Full text of Federal Reserve Bank of New York Circulars : 8037. Revised Regulation B

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

FED ER AL RESERVE BANK
O F NEW YORK
r Circular No. 8037 "I
L January 20, 1977 J

REVISED REGULATION B
Implementing the 1976 Amendments to the Equal Credit Opportunity Act
To A ll Member Banks, and Others Concerned,
in the Second Federal Reserve District:

Following is the text of a statement issued December 29, 1976 by the Board of Governors of
the Federal Reserve System:
The Board of Governors of the Federal Reserve System today announced revision of its Regulation B—
Equal Credit Opportunity—to carry out the 1976 Amendments to the Equal Credit Opportunity Act (ECOA).
The revised Act and the revised Regulation will become effective March 23, 1977. At that time the revised
Regulation will supersede the existing Regulation B in its entirety. The existing Regulation, like the original
ECOA, deals only with discrimination in the extension of credit on the basis of sex or marital status. The
requirements of the existing Regulation remain in effect until next March 23.
The Amendments by Congress this year broadened the scope of the Act to forbid discrimination in credit
transactions on seven new prohibited bases d* race, color, religion, national origin, age, receipt of income from
public assistance programs and good faith exercise of rights under the Consumer Credit Protection Act of
1968 (which includes the Truth in Lending, Fair Credit Billing, Equal Credit Opportunity, Fair Credit Re­
porting and Consumer Leasing acts).
The Act directs the Federal Reserve to write regulatory rules to carry it out. The Board’s rules on equal
credit opportunity are enforced by 12 Federal agencies (listed at the end of this announcement, together with
the types of creditors those agencies supervise). Consumers with complaints of discriminatory treatment in
credit transactions should inform the appropriate Federal agency, in writing, by telephone or in person.
The Board adopted the revised Regulation B after extensive consultations with consumer and creditor groups
and a two-day hearing at which testimony was presented by 33 individuals, consumer and creditor representa­
tives, the Department of Justice and other governmental agencies. The Board published for public comment pro­
posed new equal credit opportunity regulations to implement the 1976 Amendments to the Act on July 15 and a
revision of these proposals on November 3. The revised Regulation B, as announced today, takes account of some
1100 comments received on the Board’s proposals, and of suggestions made at a meeting of the Board’s Consumer
Advisory Council on November 10 and 11.
The principal features of Regulation B, as revised to carry out the 1976 Amendments to the Equal Credit
Opportunity Act are:
General Rule Prohibiting Discrimination: The Regulation specifies that “a creditor shall not discriminate
against an applicant on a prohibited basis regarding any aspect of a credit transaction.”
Discrimination is defined as “to treat an applicant less favorably than other applicants.”2 This general rule
applies to everyone who is a creditor. Creditors are relieved from some of the mechanical requirements of the
Regulation, however, when extending certain types of credit, discussed later under the headings of special treat­
ment and special purpose programs. A creditor is “a person who, in the ordinary course of business, regularly
participates in the decision of whether or not to extend credit.”
Adverse Action: Regulation B, as revised, defines what does and does not constitute adverse action on an
application for credit.3 The main features of the definition are:
* Footnotes will be found at the end of this announcement. Where it seems advisable the footnotes indicate principal differ­
ences in the revised Regulation B as compared to the existing Regulation—other than additions to implement the 1976 amend­
ments to the Act. These footnotes also include some references to differences in the Regulation as adopted and as proposed. [The
reprinted Federal Register material, which follows the Board’s statement, includes a detailed account and explanation of changes
that have been made in the Regulation .]




