the phrase “in a credit scoring duct a “reevaluation” a t any time. Dur system or other method of evaluating ing a reevaluation, the creditor may re applications” as unnecessary. Another quest information concerning the con proposed change would permit creditors tinued creditworthiness of the applicant to consider the existence of a telephone but may not terminate the account un at the business of applicants for non less information in the applicant’s file or obtained in the reevaluation demon consumer credit. Proposed 9 202.6(b)(4) continues and strates an inability or unwillingness to broadens the prohibitions contained in repay. S e c t i o n 202.7(d)—Signatures of S 202.5(e) of existing Regulation B and Spouse or Other Person. The language incorporates existing § 202.5(d) (2). Proposed 9 202.6(b)(5) incorporates contained in 5 202.7(d)(1) is substan 9 202.5<j ) of existing Regulation B with tially similar to 5 202.7(a) of existing little substantive change. It also incor Regulation B, except that all prohibited porates 9 202.11(a) of existing Regula bases are covered and the bar againsi tion B concerning mechanical, electronic requiring the signature of nonapplicant or clearical errors as applicable to this persons has been extended to covei section. The Board proposes to add the guarantors. For example, a marriec phrase “when available” in (i) to reflect guarantor could not be required to sup the fact that such credit history may not ply the signature of a spouse where n< always be available, and to substitute the similar requirement is imposed on un word “creditworthiness” in (ii) and (iii) married guarantors. Proposed 9 202.7(d) (2) (1) is substan for “willingness or ability to repay” be cause creditworthiness more completely tlally the same as 99 202.7(b) (1) an< expresses what a credit history is in (11) of existing Regulation B. Likewise tended to reflect. Finally, the Board pro proposed 9 202.7(d) (2) (11) is substan 8 tially the same as 5 202.7(c) of existing Regulation B. Section 202.7(d) (3) Is new. As proposed, it permits a creditor to ob tain the signature of a nonapplicant spouse or other person on an instrument which would facilitate access to an asset used to establish creditworthiness but which is not pledged. A signature could not be required on an instrument im posing personal liability unless the ap plicable State law required it in order to evidence valid consideration. If adopted, this provision would permit a creditor to obtain the signature of a nonappli cant spouse on a note without violating the general prohibition against requir ing a nonapplicant spouse to assume per sonal liability for a financial obligation incurred by the applicant spouse.-The Board proposes to adopt this provision because in some States both spouses must sign the note evidencing the debt if the creditor is to have access to an un pledged asset in the event of default. Section 202.7(e) —Conditions to Exten sions of Credit. This provision is new. It illustrates the operation of the general rule against discrimination on a prohib ited basis and is intended to highlight certain discriminatory practices. S e c t i o n 202.8—S p e c ia l P u r p o s e C r e d i t P rogram s Section 202.8(a)—General Rule and Standards for Programs. Section 202.8 in corporates the provisions of section 701 (c) of the amended Act, which allows a creditor offering certain special credit as sistance programs to refuse to extend credit on a prohibited basis without vio lating the amended Act. In such circum stances, a creditor need not provide a notice of action taken, a statement of reasons for denial, or the ECOA notice if an applicant does not qualify under the special requirements of the particu lar program. The first exemption relates to “any credit assistance program expressly au thorized by law for an economically dis advantaged class of persons” (Section 701(c) (1) of the amended Act and § 202.8(a)(1) of the proposed regulation). In this situation, the class of persons to be benefited will be defined by the appli cable law. The second category encompasses cre dit assistance programs offered by non profit organizations for the benefit of their members, or for the benefit of economically disadvantaged persons (§ 701(c) (2) of the amended Act and § 202.8(a)(2) of the proposed regulation). This category was designed to permit the establishment and operation of three types of credit-granting programs that might otherwise be found to be imper missibly discriminatory. First, this sec tion allows credit unions to refuse to ex tend credit to non-members. Second, and more broadly, the membership ex ception permits any nonprofit organiza tion (such as a cooperative association or a religious body) to limit extensions of credit to its members. Third, if an econ omically disadvantaged group is served, then this category authorizes nonprofit organizations to establish “affirmative action” programs similar to those avail able under government auspices. The third category (section 701(c)(3) of the amended Act and § 202.8(a) (3) of the proposed regulation) covers “any special purpose credit program offered by a profit-making organization to meet special social needs.” The legislative his tory of the amended Act indicates that the Congress did not want to preclude profit-making creditors from establish ing special programs that would prefer applicants in‘certain categories, provided that such programs were designed and operated to increase the availability of credit for persons who previously had lit tle or no access to the credit market. Such efforts might include, for example, the provision of credit to young persons without previous credit experience or the extension of credit to public assistance recipients or elderly applicants whose in come might not otherwise qualify them for credit. Proposed § 202.8(a) (3) provides standards to insure that a program uti lizes discriminatory characteristics only for the purpose of benefiting specified classes of persons and not as a vehicle to circumvent the requirements of the amended Act and proposed regulation. Thus, the section requires that the pro grams be established and administered pursuant to a written plan that identifies the beneficiaries of the program and that sets forth the basic procedures and standards for extending credit pursuant to the program. In addition, the program must extend credit to persons who other wise might not be able to obtain such credit or might not obtain it on as favor able terms. This latter qualification Is met if the program organization deter mines from its own experience or other wise that the beneficiaries of the pro gram generally (but not necessarily con clusively) would not meet its customary standards of creditworthiness. Section 202.8(b)—Special Rule Con cerning Requests and use of Information. Proposed § 202.8(b) would permit a cred itor to ask for and consider information, which the creditor otherwise would not be permitted to obtain, relating to the probihited bases of discrimination in order to determine eligibility for a spe cial purpose credit program. The Board solicits comment on a broader issue related to this section and to proposed § 202.13, namely, whether revised Regulation B should forbid cred itors from requesting certain information from applicants. If creditors are re quired to obtain certain information (for example, the applicant’s sex) for mon itoring purposes in real estate credit, should they be barred from requesting that information in other transactions? As explained above, proposed § 202.8(b) allows a creditor to request otherwise prohibited information to determine elig ibility for a special purpose credit pro gram. However, unless a profit-making organization is permitted to obtain in formation relating to the prohibited bases about all its applicants and not only for eligibility purposes, it may not be able to determine the need for an af 9 firmative action program for a protected group or to ascertain the best design for an affirmative action program. For ex ample, evidence presented to the Board suggests that if creditors were permitted to ask about the sex of applicants, cer tain creditors could construct separate scoring systems for women and men which would increase substantially credit availability for women without reducing credit availability for men. Section 202.8(c)—Special Rule in Case of Financial Need. If eligibility for a spe cial purpose program is based on need, proposed § 202.2(b) would allow a cred itor to request and consider the appli cant’s marital status and information about the spouse’s financial resources which otherwise could not be asked under the regulation. S e c t i o n 202.9—N o t i f i c a t i o n s This section encompasses all of the requirements for the notices that cred itors must provide to applicants. These requirements appear in §§ 202.4(d), 202.5(m) and 202.6(b) of existing Regula tion B. The notice contained in § 202.6(b) (1) of existing Regulation B does not ap pear in proposed § 202.9 because that no tice must be mailed by February 1, 1977, which is prior to the effective date of the proposed amendments to the regulation. In addition, the requirements of §§ 202.4 (d) and 202.5(m) of existing Regulation B have been combined in proposed § 202.9 with other changes required by the amended Act. Section 202.9(a)—Notification of Ac tion Taken, ECOA Notice, and Statement of Reasons. This section sets forth the requirements for the content and timing of notices and explains to whom and by whom notices are to be given. Proposed § 202.9(a) (1) requires that the notice of action taken be given within a reasonable time not exceeding 30 days after a cred itor receives a completed application or within a similar period after taking ad verse action. The 30-day deadline is spec ified in section 701(d)(1) of the amended Act. The amended Act author izes the Board to specify some period longer than 30 days. However, since a completed application has been defined (§ 202.2(f)) to include only an applica tion concerning which a creditor has ob tained all necessary information, the Board has not proposed a longer period for notification for any class of transac tions. Proposed § 202.9(a) (1) (i) allows the notice of action taken upon approval to be given by implication, as by the sending of a credit card. The Board believes th at this approach is practical and reason able. Proposed § 202.9(a) (2) specifies the content of the notification when adverse action is taken. The notification must contain the statement of action taken re quired by existing § 202.5(m) (1), the ECOA notice required by existing § 202.4(d) and the statement of specific rea sons for adverse action (or disclosure of the right to such statement) similar to the statement required by present § 202.5(m'> (2>. The Board proposes to require these notices to be given together because the Board believes th at public under standing of the notices would be thereby enhanced. An important point to note about the proposal is th at it requires the ECOA notice to be given only when ad verse action is taken. A creditor, of course, may continue to provide the ECOA notice at the application stage, as long as the notice is also given when ad verse action is taken. Proposed § 202.9(a) (3) provides that, if more than one applicant is involved in a credit transaction, the notification need be given to only one applicant. Sim ilarly, proposed § 202.9(a) (4) provides that, if more than one creditor is in volved in a credit transaction, the re quired notification need be given by only the creditor th at extends credit accep table to the applicant. If no credit is granted, or if credit is offered which is not acceptable to the applicant, then each creditor must give the required notification. For example, if an auto dealer “shops” an application to several banks and one bank extends credit, the proposal requires only that bank to pro vide the notice of action taken. However, if none of the banks grants credit or if the credit offered is not acceptable to the applicant, then all the banks must give the required notices. In addition, if the dealer is a creditor in the transaction under the definition of that term as used in this regulation (§ 202.2(1)), the dealer would also be obligated to give the no tices in the total rejection situation. Creditors may arrange, however, for all required notices to be provided through one party if each creditor is identified. This procedure is sanctioned by section 701(d) (4) of the amended Act. The last sentence of § 202.9(a) (4) would insulate a creditor from liability for acts or omis sions of a third party in those cases where the third party supplies the no tice, provided th at the