Adverse action has been taken when a creditor
—Has declined to grant credit in substantially the amount or on substantially the terms requested by the
applicant, unless the applicant accepts a counter offer by the creditor.
—Terminates an account, or makes an unfavorable change in terms (such as the interest rate, number of
payments, etc.) that does not apply to all or most of that creditor’s accounts.
Adverse action has not occurred when the creditor
—Makes a change in the terms of an account that is expressly agreed to by the applicant.
—Takes any action, or forbears to take an action, in connection with inactivity, default or delinquency in
the account.
—Refuses to extend credit requested at the point of sale or of making of a loan because the credit requested
would exceed a previously established credit limit. (A point of sale refusal is an adverse action if it is
made for any reason except exceeding the previously established credit limit.)
—Refuses to extend credit not allowed by applicable law.
—Refuses to extend a type of credit the creditor does not offer.
After taking adverse action, the creditor must send the applicant a written notice as specified in the Regula­
tion (Section 202.9) and in this announcement under the headings Notice of Action Taken and Statement of
Specific Reasons.
Data Notation for Enforcement Purposes.* The Board adopted, almost unchanged, the proposal it made in
November to add a new section to Regulation B requiring creditors to inquire as to the sex, marital status, racenational origin and age of applicants for residential mortgage credit, but with the proviso that applicants have
the right to decline to supply such information if they wish. The inquiries are to be made only with respect to
applications for purchase money mortgage credit on one- to four-family residences. The race or national origin
categories to be used are: American Indian or Alaskan Native, Asian or Pacific Islander, Black, White, His­
panic or Other. If the applicant elects to use “Other” the applicant may specify any desired category. The mari­
tal status categories to be requested are married, unmarried, or separated. The questions, at the creditor’s option,
may be listed on the application form or on a separate form that refers to the application. This information may
be used for enforcement purposes only.
The Board added a provision4 that any agency with enforcement responsibilities under the Act may substi­
tute its own monitoring program in place of that in Regulation B.
Measures to Avoid Discrimination on the Basis of Age: The amended Act provides that it is not discrimi­
natory to consider age in a credit-scoring system based on experience if the system is demonstrably and statisti­
cally sound in accordance with the Board’s regulations, so long as the system does not operate to assign the age
of an elderly applicant a “negative factor or value.”
To implement this new provision of the Act the Board:
—Added a new definition in Regulation B, stating that a negative factor or value, in relation to age in a
credit-scoring system, would be one that gives an elderly applicant for credit an age score less favorable than
the creditor’s experience warrants, or less favorable than the score, on account of age, given by the creditor to
any age group that is not elderly.
—Defined elderly as age 62 or more.
Thus, applicants age 62 or more may not be given a score for their age that is lower than the best score
assigned to any non-elderly group.
For ages 62 and above, scores may vary according to the creditor’s experience, so long as they are not less
than the best score assigned any group below 62.
Main Characteristics of a Non-Discriminatory Credit-Scoring System:
1. It must be empirically derived. Regulation B describes this as meaning a credit-scoring system that eval­
uates creditworthiness primarily by allocating points (or some other means of assigning weights) to key attri­
butes of the applicant and the credit.
2. It must also be demonstrably and statistically sound.




2

Regulation B requires that such a system :
—be developed using either the creditor’s entire population of applicants or data groups obtained by prop­
erly sampling that population;
—predict creditworthiness with respect to the business interests of the creditor;
—be validated during the development process as to its predictive ability;
—be thereafter revalidated at whatever regular intervals are necessary.
A creditor may borrow a demonstrably and statistically sound, empirically derived credit-scoring system, or
the credit experience on which such a system may be based, but the borrowed system must be validated from the
creditor’s own experience, at once or as soon as the creditor’s own experience is available.
A system that is not proved valid using the creditor’s own experience shall not be considered a demonstrably
and statistically sound empirically derived credit-scoring system, from that point in time.
Judgmental Evaluation of Applicants: The Act permits creditors to use, instead of a credit-scoring system,
their own judgment as to the creditworthiness of an applicant. This may include inquiries by the creditor as to
the applicant’s age and whether the applicant’s income comes from a public assistance program. These inquiries
may be made by a creditor making a judgmental evaluation of an applicant, but only as a means of determining
pertinent facts about the applicant’s ability to repay the credit applied for, that is, creditworthiness. Thus, a
creditor using a judgmental system may not use elderliness, or the fact an applicant’s income comes from public
assistance, as sufficient factors, in themselves, to deny credit.5
Credit-Related Insurance: Regulation B permits differentiation in the availability, rate and terms of creditrelated insurance (casualty, life, health, accident and disability) offered to applicants for credit.
However, the Regulation also provides that creditors may not deny credit, or terminate an account, because
such insurance is not available due to an applicant’s age.
In applications for such insurance information may be requested about the applicant’s age, sex and marital
status.6
Special Purpose Credit Programs:7 This section of Regulation B is meant to make room, under the law, for
credit programs designed—without intent to evade the Equal Credit Opportunity Act—to benefit special groups
of economically disadvantaged persons, or to meet special social needs, even though such programs may exclude
some groups the Act protects from discrimination in the extension of credit. For example, a program designed to
benefit disadvantaged American Indians may exclude non-Indians. But such a program may not discriminate on
the basis of marital status.
Such programs may not discriminate on any of the bases prohibited under the Act and Regulation B,
except that all participants in a special purpose credit program may be required to have in common one or
more characteristics, so long as this exclusion of other characteristics was not designed to circumscribe equal
credit opportunity laws.
Special purpose credit programs eligible under this provision of Regulation B are:
1. Any credit assistance program expressly authorized by Federal or State law for the benefit of an econom­
ically disadvantaged class of persons ;
2. Any credit assistance program operated by a not-for-profit organization as defined by the Internal Reve­
nue Code of 1954, for the benefit of its members or of an economically disadvantaged class of persons;
3. Any special purpose program in which a for-profit organization participates to meet social needs,
provided:
—The program has a written plan that identifies those it is designed to benefit and sets forth procedures
and standards for helping them with credit, and
—The program makes credit available to a class of persons who probably would not otherwise get it,
or would get it on less favorable terms.
Solicitation and consideration of information pertinent to establishing whether applicants share a common
characteristic required by a special purpose credit program is not unlawful discrimination.
Where financial need is a criterion for the extension of credit under a special purpose program, inquiries
otherwise not permissible concerning marital status, income from alimony, child support, separate maintenance