creditor follows reasonable procedures to insure compli ance. The Board has proposed this ar rangement to avoid a situation in which an applicant would receive the desired credit from one source, while also receiv ing several notices of adverse action from other sources with which the applicant had not dealt. Section 202.9(b)—Form of ECOA No- ticular type of creditor. The latter change would facilitate the giving of notices by third parties on behalf of several differ ent types of creditors. Proposed § 202.9(b) (2) provides a sug gested form for the statement of specific reasons for adverse action. Use of the form, properly completed, would consti tute compliance with the requirement of the section. However, if a creditor does not use this form, it must design its own form in accordance with the require ments of § 701(d) (3) of the amended Act. The text of the proposed statement of specific reasons is identical to that in existing § 202.5(m) (3), except for a change in the title reflecting the fact that the statement is required in all instances of adverse action and not just in cases of denial or termination of credit. The foot note is not an addition to the form itself; rather, it limits the permissible use of the category “unemployed” as a reason for adverse action. Proposed 5 202.9(b)(3) provides that the notices required by this section may be combined with other information or disclosures, including disclosures under the Truth in Lending Act, the Fair Credit Reporting Act, and other portions of the Consumer Credit Protection Act. Section 202.9(c)—Oral Notifications. As authorized by section 701(d)(5) of the amended Act, proposed § 202.9(c) allows the notices required by proposed § 202.9 to be given orally by any creditor which received 150 or fewer credit appli cations in the preceding calendar year. The legislative history indicates that the Congress intended to relieve small credi tors of the burden of preparing formal written notices. Section 202.9(d)— Withdrawn Appli cations. This section permits creditors to treat applications as withdrawn in cer tain circumstances. For example, after all steps have been taken to complete an application, an applicant may decide not to go through with the transaction. In that situation, a creditor would be per mitted to consider the application as withdrawn and would not need to pro vide the required notices. Section 202.9(e)—Failure of Compli ance. This section corresponds to existing § 202.11(a) as it applies to notice re quirements. The term “inadvertent tice and Statement of Specific Reasons. error” is defined in proposed § 202.2(r). This section is drawn from existing S e c t i o n 202.10—F u r n i s h i n g o f C r e d it 202.4(d) and 202.5(m) (2) and (3). I n f o r m a t io n Proposed § 202.9(b) (1) includes a sample Except for the minor exceptions dis ECOA notice, but unlike existing § 202.4 <d), which requires creditors to use the cussed below, the provisions of proposed sample verbatim, the proposal provides § 202.10 parallel those contained in th at substantial adherence to the sample § 202.6 of existing Regulation B. The final form constitutes compliance. In addition, version of proposed § 202.10 will reflect the section permits inclusion in the no the Board’s decision on its proposed tice of a reference to a similar State amendments to existing 8 202.6, which statute or regulation and State enforce were published in the F e d e r a l R e g is t e r on June 4, 1976 (41 FR 22592). ment agency. Since the requirements of existing The text of the proposed notice is identical to th at contained in existing 5 202.6(b) (1) must be complied with by 8 202.4(d), except th at the additional February 1, 1977, which is prior to the bases of prohibited discrimination have effective date of the proposed regulation, been added and, in the last sentence, only the provisions of that section are not in the word “creditor” is used, rather than a cluded in the proposed regulation. Sec blank requiring a description of the par tion 202.6(b) (2) of existing Regulation B 10 has ben redesignated 5 202.10<b), and existing 5 202.6(b) (3) has been incor porated into 5 202.10(b). Proposed § 202.10(c) incorporates the substance of existing § 202.11(a). S e c t i o n 202.11—R e l a t io n t o S t a t e L a w Proposed § 202.11 implements 5? 705 <c), (d), (f) and (g) of the Act. Section 202.11(a)—Separate Exten sions of Consumer Credit. Proposed § 202.11(a) is substantially the same as § 202.8(a) of existing Regulation B, ex cept for the addition of the phrase “im poses liability upon a nonapplicant spouse.” That language has been added to underscore the Board’s interpretation that section 705(c) of the amended Act preempts State necessaries laws and fam ily support statutes when such laws im pede the separate extension of consumer credit to individually creditworthy ap plicants. Section 202.11(b)—Finance Charges and Loam Ceilings. Proposed § 202.11(b) is identical to § 202.8(b) of existing Reg ulation B. Section 202.11(c)—Inconsistent State Laws. Proposed § 202.11(c) deals with two categories of State laws which may be inconsistent in whole or in part with the amended Act or the regulation. The first category includes State laws not dealing with credit discrimination and State laws dealing with credit discrimi nation but not includng any of the pro hibited bases covered by the amended Act. An example is a State law prohibit ing credit discrimination against handi capped persons. Under proposed 8 202.11 (c)(1), such a State law is preempted only to the extent that a creditor is not able to comply with it without violating the federal law. This is the approach taken in § 202.11(b) of the existing reg ulation. The other category of State law are those dealing with credit discrimination on any prohibited basis covered by the amended Act. An example is a State law prohibiting discrimination on the basis of sex or marital status. Under proposed 5 202.11(c)(2), which incorporates the provisions of section 705(f) of the amended Act, such laws are not pre empted except to the extent of any in consistency with the Act. The Board is authorized under section 705(f) of the amended Act to determine whether such inconsistencies exist, except th at the Board may not determine th at an in consistency is present if the State lav, gives greater protection to the applicant The varied nature of such State laws tends to negate the helpfulness of gen eral regulatory guidelines on the subject of what constitutes inconsistency. Thi Board, therefore, is reluctant to mak< general determinations as to inconsist ency without the advice of the Stale of ficials familiar with the laws. Accord ingly, proposed 5 202.11(c) (2) (i) reflect the Board’s exercise of its authority U determine inconsistency by providing that all State laws regarding credit dis crimination on any prohibited basi which are similar in nature. purpo«« scope, intent, effect, or requisites to the provisions of sections 701 or 702, or both, of the amended Act and the implement ing provisions in the regulation are deemed to be inconsistent with federal law until any such law is demonstrated not to be inconsistent. Proposed § 202.11 (c) (2) (ii) outlines the procedure by which State officials may seek Board review. Supplement I, which will be pre pared before March 23,1977, the effective date of the amended Act, will set forth the criteria by which the Board would make the necessary determination. Section 202.11(d)—Exemption for State Regulated Transactions. Section 705(g) of the amended Act grants to the Board authority to exempt from the re quirements of sections 701 and 702 of the amended Act and their implementing provisions in the regulation any class of credit transactions within any State if the Board determines that, under the law of th at State, th at class of transactions is subject to requirements substantially similar to those imposed by the federal law or that State law provides protection to the applicant, and that there is ade quate provisions for enforcement. Pro posed § 202.11(d) of the regulation im plements this provision of the statute. In order to maintain concurrent federal and State court jurisdiction and continue federal enforcement agency involvement, this section provides, in accordance with section 705(g) of the amended Act, that any violation of an exempted State law is also a violation of the amended Act and the regulation. The procedure and criteria for applying for an exemption will be detailed in Supplement I. This approach parallels that taken in Regula tion Z (12CFR 226.12). S e c t i o n 202.12—R e c o r d R e t e n t i o n Section 202.12(a)—Retention of Pro hibited Information. Proposed § 202.12 (a) is based upon § 202.5(k) of existing Regulation B. It protects creditors that receive and retain information which they are forbidden to request under § 202.5 if such information was obtained from certain listed sources. Section 202.12(b)—Preservation of Records. Proposed § 202.12(b) parallels § 202.9(a) of the existing regulation. Since the Amendments to the Act extend the statute of limitation for 1 year to 2 years, the Board proposes to extend the period for which creditors must retain records from 15 to 25 months. This will include the limitations period plus an ap propriate period to effect service of proc ess. In addition, the Board proposes to expand the scope of record retention to Include information th at the creditor may be required to obtain by agencies monitoring compliance with the amended Act or the regulation. The final clause in proposed § 202.12(b) (1) (i), “and not re turned to an applicant at the applicant’s request,” indicates th at a creditor may return material to the applicant and leed not copy the material before doing so. Proposed § 202.12(b) (2) is drawn from ‘xisting 8 202.9(b)(1). Proposed § 202.- 12(b)(3) incorporates existing § 202.9 (c). Proposed 5 202.9(b)(4) is new. It relates to recordkeeping in transac tions involving multiple creditors and should be read in conjunction with proposed § 202.9(a) (4). In a multiple creditor transaction, the proposal would require those creditors that do not have to provide the notifications specified in proposed § 202.9(a) never theless to retain for 25 months any writ ten or recorded information about the applicant that the creditor has in its possession. Such creditors, however, would, not have to obtain any material that they did not otherwise have in their possession. Proposed § 202.12(b) (5) provides that, in a transaction involving non-consumer credit, a creditor must retain informa tion relating to an application for three months unless during that time the creditor receives a written request from the applicant to retain the information beyond that period. If such a request is received, the creditor would be required to retain the information for 25 months. This proposal incorporates in part the different treatment accorded business credit in 5 202.10(c) of existing Regula tion B. S e c t i o n 202.13— I n f o r m a t i o n f o r M o n it o r in g P u r p o s e s Section 202.13 is new. It appears in the proposal for the sole purpose of focus ing comment on what data should be obtained and how it should be obtained if the Board ultimately decides that data regarding the prohibited bases of dis crimination should be gathered. Testimony at the Board’s April 27 hearing, recent Congressional hearings and comments from public groups have raised the question of whether real estate creditors should be required to note the characteristics of applicants to facilitate enforcement of the Equal Credit Oppor tunity Act. Various government agencies share authority and responsibility for enforcing the ECOA. While the Board possesses authority for enforcing the ECOA only as to state-chartered member banks, the regulations adopted by the Board under the ECOA apply to all creditors and all forms of credit. Thus, there is a potential for a uniform notation requirement, if adopted by the Board in Regulation B. In view of the overlapping jurisdiction of other agencies, public comment is in vited on whether the Board should pre scribe a notation requirement in Regula tion B. Assuming the Board decides that a notation requirement should be adopted under Regulation B, the Board invites comment on the following additional issues: (1) Should such a requirement be lim ited to credit extended for the purchase of residential real estate and secured thereby ? (2) Should such a requirement be lim ited to notation of race and/or sex or should data regarding other prohibited bases of discrimination such as religion 11 also be noted? (3) What classifications should be used to describe applicants as to race? One approach would be to use the cate gories “White” and “Non-white.” A sec ond approach would be to leave a blank space after the question of race to enable applicants to supply the answer which corresponds to their own perception. (Sample: Race ___________ ) Another approach would be to use a classification scheme developed in the employment field (American Indian or Alaskan Na tive, Asian or Pacific Islander, Black, Hispanic and White). (4) Should the required inquiries be incorporated within creditors’ applica tion forms or should a separate special form be used? (5) How should creditors make the in quiries? Should applicants be required to answer the questions? If applicants de cline to answer the questions, should the creditor then be required to fill in the information based upon observation? Should a personal interview be required as part of the application? Are there other mechanisms that could be used to insure a response rate adequate to make the data meaningful? (6) Should economic data be obtained along with any demographic data? If economic data about the applicant and any property to be financed is deemed relevant, what specific data should be obtained? What is the principal economic data ordinarily obtained and relied upon by creditors? For example, should credi tors be required to obtain such informa tion as income, number of dependents, etc.? It is proposed to amend 12 CFR Part 202 to read as follows: Sec. 202.1 PART 202— EQUAL CREDIT OPPORTUNITY Authority, scope, enforcement, pen alties and liabilities. Definitions and rules of construction. General rule prohibiting discrimina tion. 202.5 Specific rules concerning applica tions. 202.6 Specific rules concerning evaluation of applications. 202.7 Specific rules concerning extensions of credit. 202.8 Special purpose credit programs. 202.9 Notifications. 202.10 Furnishing of credit information. 202.11 Relation to State law. 202.12 Record retention. 202.13 Information for monitoring purposes. Appendix A—Federal Enforcement Agencies. Appendix B. Supplement I (to be prepared). A u t h o r it y : Sec. 703 of the Equal Credit Opportunity Act, U.S.C., Title 15, sec. 1691 202.2 202.4 et seq. § 202.1 Authority, scope, enforcement, penalties and liabilities. (a) Authority and scope. This P a rt1 comprises the regulations issued by the Board of Governors of the Federal Re-* *As used herein, the words “this Part” mean Regulation B. serve System pursuant to Title VH tion must contain a complete statement, (Equal Credit Opportunity Act) of the signed by the person making the request Consumer Credit Protection Act, as or a duly authorized agent, of all relevant amended (15 U.S.C. 1601 et seq.). Except facts of the transaction or credit ar as otherwise provided herein, this P art rangement relating to the request. True applies to all persons who are creditors, copies of all pertinent documents must be as defined in § 202.2(1). submitted with the request. The rele (b) Administrative enforcement. (1) vance of such documents must, however, As set forth more fully in section 704 of be set forth in the request and the docu the Act, administrative enforcement of ments must not merely be incorporated the Act and this Part with respect to by reference. The request must contain certain creditors is assigned to the an analysis of the bearing of the facts Comptroller of the Currency, Board of on the issues and specifying the pertinent Governors of the Federal Reserve Sys provisions of the statute and regulation. tem, Board of Directors of the Federal Within 15 business days of receipt of Deposit Insurance Corporation, Federal the request, a substantive response will Home Loan Bank Board (acting directly be sent to the person making the re or through the Federal Savings and Loan quest or an acknowledgement will be sent Insurance -Corporation), Administrator which sets a reasonable time within of the National Credit Union Adminis which a substantive response will be tration, Interstate Commerce Commis given. sion, Civil Aeronautics Board, Secretary (ii) Any request for reconsideration of Agriculture, Farm Credit Administra an official staff interpretation of tills Part tion, Securities and Exchange Commis must be addressed to the Secretary, sion and Small Business Administra Board of Governors of the Federal Re tion. serve System, Washington, D.C. 20551, (2) Except to the extent that adminwithin 30 days of the publication of such istrative enforcement is specifically com interpretation in the F ederal R egister. mitted to other authorities, compliance Each request for reconsideration must with the requirements imposed under the contain a statement setting forth in full Act and this P art will be enforced by the the reasons why the person making the Federal Trade Commission. request believes reconsideration would be (c) Penalties and liabilities. (1) Sec appropriate, and must specify and dis tion 706 of the Act provides th at any cuss the applicability of the relevant creditor to comply with any requirement facts, statute and regulations. Within 15 imposed under the Act or, pursuant to business days of receipt of such request section 702(g), this Part, is subject to for reconsideration, a response granting civil liability for damages in individual or or denying the request will be sent to the class actions, and states th at an ag person making the request, or an ac grieved applicant may seek, in addition, knowledgement will be sent which sets equitable and declaratory relief. Pur a reasonable time within which such suant to section 704 of the Act, violations response will be given. of the Act or, pursuant to section 702(g), (5) Pursuant to section 706(e) of the this Part, constitute violations of other Act, the Board has designated the Direc federal laws which may provide further tor and other officials of the Office of penalties. Saver and Consumer Affairs as officials (2) Section 706 further provides that, “duty authorized” to issue, at their dis if the agencies responsible for adminis cretion, official stay interpretations of trative enforcement are unable to obtain this Part. This designation shall not be compliance with the Act or, pursuant to interpreted to include authority to ap section 702(g), this Part, they may refer prove particular creditors’ forms in any the m atter to the Attorney General. On manner. such referral, or whenever the Attorney (6) The type- of interpretation issued General has reason to believe th at one will be determined by the Board and the or more creditors are engaged in a pat designated officials by the following tern or practice in violation of the Act criteria: or this Part, the Attorney General may <i) Official Board interpretations will bring a civil action for appropriate relief. be issued upon those requests which in (3) Section 706(e) relieves a creditor volve potentially controversial issues of from civil liability resulting from any act general applicability dealing with sub done or omitted in good faith in con stantial ambiguities in this P art and formity with any rule, regulation or in which raise significant policy questions. terpretation by the Board of Governors (ii) Official staff interpretations will of the Federal Reserve System, or with be issued upon those requests which, In any interpretation or approval issued by the opinion of the designated officials, a duly authorized official or employee of require clarification of technical am the Federal Reserve System, notwith biguities in this P art or which have no standing that after such act or omission significant policy implications. has occurred, such rule, regulation or in (iii) Unofficial staff interpretations terpretation Is amended, rescinded or will be issued where the protection of otherwise determined to be invalid for section 706(e) of the Act is neither re any reason. quested nor required, or where time (4) (i) Any request for formal Board strictures require a rapid response.1**• interpretation or official staff interpreta tion of this Part must be addressed to the (c) (3) through (6) reflect Director of the Office of Saver and Con the*• Subsection action of the Board taken on June 28, sumer Affairs, Board of Governors of the 1976, amending section 202.13 of Regulation Federal Reserve System, Washington, B effective July 30, 1976, which Is reported D.C. 20551. Each request for interpreta in 41 FR 28252. 12 § 202.2 Definitions and rules of con struction. For the purposes of this Part, unless the context indicates otherwise, the fol lowing definitions *and rules of construc tion apply: (a) “ Account” means an extension of credit. The word “use” , when employed in relation to an account, refers only to open end credit. (b) “ Act” means the Equal Credit Op portunity Act (Title V n of the Consumer Credit Protection Act). (c) “Adverse action” (1) For the pur pose of notification of action taken, statement of reasons for denial, and rec ord retention, the term means: (1) A refusal to grant credit in an amount and on terms acceptable to an applicant; or (ii) A termination of an account or an ofunfavorable change in the terms of an account which does not affect all or a substantial portion of a class of the creditor’s accounts; or (iii) A refusal to increase the amount of credit available to an applicant when an applicant requests an increase in a way that informs the creditor that the applicant is intentionally seeking an increase. (2) The term does not include: (i) A change agreed to by the appli cant; or (ii) Any action taken as a result of inactivity, default or delinquency; or (iii) A refusal to extend credit when the extension would exceed a previously established credit limit and the creditor has not been informed that the appli cant is intentionally seeking an increase. (d) “ Age” refers only to natural per sons and, in relation to such persons, means the number of fully-elapsed years from the date of the applicant’s birth. (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 be contractually liable with respect to an extension of credit. (f) “Application” means an oral oi written request for an extension ol credit which is made in accordance with procedures established by a creditor foi the type of credit requested; the tern does not include the use of an account tc obtain an amount of credit which does not exceed a previously established credit limit. A “ completed application fo\ credit” means one in connection witl which a creditor has received all of th< information the creditor regularly ob tains and employs in evaluating appli cations for the amount and type of credi requested, including credit reports, an: additional information requested fron the applicant, and any necessary ap provals by governmental agencies, pro vided the creditor has exercised sud diligence as the circumstances require. (g) “Board” refers to the Board o Governors of the Federal Reserv System. •Note that some of the definitions in th Part are not Identical with those in 12 CF 226 (Regulation Z). (h) “ Consumer credit” means credit application of and in accordance with ed, as deAned by applicable State law. extended to a natural person in which generally accepted sampling principles For the purposes of this Part, the term the money, property or service which is and procedures, including, as appro “unmarried” includes a person who is the subject of the transaction is pri priate, pure or stratiAed random selec divorced or widowed. marily for personal, family or household tion from the applicant Ale, inclusion of (u) “Negative factor or value” in re purposes. rejected as well as accepted applicants in lation to the age of an elderly applicant (i) “ Contractually liable" means ex the sampling frame, and weighting of means a factor, value or weight pressly obligated to repay all debts aris sample subgroups of applicants in rela that isutilizing less favorable regarding elderly ing on an account by reason of an agree tion to the total universe of applicants applicants than it is regarding the class ment to that effect. during the period chosen as the basis for of applicants most favored by a creditor (j) “Credit” means the right granted system development; and on the basis of age. by a creditor to an applicant to defer (ii) In which the predictive variables (v) “ Open end credit” means credit payment of a debt, incur debt and defer Anally included in the system are devel its payment, or purchase property or oped from the statistical sample or cen extended pursuant to a plan under which services and defer payment therefor. sus of applicants, and the points to be the creditor may permit the applicant to (k) “Credit card” means any card, given (or comparable basis for assigning make purchases or obtain loans, from plate, coupon book or other single credit weights) to such predictive