3

and the spouse’s financial resources may be asked and considered in determining eligibility of applicants to par­
ticipate in the program.
Relation to State Law:8 The Regulation states as a general rule that it alters, affects or preempts only
those State laws that are inconsistent with the Regulation and then only to the extent of the inconsistency. A
State law is not inconsistent with the Regulation if it differs by being more protective of the applicant than is
Federal law.
Together with Regulation B the Board issued a Supplement to the Regulation setting forth in detail the
procedures and criteria under which a State may seek an exemption.
Special Treatment of Some Types of Credit:9 Regulation B permits partial exemptions from the general
prohibitions of the Regulation for transactions involving public utilities credit, securities credit, incidental
credit,10 business credit and credit extended to governments. These are set forth in Section 202.8 of the Reg­
ulation.
Required Notifications: Regulation B requires four types of notifications to applicants for credit. The first
three, which must be supplied together when adverse action occurs are Notification of Action Taken, Notifi­
cation of Rights under the Equal Credit Opportunity Act and either a Statement of Specific Reasons for Ad­
verse Action or a written statement of the right to such reasons. The fourth is notice to married couples of their
right to have credit information included in credit reports in both names under certain conditions. This is called
“Credit History for Married Persons.”
Notice of Action Taken: A creditor must notify an applicant of action taken on an application either im­
plicitly (for example, when an applicant gets a requested credit card or a loan) or explicitly
Within 30 days:
—after receiving a completed application;
—after taking adverse action before an application is competed;
—after taking adverse action in connection with an existing account.
Within 90 days:
—after an applicant has been notified by the creditor of an offer of credit substantially different from the
request made by the applicant, and the applicant has not expressly accepted or used the credit offered.
A notice to an applicant that adverse action has been taken must be in writing and it shall contain a state­
ment of the action taken, a notice of rights under ECOA, the name and address of the Federal agency respons­
ible for compliance (as listed at the end of this announcement) and a statement of specific reasons for adverse
action, or disclosure of the applicant’s right to have such a statement. This notification must be made within 30
days after the creditor receives a request for a statement. The applicant must file a request within 60 days after
notice of the action taken.
Statement of Specific Reasons: The Regulation specifies that a statement of reasons for adverse action
must be specific—a general statement, such as that the applicant did not score high enough on a credit-scoring
system does not suffice.
A creditor may use a statement or checklist of reasons for adverse action of his own devising, or all or
part of a sample form supplied by the Board in the Regulation (in Section 202.9(b)(2)). Use of the sample
form, when properly completed, will satisfy the requirements of the Regulation. A statement of reasons for ad­
verse action may be given orally but, if so, the creditor shall notify the applicant of the applicant’s right to re­
ceive a statement of reasons in writing.
Notice of Rights under ECOA: The Board supplied in Regulation B a model notice of rights of appli­
cants for credit under the ECOA. It provided that a creditor complies by supplying a notice that adheres
substantially to the content of the Board’s model notice, and that the creditor may include a reference in the
notice to any similar State statute or regulation. The model notice, revised to take account of the 1976 Amend­
ments to the Equal Credit Opportunity Act, follows:
The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the
basis of race, color, religion, national origin, sex, marital status, age (provided that the applicant has the capacity to
enter into a binding contract) ; because all or part of the applicant’s income derives from any public assistance program;
or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The Federal
agency that administers compliance with this law concerning this creditor is (name and address as specified by the ap­
propriate agency listed in Appendix A ).