variables are time to time, directly from the creditor device existing for the purpose of being determined to have a statistically sig- or indirectly by use of a credit card, used from time to time upon presentation niAcant relation to credit risk under ac check, or other device, as the plan may provide. The term does not include nego to obtain money, property or services on cepted standards of analysis; and credit. (iii) Which is developed for the pur tiated advances under an open end real (l) “Creditor” means a person who in pose of predicting the creditworthiness of estate mortgage or a letter of credit. (w) “Person” means a natural person, the ordinary course of business regularly applicants in relation to legitimate busi participates in the decision of whether or ness interests of the creditor utilizing the corporation, government or governmen not to extend credit. The term includes system, as in minimizing bad debt losses tal subdivision or agency, trust, estate, an assignee, transferee or subrogee of an and operating expenses in accordance partnership, cooperative or association. original creditor, but an assignee, trans with the creditor’s business judgment; (x) “Pertinent element of creditwor feree or subrogee is not a creditor with and thiness" in relation to a system of evalu regard to any violation of the Act or this (iv) Which is validated as to its pre ating applicants means any information Part committed by the original creditor dictive ability by statistical tests applied about applicants that a creditor obtains unless the assignee, transferee or subro to an independent sample drawn from and considers and which has a manifest gee knew or had reasonable notice of the the applicant Ale in developing the sys relationship to a determination of creditviolation. The term does not ipclude a tem, or, in the case of a system developed worthiness. person whose only participation in a utilizing a complete census, to a sampled (y) “Prohibited basis” means race, credit transaction is to honor a credit subset of the complete census which was color, religion, national origin, sex, mari card. held out and not used in the hypothesis tal status, or age (provided the appli (m) “Credit transaction" means every testing and statistical estimation re cant the capacity to contract as de aspect of an applicant’s dealings with a quired in the empirical development of Aned has by applicable State law ); or the creditor in connection with a prospective the system, and with respect to subse fact that all or part of the applicant's or existing extension of credit, including, quent applicants of the creditor is re income derives from any public assist but not limited to, solicitation of prospec validated at appropriate periods, and is ance program; or fact that the ap tive applicants by advertising or other adjusted as appropriate, if necessary, as plicant has in goodthefaith exercised any means; information requirements; in a result of such revalidation tests. right under the Consumer Credit Protec vestigatory procedures; standards of (p) “Extend credit” and “extension of tion Act.a creditworthiness; terms of credit; fur credit” mean the granting of credit in (z) “Public assistance program” means nishing of credit information; revoca any form and include, but are not lim tion, alteration or termination of credit; ited to, credit granted in addition to any any Federal, State or local governmental assistance program that provides a direct and collection procedures. existing credit or credit limit; credit (n) “ Discriminate against an appli granted pursuant to an open credit plan; continuing periodic income supplement, cant” means to treat an applicant less the reAnancing or other renewal of any whether premised on entitlement or neeed. The term includes, but is not favorably than other applicants. credit, including the issuance of a new (o) “ Empirically derived credit sys- credit card in place of an expiring credit limited to, Aid to Families with De em.” (1) The term means a credit sys- card or in substitution for an existing pendent Children, food stamps, Medicare em that predicts creditworthiness pri- credit card; the consolidation of two or and Medicaid, rent and mortgage supple narily by an allocation of points (or more obligations; and the deferral of ex ment or assistance programs, Social omparable basis for assigning weights) isting credit, the continuing in force of a o information obtained about applicants previously issued credit card, or the con “Note the distinction between the first n relation to the predictive variables tinuance of existing credit without any clause of the definition, which is not limited hat are Anally included in the system special effort to collect at or after matu to applicants with those characteristics, and he total number of points for an ap rity. the last two clauses, which are so limited plicant (or comparable basis for assignThis distinction means, for example, that it (q) “Good faith” means honesty in ig weights) is impermissible to consider in the decision fact in the conduct or transactions con concerning the extension of credit not only (1) Depending upon how the appli- cerned. the applicant's race or the race of partners ant, with respect to such predictive (r) “ Inadvertent error” means a me or officers of the applicant, but also the race ariables, compares with a probability chanical, electronic or clerical error that individuals with whom the applicant deals imple or a complete census of previous a creditor shows by a preponderance of of in business or socially, the race o^ i n d i v i d pplicants of a creditor who applied for the evidence was not intentional and oc uals who are or may be associated with the "edit within the immediately preceding curred notwithstanding the maintenance applicant in connection with the purpose of ppropriate period of time; and the extension of credit (for example, the of procedures reasonably adapted to <ii) Determining, alone or in conjunc- avoid any such error. tenants in an apartment complex to be con structed with the loan proceeds), or the race on with additional information about (s) “Judgmental system of evaluating ie applicant, whether an applicant is applicants” means any system for pre of individuals residing in the neighborhood in which the property that will be collateral ;emed creditworthy. dicting the creditworthiness of an appli for the extension of credit is located. A (2) A “demonstrably and statistically cant other than a demonstrably and sta creditor may take into account in making a und” empirically derived credit system tistically sound empirically derived credit credit decision, however, any applicable law, a system: system. regulation or executive order restricting deal (i) In which, if a complete census Is (t) “Marital status” means the state ings with citizens or governments of other »t used, the sample is obtained by the of being unmarried, married or separat countries or imposing limitations with re spect to credit extended for their use. 13 <3) A creditor may request the name and address in which an account is car ried if the applicant discloses the exist ence of th a t account in applying for credit. (d) Information a creditor cannot re quest. (1)A creditor shall not request, if an applicant applies for an unsecured separate account, the m arital status of the applicant, except in a community property State.45*Whenever a creditor is permitted to request an applicant’s § 202.4 General rule prohibiting dis marital status under this Part, only the crimination. terms “married,” “unmarried" and A creditor shall not discriminate "separated” shall be used. against an applicant on a prohibited (2) A creditor shall not inquire basis with respect to any aspect of a whether any income stated in an appli credit transaction. cation is derived from alimony, child § 202.5 Specific rules concerning appli support or maintenance payments, un less the creditor first discloses to the ap cations. plicant that such income need not be re (a) Discouraging applications. A cred vealed if the applicant does not choose itor shall not make any oral or written for the creditor to utilize such income in statement, in advertising or otherwise, to determining the creditworthiness of the applicants or prospective applicants applicant. which would discourage on a prohibited (3) Except as provided in 8 202.13, a basis a reasonable person from making creditor shall not request the sex of an or pursuing an application. applicant. An applicant may be requested (b) General rule concerning requests to designate a title on an application for information. (1) Except as otherwise form (such as Mr., Mrs., Ms. or Miss) If provided in this section, a creditor may the form discloses that the designation request any information in connection of such title is optional; an application with an application.1 form shall otherwise use only terms that (2) A creditor need not request anyare neutral as to sex. particular item or type of information (4) A creditor shall not request in concerning an applicant, except as pro formation about birth control practices, vided in § 202.13 (information for moni intentions concerning the bearing or toring purposes) or unless ordered to do rearing of children, or capability to bear so by, or required pursuant to an en children. forcement agreement with, an enforce (5) Except as provided in § 203.13, a ment agency acting within its statutory creditor shall not request the race, color, authority or by a court, in order to religion or national origin of an appli monitor compliance with the Act, this cant or other persons directly or in Part, or other law, in which case a cred directly identified with the applicant or itor does not violate this section by re the credit transaction. questing such information. (6) A creditor shall not request in (c) Information about a spouse or formation concerning the exercise by the former spouse. (1) Except as permitted applicant of any right under the Con in this subsection, a creditor may not sumer Credit Protection Act. request any information concerning the (e) Applicant forms. A creditor may spouse or former spouse of an applicant. design its own application forms in con (2) A creditor may request any Informity with the requirements of this formation concerning an applicant’s section. Alternatively, if a creditor spouse (or former spouse under para wishes, it may utilize the application graph (c) (2) (iv) of this section which forms contained in Appendix B.' A cred may be requested about the applicant if: itor who utilizes a form that conforms to (i) The spouse will be permitted to use one contained in Appendix B is in com the account; or pliance with all the requirements of para (ii) The spouse will be contractually liable upon the account; or 5 This provision does not preclude request (iii) The applicant is relying on com relevant information which may in munity property or the spouse’s income ing directly disclose marital status, such as ask as a basis for repayment of the credit ing about liability to pay alimony, child requested; or support or maintenance; the source of in (iv) The applicant is relying on ali come to be used as a basis for the repayment mony, child support or maintenance pay of the credit requested, which may disclose ments from a spouse or former spouse that it is a spouse’s income; whether any obligation disclosed by the applicant has a as a basis for repayment of the credit co-obligor, which may disclose that co requested. obligor is a spouse or former spouse; or the Security and Supplemental Security In come, and unemployment compensation. (aa) “ State" means any State, the District of Columbia, the Commonwealth of Puerto Rico or any territory or posses sion of the United States. (bb) Captions and catchlines are in tended solely as aids to convenient refer ence. and no inference as to the intent of any provision of this Part may be drawn from them. 4 This paragraph Is not Intended to abro gate any federal or State law regarding privacy or privilege of Information credit reporting limitations, or similar restrictions on obtainable Information. Nor should per mission to request information be confused with how It may be utilized. How Informa tion a creditor obtains may be used in con nection with a determination of creditworth iness Is governed by section 202.6. ownership of assets, which may disclose the interest of a spouse, when such assets are relied upon in extending the credit. Such in quiries are allowed by the general rule of subsection (b). • Appendix B presently contains two forms—one for open end, unsecured credit and one for closed end, secured credit. Addi tional sample forms, including a real estate credit form, will be Included in the final version of the Appendix. 