4

Credit History for Married Persons:
For accounts established on or after June 1, 1977, a creditor who furnishes credit information to other
creditors shall:
1. Determine whether both spouses can use an account or are contractually liable, and
2. Designate any such account in a way to reflect the participation of both spouses.
3. Furnish information in a manner that will enable the agency to provide access to the information
about the account in the name of both spouses.
4. Where credit information is furnished in response to an inquiry regarding a particular applicant,
furnish it only about the spouse concerned in the inquiry.
For accounts established before June 1, 1977, a creditor furnishing credit information to another cred­
itor shall either :
1. Not later than June 1, 1977
—Determine if it is an account usable by both spouses or on which both are contractually liable, and
—If so, designate it in a manner to reflect the participation of both spouses, and
—Comply with the reporting requirements above.
2. Mail or deliver, before October 1, 1977, to all applicants in whose name an account is carried on the
creditor’s records one copy of the notice called “Credit History for Married Persons.”
For open-end accounts (such as credit card accounts) this requirement may be satisfied by mailing one
notice at any time before October 2, 1977, to all accounts for which any billing statement is sent between June
1 and October 1, 1977. For closed-end accounts a creditor may delete from the Credit History for Married Per­
sons references to who may use the account.
The text of the notice to married persons follows:
CR ED IT H IST O R Y FO R M ARRIED PER SO N S
The Federal Equal Credit Opportunity Act prohibits credit discrimination on the basis of race, color, religion, national
origin, sex, marital status, age (provided that a person has the capacity to enter into a binding contract) ; because all or part
of a person’s income derives from any public assistance program ; or because a person in good faith has exercised any right under
the Federal Consumer Credit Protection Act. Regulations under the Act give married persons the right to have credit informa­
tion included in credit reports in the name of both the wife and the husband if both use or are responsible for the account. This
right was created, in part, to insure that credit histories will be available to women who become divorced or widowed.
If your account with us is one that both husband and wife signed for or is an account that is being used by one of you who
did not sign, then you are entitled to have us report credit information relating to the account in both your names. If you choose
to have credit information concerning your account with us reported in both your names, please fill in and sign the statement
below and return it to us.
Federal regulations provide that signing your name below will not change or increase your or your spouse’s legal liability
on the account. Your signature will only request that credit information be reported in both your names.
If you do not complete and return the form below, we will continue to report your credit history in the same way that we
do now.
When you furnish credit information on this account, please report all information concerning it in both our names.

Account number

Print or type name

Print or type name

Signature of either spouse

The Board provided that either spouse’s signature is sufficient to avoid permitting one spouse to exercise
a veto over access to the credit history of the account.
Provisions regarding information that may be or may not be requested or obtained on applications; rules
regarding evaluation of applications, and specific rules on extensions of credit are substantially similar to
those in existing Regulation B.
The Board intends to publish in the near future sample model application forms to aid in compliance.




5

Record Retention: A creditor may retain any information prohibited by the Act or Regulation where such
information was obtained from any source before March 23, 1977, or at any time from credit reporting agen­
cies or from the applicant or others without specific request by the creditor or to monitor compliance with
the Act.
Creditors shall retain for 25 months after notifying an applicant of action taken in connection with an
application:
—any application form received, other information concerning the applicant’s characteristics or for en­
forcement purposes and copies of notification of action taken, statement of specific reasons for adverse
action and any written statement by the applicant alleging violation of the Act or Regulation B.
Where a creditor has notification it is under investigation or is subject to an enforcement proceeding for
an alleged violation of the Act or Regulation B the information cited above shall be retained until final dis­
position of the matter.
Penalties: Creditors other than governmental entities who fail to comply with the Act or Regulation B
are subject to civil liability for actual and punitive damages in individual or class actions. Liability for punitive
damages is limited to $10,000 in individual actions and to the lesser of $500,000 or one per cent of the creditor’s
net worth in class actions.
Infractions resulting from inadvertent error—a mechanical, electronic or clerical error that a creditor
demonstrates was not intentional and occurred despite procedures reasonably adapted to avoid such error—
are not violations of Regulation B or the Act.
FOOTNOTES
1 A footnote in the Regulation (Sec. 202.6(a)) notes that the legislative history of the Act indicates the Congress
intended that an “effects test,” such as has been developed in application of equal employment opportunity law, be applicable
in determining whether a creditor’s judgment of creditworthiness is or is not discriminatory.
2 A footnote in the section of the Regulation (Sec. 202.2( z )) dealing with the prohibited bases of discrimination says
in p a rt:
“The definition (of prohibited bases) is not limited to characteristics of the applicant . . . but refers also to the character­
istics of individuals with whom the applicant deals. This means, for example, that, under the general rule (against discrimina­
tion) a creditor may not discriminate against a non-Jewish applicant because of that person’s business dealings with Jews,
or discriminate against an applicant because of the characteristics of persons to whom the extension of credit relates (e.g., the
prospective tenants in an apartment complex to be constructed with the proceeds of the credit requested), or because of the
characteristics of other individuals residing in the neighborhood where the property offered as collateral is located. . . .”