14 graphs (c) and (d), of the section pro vided th at the creditor does not other wise request information prohibited by paragraphs (c) or (d) and complies with any further infromation require ments of paragraph (b) of this section. 8 2 0 2 .6 Specific ru les co ncerning evalua tio n o f ap p licatio n s. (a) General rule concerning use of in formation. Except as otherwise provided in the Act and this Part and as long as the information is not used for the pur pose of discriminating against an ap plicant on a prohibited basis, in evaluat ing an application a creditor may utilize any information the creditor obtains.7*• (b) Specific rules concerning use of information. (1) A creditor shall not take a prohibited basis into account in any system of evaluating the creditworthi7 Information concerning race, color, re ligion, national origin, sex or marital status, and the good faith exercise of any right under the Consumer Credit Protection Act may not be considered in determining creditworthiness except in accordance with sec tion 202.8. Information concerning age and Income derived from a public assistance pro gram may be considered in determining creditworthiness. Within these guidelines, this subsection permits a creditor to use any Information obtained (such as information permitted to be requested or which is other wise obtained, including, but not limited to, the recognition of State property laws directly or Indirectly affecting creditworthi ness) in accordance with the requirements of the Act and this Part. In this regard, sub section (b) specifically proscribes in several Instances (for example, discounting of in come and telephone listing) the use of in sufficiently refined general information whicl is accordingly not causally related to a de termination of creditworthiness where thi effect of using such information would b< to discriminate against an applicant on i prohibited basis, even though the credito may have no Intent to discriminate. Th< legislative history of the Act indicates tha Congress Intended this concept, as enunci ated in the cases of Griggs v. Duke Power Co 401 U.S. 424 and Albemarle Paper Co. ^ Moody, 422 U.S. 405, to be applicable 1 connection with a creditor’s evaluation of ap plications. See Senate Report to accompan H.R. 6516, No. 94-689, pp. 4-5; House Repoi to accompany H.R. 6516, No. 94-210, p. . However, it should be recognized that tfc use of other Information not speciflcal! proscribed by subsection (b) in determinlr the creditworthiness of applicants may dec credit to a class of persons protected by tl Act and this Part at a substantially high' rate than persons not of that class. In a cordance with the Board’s understanding ■ the Griggs decision, such use may be a viol: tion of this subsection unless the credit establishes that the Information has a mar fest relationship to creditworthiness. In a cordance with the Albemarle decision, as t: Board understands it, an applicant mlg then be able to show that other lnformati< which a creditor could use, with a lest discriminatory effect, would serve the ere ltor’s purpose equally well in predicting ere ltworthlness. Such a showing, unrebutted the creditor, would be evidence the credli was employing the Information used men as a “pretext” for discrimination, e.g., wi the intent of discriminating against app cants on a prohibited basis. ness of applicants,' except a creditor cant because of a prohibited basis, but (1) Require a reapplication; ” or may: a creditor may consider the amount and Require a change in the terms of (1) Take age into account as a pre probable continuance of income levels of the(ii) account; or dictive variable actually used in a de any Income In evaluating the credit(iii) Terminate the account. monstrably and statistically sound em worthiness of an applicant. (2) A creditor may require a reappli pirically derived credit system if in the (5) To the extent the creditor con on the basis of a change in mari operation of th at system the age of an siders credit history in evaluating appli cation tal status where open end credit has been elderly applicant is not assigned a nega cants of similar qualifications for a granted to an applicant based on income tive factor or value: and similar type and amount of credit, a which is earned solely by the applicant’s (ii) Take age or whether all or anycreditor shall not fail to consider in spouse. part of an applicant’s income derives evaluating credit-worthiness, unless such (d) Signatures of spouse or other per from any public assistance program into failure results from an inadvertent sons. (l) Except as provided in para account in determining a pertinent ele e rro r:• graph (d)(2) of this section, a creditor ment of creditworthiness for use in a (i) When available, the credit history not require the signature of another judgmental system of evaluating appli of accounts designated under the re shall person, other than a co-applicant, on a cants.* quirements of section 202.10 as accounts credit instrument (including, without (2) A creditor shall not use, in evaluat which the applicant and a spouse are limitation, a guaranty agreement) unless ing the creditworthiness of an applicant permitted to use or for which both are such a requirement is imposed without assumptions or aggregate statistics relat contractually liable; regard to a prohibited basis on all simi ing to the likelihood of any group of per (ii) On the applicant’s request, any qualified applicants who apply for a sons bearing or rearing children, or for information the applicant may present larly similar type and amount of credit. th at reason receiving diminished or in tending to indicate that the available (2) A creditor may require the signa terrupted income in the future. credit history does not accurately reflect ture of: (3) A creditor shall not take into ac the applicant’s creditworthiness;10 and (i) A non-applicant spouse where a count the existence of a telephone listing (iii) On the applicant’s request, the married applicant applies for unsecured in the name of the applicant. A creditor credit history, when available, of any credit in a community property State, if may take into account the existence of a account reported in the name of the ap the applicable State law denies the ap telephone in the residence of an appli plicant’s spouse or former spouse which plicant power to manage or control suf cant for consumer credit, or at the busi an applicant can demonstrate reflects ficient community property to qualify for ness of an applicant for other than con accurately the applicant’s creditworthi the amount of credit requested under the sumer credit. ness. creditor’s standards of creditworthiness (4) A creditor shall not exclude from .7 Specific rules concern in g exten- and the applicant does not have suffi consideration a portion of the income of § 2 0 2tions cient separate property to qualify for the o f credit. an applicant or the spouse of the appli-• amount of credit requested without re (a) Separate accounts. A creditor shall gard to any community property; or • This provision does not prevent a creditor not refuse to grant a separate account (ii) A non-applicant spouse or other from using the age of an elderly applicant to a creditworthy applicant on the basis person where an applicant applies for when age is used to favor that applicant or of sex or marital status.11 credit, on such instruments as (b> Designation of name. (1)A credi secured from considering the marital status o f ’an are necessary or are reasonably believed applicant or a source of the applicant’s in tor shall not prohibit an applicant from come for the purpose of ascertaining the opening or maintaining an account in a by the creditor to be necessary, under the creditor’s rights and remedies applicable to birth-given first name and surname or facts and the applicable statutory or the particular extension of credit and not to a birth-given first name and a combined decisional law of the State to create a valid lien, pass clear title, waive or re Ilscriminate in a determination of credit- surname. worthiness. lease inchoate rights or present interests (2) Paragraph (b)(1) if this section •In relation to income derived from a m property or assign earnings. jublic assistance program, a creditor may does not preclude a creditor’s asking or (3) Where an»applicant applies for un :onsIder, for example, the length of time an taking other action to determine whether secured credit and the creditor in ex ipplicant has been receiving unemployment credit has been applied for or received •ompensation; whether the applicant intends by an applicant in a name other than tending the credit relies on assets in o continue to reside in the Jurisdiction in that in which the applicant is presently which a non-applicant spouse or other person has or may obtain an interest, elation to residency requirements for bene- applying. its; and the status of any dependents to the creditor may require the signature of (c) Action concerning open end ac scertain whether benefits the applicant Is counts. (1) In the absence of evidence such non-applicant for the purpose of •resently receiving will continue. In relation to age, a creditor may consider of inability or unwillingness to repay a obtaining access to the asset in the event :>r example, the occupation and length of creditor shall not take any of the follow of default, as long as the signature does Ime to retirement of an applicant to Judge ing actions with respect to a person who not impose personal liability except as whether the applicant’s income (including is contractually liable on an existing open stirement income, as applicable) will con- end account on the basis of that person’s may be required under applicable State kiuo at a sufficient level to support the reaching a certain age or retiring, or on law to meet requirements as to consid ^tension of credit until its maturity and eration. le adequacy of any security offered by the the basis of a change of name or marital (e) Conditions to extensions of credit. ppllcant to determine credit risk if the status: A creditor shall not Impose on an appli uration of the extension of credit will exjed the life expectancy of the applicant. In “ For example, a lack of recent credit bis cant because of a prohibited basis con Us latter regard, an elderly applicant might tory may be explicable because the applicant ot qualify for a 5 percent down condomin- is young or has chosen not to use credit for ditions to the approval of an extension im loan because the duration of the loan some time prior to retirement. An unfavor of credit which are not customarily im cceeds the applicant’s life expectancy and able credit history may be explicable because posed by the creditor on other applicants. te cost of realizing on the collateral exeds the amount of the downpayment The me applicant may be creditworthy with a rger downpayment and a shorter loan marity. A creditor may also consider an apIcant s age, for example, to assess the eanlng of the applicant’s length of employent or residence (a young applicant may ive Just entered the Job market, an elderly •plicant may recently have retired and jved from a long-time residence). the creditor extending the past credit customarily resorted to legal action or be cause the subject of the extension of credit was shoddy or defective merchandise. u A refusal to grant a separate account to a creditworthy applicant on any prohibited basis would be a violation of the Act and this Part. This provision is Intended to high light certain common past Instances of dis crimination now prohibited by the Act and this Part. 15 “ The term reapplication where used in this provision does not include a “reevalua tion’’ of creditworthiness, which may then lead to the need for a reapplication if the information developed Indicates a lack of continuing creditworthiness. Additional in formation may be requested in connection with a "reevaluation.” However, the require ments of section 202.5 must be observed in relation to any “reevaluation.” r mon characteristics that all applicants the applicant accepts credit offered, only are required to possess. In such circum the creditor extending the credit need stances, the solicitation and considera comply with this section. If a transaction ia> General rule and standards for tion of th at information shall not con involves more than one creditor and no programs. The Act and this Part are not stitute a violation of the Act or this Part. credit acceptable to the applicant is of violated and adverse action is not taken (c) Special rule in the case of financialfered, then each creditor must comply if, pursuant to any of