3 Not in existing Regulation B but similar to the November proposal for amending the Regulation.
4 Not in the Board’s July or November proposals.
5 This section is new in Regulation B. It varies from the Board’s November proposal chiefly in making it clear that the
definition of pertinent element of creditworthiness applies only where a judgmental evaluation of an applicant’s creditworthi­
ness is being made.
6 The proviso forbidding creditors to deny or terminate credit because credit-related insurance is not available due to
the applicant’s age, and the admissibility of questions on insurance application regarding age, sex and marital status were not
part of the November proposal.
7 This section has been considerably revised in detail from the November proposal, although it remains basically the same.
It is not a part of existing Regulation B.
8 This section is generally the same as in the Board’s November proposal, but is derived from the amended Act and there­
fore differs from existing Regulation B. The Board deleted from this section a part of the November proposal that would have
preempted State laws that did not permit inquiries permitted on model Federal Reserve forms, since such State laws may
be more protective than the Federal law.
9 This section was adopted by the Board with little change from the November proposal, the chief exception being that
in some cases the exemption from the general prohibition on inquiries about sex has been deleted. Also, business credit appli­
cants may request an explanation of adverse action and request that records of an adverse action be retained.
10 Incidental credit is credit extended for the convenience of the consumer on an informal basis by those who are not
regularly in the business of being creditors, and that does not involve a finance charge or more than four payments. Inciden­
tal credit may be extended through the use of a credit card by other than the issuer of the card.




6

FEDERAL ENFORCEMENT AGENCIES
The following list indicates which Federal agency enforces Regulation B for particular classes of creditors.
Any questions concerning a particular creditor should be directed to its enforcement agency.
National Banks
Comptroller of the Currency
Consumer Affairs Division
Washington, D.C. 20219
State Member Banks
Federal Reserve Bank serving the area in which the State member bank is located.
Nonmember Insured Banks
Federal Deposit Insurance Corporation Regional Director for the Region in which the nonmember insured bank
is located.
Savings Institutions Insured by the FSLIC and Members of the FHLB System (except for savings banks
insured by FDIC)
The FHLBB’s Supervisory Agent in the Federal Home Loan Bank District in which the institution is located.
Federal Credit Unions
Regional Office of the National Credit Union Administration serving the area in which the Federal Credit
Union is located.
Creditors Subject to Civil Aeronautics Board
Director, Bureau of Enforcement
Civil Aeronautics Board
1825 Connecticut Avenue, N.W.
Washington, D.C. 20428
Creditors Subject to Interstate Commerce Commission
Office of Proceedings
Interstate Commerce Commission
Washington, D.C. 20523
Creditors Subject to Packers and Stockyards Act
Nearest Packers and Stockyards Administration area supervisor.
Small Business Investment Companies
U.S. Small Business Administration
1441 L Street, N.W.
Washington, D.C. 20416
Brokers and Dealers
Securities and Exchange Commission
Washington, D.C. 20549




7

Federal Land Banks, Federal Land Bank Associations, Federal Intermediate Credit Banks and Production
Credit Associations
Farm Credit Administration
490 L’Enfant Plaza, S.W.
Washington, D.C. 20578
Retail, Department Stores, Consumer Finance. Companies, All Other Creditors, and All Nonhank Credit Card
Issuers (Lenders operating on a local or regional basis should use the address of the F.T.C. Regional Office in
which they operate)
Federal Trade Commission
Equal Credit Opportunity
Washington, D.C. 20580

Printed on the following pages is the text of the revised Regulation B, effective March 23,
1977, which has been reprinted from the Federal Register of January 6, 1977. The regulation will
be sent to you in pamphlet form as soon as possible.
Any questions regarding this matter may be directed to our Bank Regulations Department.
Additional copies of this circular will be furnished upon request.




P a u l A. V olcker ,

President.

8




RULES AND REGULATIONS
Title 12— Banks and Banking
CHAPTER II— FEDERAL RESERVE
SYSTEM
[Reg. B; D ocket No. R-0031]

PART 202— EQUAL CREDIT
OPPORTUNITY
Amendments to Regulation B To Imple­
ment the 1976 Amendments to the Equal
Credit Opportunity Act

The original Equal Credit Opportunity
Act (Pub. L. 93-495, the “Act”), which
went into effect on October 28,1975, pro­
hibits discrimination in any aspect of a
credit transaction on the basis of sex or
marital status. The 1976 Amendments to
the Act (Pub. L. 94-239) were signed into
law on March 23, 1976, and will go into
effect on March 23, 1977. They extend
the Act’s prohibition of discrimination in
credit transactions to include discrimina­
tion based on race, color, religion, na­
tional origin, age (provided the applicant
has the capacity to contract), receipt of
income from a public assistance program,
and the good faith exercise cf rights
under the Consumer Credit Protection
Act.
Since the Amendments substantially
changed the Act, numerous changes were
necessary in existing Regulation B, which
implements the Act. The Board of Gov­
ernors proposed for comment a revised
version of Regulation B on July 20, 1976
(41 FR 29870), and held hearings on
August 12 and 13, 1976. On the basis of
comments received and testimony pre­
sented, the Board published a second pro­
posal for comment on November 8, 1976
(41 FR 49123).
After consideration of the additional
comments received, the Board has revised
the second proposal (the “November pro­
posal”). The changes are discussed in
detail below. The revised Regulation B,
published herein, will become effective
on March 23, 1977. Creditors are re­
quired to comply with the provisions of
the existing Regulation B until that time.
S e c t io n 202.1— A u t h o r it y , S c o p e , E n ­
f o r c e m e n t , P e n a l t ie s and L ia b il it ie s ,
I n ter p r e t a t io n s

Sections 202.1(a) and (b) are identical
to the November proposal. In section
202.1(c) (1), the words “aetual and puni­
tive” have been inserted before “dam­
ages” to clarify that under the Act a
creditor’s civil liability extends to both
actual and punitive damages, and that
the dollar limitations in section 706(b)
of the Act apply only to the liability for
punitive damages. The final clause of
section 202.1(c) (2) has been modified to
conform more closely to the statutory
language; “or approval” has been added
after “such rule, regulation, [or] inter­
pretation,” and “rescinded” has been
added after “is amended.” The rest of
this section is identical to the November
proposal.
S e c t io n 202.2— D e f in it io n s
o f C o n s t r u c t io n

and

R u les

Section 202.2(a)—Definition of “Ac­
count”. The definition is identical to the
November proposal and substantially

similar to the definition in existing Regu­
lation B.
S e c tio n 2 0 2 .2 (b ) — D e fin itio n o f “A c t” .

The definition is identical to the Novem­
ber proposal.
Section 202.2(c)—Definition of “Ad­
verse action”. The definition is drawn
from section 701(d) (6) of the amended
Act and is similar to the November pro­
posal. Section 202.2(c)(1) describes the
actions by a creditor that will trigger the
requirements imposed by the Act and the
regulation relating to notification of ac­
tion taken, statement of reasons for ad­
verse action, and record retention. Para­
graph (i) is based on the statutory lan­
guage of section 701(d)(6); it provides
that adverse action occurs where an ap­
plicant requests credit and the creditor
refuses the request. In addition, para­
graph (i) encompasses the situation in
which a creditor rejects an applicant’s
initial request, but makes a counter-offer.
This approach combines provisions of
paragraphs (i) and (ii) of the November
proposal. If the applicant uses or accepts
the counter-offer, no adverse action oc­
curs. However, if the applicant does not
use or expressly accept the credit, ad­
verse action does occur.
Paragraphs (ii) and (iii) describe
other actions on the part of the creditor
that constitute adverse action.
Section 202.2(c)(2) lists the actions
that do not constitute adverse action.
Paragraph (i) provides that a change in
the terms of an account “expressly
agreed to by an applicant” is not ad­
verse action. Paragraph (ii) provides
that adverse action does not occur if a
creditor takes action or forbears from
taking action regarding inactivity, de­
fault, or delinquency on an account.
Paragraph (iii) provides that a refusal
to authorize a point of sale or loan trans­
action that would exceed an applicant’s
existing credit limit is not adverse ac­
tion. This paragraph differs from the
November proposal in not requiring that
the applicant be advised of the credit
limit in advance. However, a point of sale
refusal of credit is adverse action if the
refusal occurs for a reason other than
exceeding the pre-established creditlimit.
Paragraphs (iv) and (v) provide that
a refusal to extend credit because appli­
cable law prohibits the creditor from ex­
tending such credit, or because the credi­
tor does not offer the type of credit re­
quested, does not constitute adverse ac­
tion. The latter provision is intended to
apply, for example, where an applicant
requests a credit card from a creditor
that does not issue credit cards. How­
ever, if an applicant requests a loan at
an interest rate of 2 percent and this re­
quest is refused because the creditor’s
policy is to make loans only at 18 per­
cent, this refusal is adverse action. Para­
graph (v) is not intended to exempt this
type of refusal.
Section 202.2(d)—Definition of “Aae”.
The definition is identical to the No­
vember proposal. It indicates that the
amended Act’s protection against dis­
crimination based on age extends only to