the following types need. If one of the criteria for the ex with this section. The required notifica of special purpose credit programs, a tension of credit under any of the three tions may be made directly by the credi creditor refuses to extend credit to an types of special purpose credit programs to r^ ) or indirectly through a third applicant solely because the applicant described in paragraph (a) of this sec party, provided in either case th at the does not qualify for credit under the spe tion is financial need, then, notwith identity of each creditor is disclosed. cial requirements of the particular pro standing the prohibitions of 202.5 and Whenever the notification is made gram: 202.6, the creditor may request of an ap through a third party, a creditor is not (1) Any credit assistance program ex plicant and may consider in determining liable for any disclosure, act or omission pressly authorized by Federal or State eligibility for such program information of the third party which constitutes a law for the benefit of an economically regarding an applicant’s marital status violation of this section if the creditor disadvantaged class of persons: or and spouse’s financial resources. In such accurately and timely provided the third (2) Any credit assistance program ad circumstances, the solicitation and con party with the information necessary for ministered by a non-profit organization, sideration of that information shall not the notification and was maintaining as defined under section 501(c) of the constitute a violation of the Act or this procedures reasonably adapted to avoid Internal Revenue Code of 1954, as Part. any such violation. amended, for the benefit of its members (b) Form of ECOA notice and state or for the benefit of an economically dis § 202.9 Notifications. ment of specific reasons. (1) ECOA no advantaged class of persons: or (a) Notification of action taken. ECOAtice. A statement of the provisions of sec (3) Any special purpose credit program notice, and statement of reasons. tion 701(a) of the Act and the name and offered by a profit-making organization (1) Notification of action taken. A address of the federal agency in substan to meet special social needs, provided creditor shall notify an applicant within tially the following form satisfies the that: a reasonable time not to exceed 30 days: requirement of subsection (a)(2): (i) The program is established and ad (1) After receiving a completed appli The Federal Equal Credit Opportunity Act ministered pursuant to a written plan cation, of the creditor’s action approv prohibits creditors from discriminating th at (A) identifies the class or classes of ing the application or taking adverse ac against credit applicants on the basis of race persons th at the program is designed to tion with respect to the applictaion (no color, religion, national origin, sex or marital benefit and (B) sets forth the procedures tification of approval may be express or status, or age (provided the applicant has and standards for extending credit pur by implication, where, for example, the the capacity to contract in accordance with suant to the program; applicant receives a credit card, money, applicable State law); because all or part o: (ii) The program is established and property or services in accordance with the applicant’s income derives from any pub lie assistance program; or because the appli administered to extend credit to a class the application); and cant has in good faith exercised any righ of persons who, pursuant to the custo (ii) After taking adverse action with under the Consumer Credit Protection Act mary standards of creditworthiness used respect to an existing account, of the The federal agency that administers com by the program organization, either creditor’s adverse action. pliance with this law concerning this credito probably would not receive such credit (2) Content of Notification. Any noti is (name and address as specified by the ap or probably would receive it on less fa fication given to an applicant against propriate agency listed in Appendix A). vorable terms than are ordinarily avail- whom adverse action is taken shall be in ale to other applicants applying to the writing and shall contain a statement of The sample statement printed above ma modified immediately following th organization for a similar type and the action taken and the provisions of be required references to the federal act an* amount of credit; and section 701(a) of the Act, the name and (iii) The program is administered so address of the federal agency which ad enforcement agency, to include refer as not to discriminate against an appli ministers compliance concerning the ences to any similar State statute, rul cant on the basis of race, color, religion, creditor giving the notification, and or regulation and to a State enforcemei: agency. national origin, sex, marital status, age either: (2) Statement of specific reasons. (provided th at the applicant has the ca (i) A statement of specific reasons for statement of reasons for adverse actio pacity to contract), income (if any) de the action taken; or shall be sufficient if it is specific and ir rived from a public assistance program, (ii) As the creditor may elect, either a or good faith exercise of any right under disclosure of the right of the applicant dicates the primary reason(s) for th the Consumer Credit Protection Act, ex to receive a written statement of specific adverse action. A creditor may formulai cept th at all program participants may reasons, or of the right to receive an oral its own statement of reasons in checkli letter form, or may use the samp be required to share one or more of those statement of specific reasons, within 30 or characteristics if the program was not days after the receipt by the creditor of form printed below, which, if proper constitutes compliance wii established and is not administered with an oral or written request for a state completed, the purpose of evading the requirements ment of reasons made by an applicant the requirements of subsection (a) <2; (i Statements that an applicant does n of the Act or this Part. within 60 days after the notification of (b) Special rule concerning requests adverse action. The creditor shall also meet membership requirements or th and use of information. If all partici specify the name, address and telephone the adverse action was based on tJ pants in any of the three types of special number of the person or office from creditor’s internal standards or policit purpose credit programs described in which the statement of reasons can be without further specification, or that t paragraph (a) of this section are re obtained. If a creditor elects to disclose applicant failed to achieve the qualifyi: quired to possess one or more common only the right to receive an oral state score on the creditor’s credit scori characteristics relating to race, color, re ment of specific reasons, it shall further system are insufficient. ligion, national origin, sex, marital sta disclose the right of the applicant to STATEM ENT OF PRIMARY REASON «S > FOB tus, age, or receipt of income from a pub have the statement of specific reasons ADVERSE ACTION lic assistance program and if the special confirmed in writing within a reasonable 1 ____ Credit Application: time not exceeding 30 days after a writ purpose credit program otherwise satis ten ___ not completed request for such confirmation is re ___lack of credit references fies the requirements of paragraph (a ), ceived by the creditor. ___ credit reference too new then, notwithstanding the prohibitions (3) Multiple applicants. If there is check. of §§ 202.5 and 202.6, the creditor may more than one applicant, the notification 2 ........ Information furnished by: X Credit Bureau, 10 Main 8tr request of an applicant and may consider need only be given to any one of them. Anytown, Anystate 00000, Ph (4) Multiple creditors. If a transac in determining eligibility for such pro No: 000 000-0000. gram information regarding those com tion involves more than one creditor and § 202.8 Special grams. purpose credit pro 16 3 . ......... Employment: ___unemployed1 ___temporary or Irregular ---- unable to verify ___length of employment. 4............Income: ___insufficient ___unable to confirm ___information refused. 6. ____ Residence: ___too short a period ___temporary. 8 . ------- We do not customarilygrant credit to any applicant on the terms and conditions you requested. 7. . . . . . . Other (Specify)______________ (2) When furnishing information to consumer reporting agencies or others concerning an account designated under this section or designated prior to the effective date of this Part, a creditor shall report the designation and furnish any information concerning the account: (i) To consumer reporting agencies, in a manner which will enable the agencies to provide access to information about the account in the name of each spouse ; and (ii) To recipients other than such agencies, in the name of each spouse about whom such information is re 1This reason does not refer to unemploy quested. ment due to retirement, and does not suffice (b) Requests to change manner in as a reason for adverse action in the case of which information is reported. Within an applicant who has income from a public 90 days of receipt of a request to change assistance program. the manner in which information is re (3) Other information. The notificaported to consumer reporting agencies tion required by subsection (a) (1) may and others, a creditor, when furnishing include other information so long as it information concerning any such ac does not detract from the required con count, shall designate the account to tent of the notification. This notification reflect the fact of participation of both also may be combined with any disclo spouses. The creditor shall report the des sures required under other titles of the ignation and furnish any information Consumer Credit Protection Act, pro concerning the account to any recipient vided all requirements such as clarity, other than a consumer reporting agency conspicuousness and placement are satis in the name of each spouse about whom fied, and may appear on either or both such information is requested and, when sides of the paper if there is a clear reporting to consumer reporting agen reference on the front to any information cies, in a manner which will enable such >n the back. agencies to provide access to information (c) Oral notifications. The applicable about the account in the name of each •equirements of this section may be satis- spouse. A spouse’s signature on a request led by oral notifications (including state- to change the manner in which Informa nents of specific reasons) in the case of tion concerning an account is furnished my creditor that did not receive more shall not change the legal liability of han 150 applications during the calen- either spouse upon the account. lar year immediately preceding the (c) Inadvertent errors. A failure to alendar year in which the notification comply with this section is not a viola f adverse action to a particular appli- tion if caused by an inadvertent error if ant is to be given. soon as possible after the discovery (d) Withdrawn applications. If an ap- as of the error the creditor corrects the lication is approved by a creditor and and commences compliance with tie applicant, within a reasonable time erors requirements of this section, as then ot exceeding 30 days, does not con- the iimmate the transaction, a creditor may applicable. 'eat the application as withdrawn for § 202.11 Relation to State law. ie purpose of the notification required (a) Separate extensions of consumer 7 subsection (a) (1). credit. If application is made for a sepa (e) Failure of compliance. A failure to rate extension of consumer credit, any imply with this section is not a violation provision of State law which either pro caused by an inadvertent error. scribes the separate extension of con 202.10 Furnishing o f credit informn. sumer credit to each spouse or imposes liability upon a nonapplicant spouse is tion.1* if the applicant establishes in (a) Accounts established on or after preempted ovember 1, 1976. (1) For every account dependent creditworthiness. (b) Finance charges and loan ceilings. tablished on or after November 1, 1976 If each spouse separately and volun creditor shall: (i) Determine whether the account is tarily applies for and obtains a separate te which an applicant’s spouse will be account with the same creditor, the ac rmitted to use or upon which both counts shall not be aggregated or other ouses will be contractually liable, if wise combined for purposes of determin ch accounts are offered by the creditor- ing permissible finance charges14 or permissible loan cealings under the laws d (ii> Designate any such account to of any State or of the United States. lect the fact of participation of both Permissible loan ceiling laws shall be construed to permit each spouse to be juses. •This section does not change § 202.6 of 14For example, w h e n the h i g h e s t f in a n c e sent Regulation B, except to reflect the charge rate may be imposed on c r e d i t ex >ctlve date of the amendments to the Act, tensions up to $300 and a married couple l will ultimately Include any action taken is Jointly liable for unpaid debt in the the June 4, 1976 proposal to amend § 202.6 amount of $250, a creditor may charge the Regulation B, which Is reported in 41 highest rate on $50 of credit extended on 22592. an individual basis to husband or wife. 17 separately and individually liable up to the amount of the loan ceilings, less the amount for which both spouses are jointly liable.15 (c) Inconsistent State laws. (1) Ex cept as provided in paragraphs (a) and (b) of this section, the Act and this Part preempt only those State laws, other than State laws with respect to credit dis‘crimination on any prohibited basis, which are inconsistent with the Act or this Part, and then only to the extent of the inconsistency. Such a State law is not inconsistent with the Act or this P art if the creditor can comply with the State law without violating the Act or this Part. (2)(i) The Act and this Part do not preempt any State laws with respect to credit discrimination on any prohibited basis, except to the extent that those laws are inconsistent with any provision of the Act or this Part, and then only to the extent of the inconsistency. For this purpose, a State law with respect to credit discrimination on any prohibited basis, which is similar in nature, purpose, scope, intent, effect or requisites to the provisions of sections 701 or 702, or both, of the Act and their implementing pro visions in this Part, is declared incon sistent with the Act and this Part within the meaning of section 705(f) of the Act, unless and until a contrary determina tion is made by the Board pursuant to the procedures provided in this sub section. (ii) A State, through its Governor. At torney General, or other appropriate of ficial having primary enforcement or in terpretive responsibility for its credit dis crimination law, may apply to the Board in accordance with Supplement I to this Part for a determination that the State law with respect to credit discrimination on any prohibited basis offers greater protection to applicants than a compa rable provision of the Act and its imple menting provision(s) in this Part or is otherwise not inconsistent with the Act and this Part, or for a determination with respect to any Issues not clearly dealt with or covered by this subsection as to the consistency or lack of con sistency of a State law' w'ith respect to credit discrimination on any prohibited basis with the Act or its implementing provisions in this Part. (d) Exemption for State regulated transactions. (1) In accordance with the provisions of Supplement I to this Part, any State may make application to the Board for exemption of any class of credit transactions within the State from the requirements of sections 701 and 702 of the Act and the corresponding pro visions of this Part. The Board will grant such an exemption only if: (i) The Board determines that under the law of that State, that class of credit transactions is subject to requirements substantially similar to those imposed UlF o r e x a m p le , I n a S t a t e w ith a p e r m i s s ib le lo a n c e llin g o f $1000, If a m a r r i e d cou ple w e re J o in tly lia b le f o r u n p a i d d e b t In the a m o u n t o f $250, e a c h s p o u s e c o u ld s u b s e q u e n t l y b e c o m e in d i v i d u a l l y lia b le for $750. turned to an applicant at the applicant’s request; (ii) A copy of the following documents if furnished to the applicant in written form (or, if furnished orally, any nota tion or memorandum with respect thereto made by the creditor): (A) The notification of action taken; (B) The statement of specific reasons for adverse action given to an applicant in accordance with section 202.9; and (iii) Any written statement submitted by the applicant alleging a violation of the Act or this Part. <2) For a period ending 25 months after the date a creditor notifies an ap plicant of adverse action taken with re spect to an account other than in con nection with an application, the creditor shall retain as to the account, in original form or a copy thereof: ls (i) Any written or recorded informa tion concerning such adverse action, and (ii) Any written statement submitted by the applicant alleging a violation of the Act or this Part. (3) In addition to the requirements of subsection (b) <1) and (2), any creditor which has actual notice that it is under investigation or is subject to an enforce ment proceeding for an alleged viola tion of the Act or this Part by an en forcement agency charged with monitor ing that creditor’s compliance with the Act and this Part, or which has been served with notice of an action filed pur suant to section 706 of the Act and § 202.Kc> of this section shall retain the in formation required in paragraphs (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 creditor which does not have to comply with § 202.9 be cause of credit accepted by the applicant shall retain for the time period speci fied in paragraph (b) of this section all written or recorded information concern ing the applicant, including a notation of action taken in connection with any ad verse action. 5. Information required to be retained in accordance with paragraphs (b)(1) and (2) of this section in a transaction involving an application for credit other than consumer credit need only be re tained for 3 months after the date the creditor notifies an applicant of action on an application or of adverse action taken other than in connection with an application, unless during that period the creditor receives a written request from the applicant to retain such information, and need thereafter only be retained in accordance with this subsection. under sections 701 and 702 of the Act and the corresponding provisions of this Part, or that applicants are afforded greater protection than is afforded under sections 701 and 702 of the Act and the corresponding provisions of this Part; and (ii) There is adequate provision for enforcement. (2) The procedures and criteria under which any State may apply for the de termination provided for in paragraph (d) (1) are set forth in Supplement I to this Part. (3) In order to assure that the con current jurisdiction of Federal and State courts created in section 706(f) of the Act shall continue to have substantive provisions to which such jurisdiction shall apply, and generally to aid in im plementing the Act and to allow federal enforcement agencies to retain their au thority with respect to any class of credit transactions exempted pursuant to para graph (d)(1) and Supplement I: (i) No such exemptions shall be ddemed to extend to the civil liability provisions of section 706; and (ii) After an exemption has been granted, the requirements of the appli cable State law shall constitute the re quirements of the Act and this Part, except to the extent that such State law imposes requirements not imposed by the Act and this Part. (4) Exemptions granted by the Board to particular classes of credit transac tions within specified States are set forth in Supplement II to this Part. § 202.12 Record Retention. (a) Retention of prohibited, informa tion. Retention in a creditor’s files of any information prohibited by the Act or this P art in evaluating applications does not violate the Act or this Part where such information was obtained: (1) From any source prior to March 23, 1977; or (2) At any time from credit reporting agencies; or (3) At any time from the applicant or others, without the specific request of the creditor; or (4) At any time as required to monitor compliance with the Act and this Part or other law. (b) Preservation of records. (1) F o ra period ending 25 months after the date a creditor notifies an applicant of action on an application, the creditor shall re tain as to an applicant, in original form or a copy thereof: 17 (i) Any application form, any infor mation required to be obtained concern ing characteristics of an applicant to monitor compliance with the Act and this Part or other law, and any other written or recorded information used in evaluating an application and not re § 202.13 Information purposes.111 for monitoring <a) Scope and information requested. <l ) For the purpose of the enforcement 10 Pursuant to present Regulation B, the date for sex and marital status Information Is June 30, 1976. » A creditor who uses a computerized sys tem need not keep a written copy of a docu ment If it can regenerate the precise text of the document In relation to an applicant upon request- 18 "■See footnote 17. ’"This section constitutes an example of how information for monitoring purposes might be required to be obtained if the Board ultimately decides that such data should be gathered. It does not constitute a specific proposal of the Board on the merits of the question or as to format. agencies’ monitoring compliance with the provisions of the Act and this Part, any creditor that receives an applica tion for consumer credit for the purpose of the purchase of residential real prop erty where the extension of credit is to be secured by a lien on such property shall request as part of any written ap plication for such credit the following in formation regarding the applicant: (1) Name; (ii) Sex and marital status <married, unmarried, separated); (iii) Race; (iv) Age; (v) Periodic income, including, if dis closed by the applicant in accordance with this Part, alimony, child support, and maintenance income; (vi) Mailing address of the real prop erty proposed as collateral; and (vii) The amount of credit for which application is made. (2) “Residential real property'’ means any structure or portion thereof that is occupied as, or is designed or intended for occupancy as, a residence for one to four families. (b) Method of obtaining information. The information obtained pursuant to the provisions of paragraph (a) of this section may be listed, at the creditor’s option, either on the application form or on a separate form that refers to the application. (c) Disclosure to applicant. Regarding information requested about the appli cant’s race and sex, the applicant shall be informed that the information is be ing requested by the federal government for the purpose of monitoring compli ance with federal anti-discrimination statutes and that those statutes prohibit creditors from discriminating against applicants on the basis of race and sex. The applicant shall be asked but not re quired to supply the requested informa tion. If the applicant chooses not to pro vide that information or any part of it, it shall be supplied, to the extent reason ably feasible, by the creditor based upon observation; and such fact shall be noted on the form on which the information is obtained. A ppendix A — C r e d ito r s S u b je c t B o a r d —Director, C iv il A e r o n a u tic s C r e d ito r s S u b j e c t t o I n t e r s t a t e C o m m e r c e C o m m is s io n —Office of Proceedings, Inter state Commerce Commission, Washington, D.C. 20523. C r e d ito r s S u b je c t t o P a c k e r s a n d S to c k y a r d s A c t —Nearest Packers and Stockyards Ad ministration area supervisor. R e ta il, D e p a r tm e n t S to r e s , C o n s u m e r F i n a n c e C o m p a n ie s , A ll o th e r C r e d ito r s , a n d A ll N o n b a n k C r e d it C a r d I s s u e r s (Lenders operating on a local or regional basis should use the address of the F.T.C. Re gional Office in which they operate) — Federal Trade Commission, Washington, D.C. 20580L S m a ll B u s in e s s I n v e s t m e n t C o m p a n ie s —U.S. Small Business Administration, 1441 L Street, NW., Washington, D.C. 20416. B r o k e r s a n d D e a le r s —Securities and Ex change Commission, Washington, D.C. 205*9. F e d e ra l L a n d B a n k s , F e d e ra l L a n d B a n k Ass o c ia tio n s , F e d e r a l I n t e r m e d i a t e C r e d it B a n k s a n d P r o d u c tio n C r e d it A s s o c ia t io n s —Farm Credit Administration, 490 L’Enfant Plaza, SW., Washington, D.C. 20578. Appen d ix B N o t e .