FEDERAL REGISTER, VOL. 42, NO. 4— THURSDAY, JANUARY 6, 1977

9

RULES AND REGULAT20N3
natural persons and not to business
entities.
Section 202.2(e)—Definition of “Appli­
cant”. The definition is identical to the
November proposal. It is similar to the
definition in the existing regulation.
Section 202.2(f)—Definition of "Appli­
cation”. The definition of “application”
is identical to the November proposal and
is substantially similar to existing Reg­
ulation B.
Although the definition of a “com­
pleted application for credit” has been
modified, it remains substantially the
same as in the November proposal. The
words “such information” in the final
clause of the first sentence replace “the
approvals or reports” to make clear that
the requirement of reasonable diligence
is not limited to governmental approvals
or reports. The final sentence requires
that, where an application is incomplete
as to matters susceptible to completion
by the applicant, the creditor shall make
a reasonable effort to notify the applicant
and allow a reasonable opportunity for
completion of the application.
Section
202.2(g)—Definition
of
‘ Board”. The definition is identical to the
November proposal.
Section 202.2(h)—Definition of “Con­
sumer credit”. The definition is identical
to the November proposal
Section 202.2(i)—Definition of “Con­
tractually liable”. The definition is iden­
tical to the November proposal.
Section
220.2(f)—Definition
of
“Credit”. The definition is identical to
the November proposal.
Section 202.2(h)—Definition of “Credit
card”. The definition is identical to the
November proposal.
Section 202.2(1)—Definition of “Credi­
tor”. The definition is substantially iden­
tical to the November proposal. The pro­
visions on potential liability of assignees
for violations committed by other credi­
tors is now limited to situations in which
the assignee had reasonable notice of the
illegal acts. In this respect, this defini­
tion is identical to the July proposal.
Section
202.2 (m )—Definition
of
“ Credit transaction”. The definition is
identical to the November proposal. It
modifies existing Regulation B by delet­
ing the phrase “solicitation of prospec­
tive applicants by advertising or other
means.” Discriminatory advertising prac­
tices remain subject to § 202.5(a), which
prohibits discouraging applications.
Section 202.2 (n )—Definition of “Dis­
criminate against an applicant”. The
definition is identical to the November
proposal and is substantially similar to
the definition in existing Regulation B.
Section 202.2(o)—Definition of “El­
derly”. This is a new definition which sets
the exact age at which an applicant is
deemed elderly. Age 62 was chosen since
that is the earliest age at which retire­
ment benefits are paid by the Social Se­
curity Administration.
The addition of this definition neces­
sitates the relettering of subsequent
definitions.
S e c t i o n 2 0 2 .2 ( p ) — D e f i n i t i o n
p ir ic a lly d e r iv e d c r e d it s y s te m ”.