—There are two sample fo rm s con tained in this Appendix—one for open end, unsecured credit and one for closed end, secured credit. If a creditor offering an open end account wishes to relate the sample open end form to secured credit, then it should delete the note in the marital status block “Complete Only if Joint Account" and add after the Co-Applicant section a section re lating to a description of the collateral offered. Conversely, if a creditor offering closed end credit wishes to relate the sample closed end form to unsecured credit, then it should insert in the marital status block (as indicated on the open end, unsecured credit form) the note “Complete Only if Joint Ac count" and delete the section relating to a description of the collateral offered. If an applicant voluntarily discloses on an application the receipt of alimony, child sup port, or separate maintenance and a creditor wishes to inquire further about that income and the spouse or former spouse who pays it, the creditor may insert at the end of the “Note” in the instructions relating to ali mony, child support, and separate mainte nance the following sentences: “If you choose to disclose such income, complete the Co-Applicant section to the extent that you can regarding your spouse or former spouse who makes those payments. If you need to complete the Co-Applicant section for any other reason stated above, list the requested information about your spouse or former spouse on a separate page.” In addition, the creditor may insert in the “Alimony and similar Income” block, after the disclosure notice, the following: “Received Under: Court Order [ ] Written Agreement [ ] Verbal Understanding [ ]”. If a creditor is operating in a community property State, then it should modify the second instruction, inserting after the words “relying on the income of a spouse or another person", the phrase “or community prop erty”. Similarly, the creditor should change the last designation of the type of account or credit extension on the upper, left-hand side of the form to read: “ [ ] Individual Account |or, Credit] Relying on Income of Spouse or Another Person or Community Property”. Finally, such a creditor should delete any reference in the marital status block to the note “Complete Only if Joint Account”. F e d e r a l E n f o r c e m e n t A cf . n c i f s T h e fo llo w in g l i s t i n d i c a t e s w h ic h f e d e r a l a g en cy e n fo rc e s R e g u la tio n B fo r p a rtic u la r c la s s e s o f c r e d ito r s . A n y q u e s t i o n s c o n c e r n in g a p a r t i c u l a r c r e d ito r s h o u ld b e d ir e c te d to its e n fo rc e m e n t agency. N a tio n a l B a n k s — C o m p tr o lle r o f t h e C u r re n c y , W a s h in g to n , D .C . 20219. S t a t e M e m b e r B a n k s — F e d e r a l R e s e rv e B a n k s e r v in g t h e a r e a in w h ic h t h e S t a t e m e m b e r b a n k is lo c a te d . N o n m e m b e r I n s u r e d B a n k s — F e d e r a l D e p o s it I n s u r a n c e C o r p o r a tio n R e g io n a l D ir e c to r f o r t h e R e g io n in w h ic h t h e n o n m e m b e r i n s u r e d b a n k is lo c a te d . S a v in g s I n s t i t u t i o n s I n s u r e d b y th e F SL IC a n d M e m b e r s o f th e F H L B S y s te m ( e x c e p t f o r S a v in g s B a n k s in s u r e d b y F D I C )— 'T h e F H L B B ’s S u p e r v is o r y A g e n t I n t h e F e d e ra l H o m e L o a n B a n k D is tr ic t In w h ic h t h e i n s t i t u t i o n is lo c a te d . F e d e ra l C r e d it U n io n s — R e g io n a l Office o f the N a tio n a l C r e d it U n io n A d m i n i s t r a t i o n s e r v in g t h e a r e a i n w h ic h t h e F e d e ra l C r e d it U n io n is lo c a te d . to Bureau of Enforcement, Civil Aeronautics Board. 1825 Connecticut Avenue, NW., Washington, D.C. 20428. 19 APPLICATION FOR OPEN END, UNSECURED CREDIT IM PO RTA N T: R E AD THESE DIRECTIONS BEFORE COMPLETING APPLICATIO N APPLICANT If this is an application for an individual account and you are relying on your own income and not the income of • spouse or another person as a basis for the extension and repayment o f the credit requested, complete only the Applicant section and sign the application. (Please Check Each Applicable Box) D InchviJu.u Account r : l o i r ; Ac count □ A 'oh /td User Account [ ' Individ;..:! Account, Relying on lc nit >C Sp«>’i-.»: or If this is an application for a joint account or an account that another person will also be authorized to use, or if this is an application for an individual account but you are relying on the income o f a spouse or another person as a basis for the extension and repayment of the credit requested, both the Applicant and Co-Applicant sections should be completed. If this is an application for a joint account, both parties should sign the application. Ac nhet Pet o n NOTE: Any income you receive from alimony, child support, or separate maintenance is your own income and not the income o f a spouse or another person for purposes of this application. Disclosure o f such income is voluntary, as stated Complete ONLY if Joint Account (Title is Optional! MS. r , MISS ! ! MR. T MRS. [J OTHER ................. First Lust Name M AR ITAL STATUS M . 1. DEBTS No. Institution SAVINGS ACCT. Zip (Inc Auto, Bank, Finance Co , Retail, Etc ) Business Phone Home Phone PHONE NOS. C reditor's Name Address Acct. No. Mo. Pymt. Bal. N o. o f Dependents AGE Rent □ Board □ Own Individually □ Jointly □ Live With Parents □ OTHER O B LIG A TIONS NAM E OF i .a n d i o r d Sir)!' 1 ' .AGE OR M O N TH LY RENT OR MORTGAGE P.V i MEN r Est. Mtg Have You Gone Through Bankruptcy In Past 7 Years? Yes □ State Address Time There CO-APPLICANT Dep(./Em ployee No. S Position Time There Name ADDRESS Address EM PLO YER Alimony, child support, Or separate maintenance income need not b e listed unless you choose to have such income considered regarding exten sion and repayment o£ the credit requested. Monthly Amount A«e Relationship NAM E SALARY Time There ........ Yrs......... Mos. Social Security No. (OPTIONAL) Monthly Amount M ON TH LY S A LA R Y i I/W E CERTIFY TH A T THE ABOVE INFORM ATIO N IS COMPLETE AN D AC CU RA TE A N D IS PROVIDED FOR THE PURPOSE OF OBTAINING CRED IT. I/W E AU TH O RIZE A CRED IT INVESTIGATION . ............. Source OF INCOME SOCIAL SECURITY NUMBER (OPTION AL) W h e n .................................... Name ..... .............................. Yrs.............. Mos. EMPLOYER'S ADDRESS OTHER SOURCES No □ N AM E AN D ADDRESS O F N E A R E ST RE LA TIV E (NO T LIV IN G W ITH YOU) Zip EMPLOYER'S A L IM O N Y AND SIM ILA R INCOME Child Support, Maintenance, Balance Time There N AM E FORMER EMPLOYER Pay Alimony, Attach Additional Page If You Need More Space Value of Home HOME MONTHLY (E g , Liability to Legal Judgments) f City No. ......................... Yrs............... Mos. State City PREVIOUS A1 jUR t.SS Unmarried (Inc Divorced and Widowed) D CHECKING ACCT, Time There HOME ADDRESS Separated □ Married l»w w w i i w w u w m m t w w A P P L IC A N T S SIG N A TU RE ... DATE CO -APPLICANT’ S SIG N A TU RE - ....... DATE 20 - 90 - APPLICATION FOR CLOSED END, SECURED CREDIT APPLICANT IM PO RTA N T: R E AD THESE DIRECTIONS BEFORE COM PLETIN G APPLICATIO N , I f this is an application fo r individual credit and you are relying on your own income and not the income o f a spouse or another person as a basis for the extension and repayment o f the credit requested, complete only the Applicant section and sign the application. (Please Check One) □ Individual Credit □ Joint Credit □ Individual Credit Relying on Income o f Spouse or Another Person I f this is an application for joint credit or if this is an application for individual credit but you are relying on the income o f a spouse or another person as a basis for the extension and repayment o f the credit requested, both the Applicant and Co-Applicant sections should be completed. If this is an application for joint credit, both parties Should sign the appli cation. N OTE: Any income you receive from alimony, child support, or separate maintenance is your own income and not the, income o f a spouse or another person for purposes o f this application. Disclosure o f such ihcome is voluntary, as stated below. (Title is MS. Q M R. d OTHER O ptional) MISS □ Last Name First M. I. MRS. □ ............................................................................................................................ (Inc. Auto, Bank, Finance Co., Retail, Etc.) Creditor's Name Address Acct. N o. M o. Pymt. Bal. Time There HOM E ADD RESS ..........Yrs ........ City PHONE NOS. DEBTS State Mot. Zip Home Phone AG E No. of Dependents Rent □ Board p N AM E OF LA N D LO RD OR ‘M OR TG A G E H OLDER Own Individually [ j OBI IG A TIONS Jointly □ (E g-- M abili,y <0 Pay Alimony, Legal Judgments) Child Support, Maintenance, Live With Parents □ Attach Additional Page If You Need More S pace............... Have You Gone Through Bankruptcy In Past 7 Years? ...................................................................... Yes □ Est. Value o f M ON TH LY RENT OR M ORTG AG E PA YM E N T No P NAM E AN D ADDRESS OF NEAREST RE LA TIVE (NOT LIVIN G W ITH YOU ) Mig. Balance Home ■$.................. $.............. W h e n .................................... Name ........... Address Time There PREVIOUS HOME ADDRESS .. Yrs............. Mos. City State Zip CO-APPLICANT Time There EM PLOYER'S N AM E Age Relationship . Yrs.............Mos. Dept EM PLOYER'S ADDRESS M O N T H IY SA LA RY $ FORMER EM PLOYER Name NAM E Employee No. ADDRESS Position Time There Em p l o y e r Time There Yrs . .......................................................................... Yrs............M os. M os. MONTHLY SALARY Address Social Security N o. (OPTION AL) $ DESCRIPTION OF PR OPER TY SECURING CRED IT ALIM O N Y A N D SIM ILAR INCOM E Alimony, child support, or separate maintenance income need not be listed unless you choose to have such income considered regarding exten sion and repayment o f the credit requested. OTHER SOURCES OF INCOM E Monthly Amount » SOCIAL Monthly Amount $ ....................... Source SECURITY NUMBER (OPTION AL) Is or will property be co-ow ned? Yes Q ....................................................................................................... M A R IT A L Married □ CH ECKING A C CT . Institution No. SAVINGS Institution No. SJAIUS ACCT. Separated □ Unmarried (Inc. Divorced andWtdowcd) □ No □ If yes, name o f co-owner: ...................................... I/W E CERTIFY T H A T THE ABOVE INFORM ATION IS COMPLETE A N D AC CU RA TE AN D IS PR OV IDE D FOR THE PURPOSE OF OBTAININ G CREDIT. I/W E AU TH O RIZE A CRED IT INVESTIGATION . APPLICANT’S SIGNATURE............................................. DATE...................... CO-APPLICANT’S SIGNATURE............................................. DATE........... ......... 21 To aid in the consideration of this m atter by the Board, Interested persons are invited to submit relevant data or comments. Members of the public are urged to comment not only on provisions they believe should be changed or added, but also on proposed provisions they be lieve should remain in the regulation. All comments should be submitted in writ ing to the Secretary, Board of Governors of the Federal Reserve System, Washing ton, D.C. 20551, to be received not later than September 1, 1976. Written com ments will be made available for public inspection and copying upon request ex cept as provided in section 261.6(a) of the Board’s rules regarding availability of information (12 CFR 261). All mate rial submitted should include the docket number R-0031. A hearing will be held before available members of the Board on the terrace floor of the Board’s building on 20th and C Streets, NW„ Washington, D.C. on August 12, 1976 beginning at 9 a.m. The hearing will be continued on the after noon of August 13 if necessary. The proceeding will consist of presen tation of statements in oral or written form. Interested persons need not par ticipate in the hearing in order to have their views considered. Any person wishing to testify at the hearing should file with the Secretary of the Board at the address set forth above on or before August 6, 1976, a written request containing a statement of the 22 nature of the petitioner’s interest in the proceedings, a summary of the matters concerning which the petitioner wishes to give testimony and the name and identity of witnesses who propose to ap pear. All requests to appear at the hear ing also should include the docket num ber R-0031. This notice of proposed rulemaking is published pursuant to the Board’s au thority under section 703 (a) of the Equal Credit Opportunity Act (15 U.S.C. 1691b). By order of the Board of Governors, July 14, 1976. [ seal] T heodore E. A llison , Secretary of the Board. [FR Doc.76-20918 Filed 7-19-76;8:45 am)