nition is similar to the November pro­
posal. It implements section 701 (b) (3) of
the amended Act. Section 202.2(p )(l)
describes an “empirically derived credit
system.” Such a system is defined as a
credit scoring system that evaluates, on
the basis of a numerical score, the likeli­
hood of an applicant’s repaying the credit
requested. The score is based on key at­
tributes of the applicant and the credit
which have been selected and weighted in
accordance with the creditor’s experience
with past applicants. The system must
be based on experience which is not out­
dated. The system may include a sub­
jective evaluation of other information
as long as the determination of creditworthiness is primarily controlled by the
empirically derived aspects of the system.
Section 202.2(p) (2) of the definition
prescribes the Board’s standards for a
“demonstrably and statistically sound”
system as required by the amended Act.
First, if the entire applicant population
of the creditor is not used in developing
the system, the sample groups of appli­
cants which are used must be obtained
in accordance with appropriate sampling
principles so as to fairly represent the
characteristics of the underlying popula­
tion. If proper methods are used in the
system’s development, consideration of
the characteristics of the applicant popu­
lation need not include actual sampling
or scoring of rejected applicants.
Second, the Board’s standards permit
a creditor, as a matter of business judg­
ment, to set the acceptance score high
or low depending upon its business ob­
jectives.
Third, the system’s predictive ability
must be validated during the develop­
ment process. One method of validation
is to apply the model to accumulated
credit experience and then to use statis­
tical tests to compare predictive ability
with actual results. In addition, there
are other methods available to ascertain
whether the model will perform at a sta­
tistically significant rate. No particular
confidence level is specified in the reg­
ulation; however, system developers may
note that courts in employment cases
have shown a preference for a 95 per­
cent level.
Fourth, the system’s predictive ability
must be regularly revalidated as it is
used. The techniques used for revalida­
tion, the frequency with which it occurs,
and the population of applicants used to
test continuing predictive ability will
vary depending upon the creditor and
credit system involved. Usually revalida­
tion will use the same statistical tests
as the initial validation, except that
more recent credit experience is used.
Section 202.2(p) (3) provides that a
creditor may borrow either a fully devel­
oped credit system or credit experience
from which an empirical system can be
developed. A borrowed system or a system
based on borrowed information must
meet the standards prescribed in subsec­
tions (1) andr (2) above. In addition, a
creditor adopting a borrowed system or
o f “E m ­
The defl- using borrowed data must validate the

1213
system against its own credit experience,
as soon as such information is available.
Thus, if the borrowing creditor has ac­
cumulated credit experience using a
judgmental system or a different scoring
system, the borrowed system can be val­
idated using this information even be­
fore the borrowing creditor commences
use of the new empirical system. How­
ever, if the creditor has no credit experi­
ence of its own, then validation may be
deferred until such experience is accu­
mulated. If a borrowed system fails to
pass a test of its validity then it is no
longer a demonstrably and statistically
sound, empirically derived credit system.
The borrowing creditor must then either
discontinue use of the system or use it
accepting the risks and requirements in­
herent in a judgmental system.
Section 202.2(q)—Definition of “Ex­
tend credit” and “Extension of credit”.
The definitions are identical to the
November proposal.
Section 202.2 (r)—Definition of “Good
faith.” The definition is identical to the
November proposal.
Section 202.2(s)—Definition of “In a d ­
vertent error”. The definition was drawn
from § 202.11(a) of existing Regulation
B, relating to mechanical errors, and is
identical to the November proposal.
Section 202.2(t) —Definition of “Ju d g ­
mental system of evaluating applicants”.
The definition is identical to the Novem­
ber proposal. The term is intended to en­
compass all systems for evaluating cred­
itworthiness other than “demonstrably
and statistically sound, empirically de­
rived credit systems.”
Section 202.2 (u)—Definition of “M ari­
tal status”. The definition is identical to
the November proposal.
Section 202.2(v)—Definition of “Nega­
tive factor or value”. Section 701(b) (3;
of the Act forbids the assigning of a neg­
ative factor or value to the age of an el­
derly person in the operation of a de­
monstrably and statistically sound, em­
pirically derived credit system. The
definition of “negative factor or value” is
similar to the November proposal. How­
ever, because of the addition of a defi­
nition of the word “elderly,” the effect of
this definition upon a credit scoring sys­
tem is now very different.
Since the November proposal did not
define “elderly,” under that proposal
each applicant would have been “elder­
ly” with respect to all younger applicants.
Accordingly, an applicant could not have
been given a score lower than that of any
younger applicant, regardless of the
creditor’s experience. Comments indi­
cated that, as a general rule, older per­
sons are the most creditworthy group on
the basis of age, but that certain groups
of middle-aged applicants are less credit­
worthy than younger applicants. The
November proposal would have caused
undue distortion in the points assigned
to age and might have led system users
to cease using age as a variable. If elder­
ly applicants are empirically the most
creditworthy, then dropping age as an
indicator could have had the effect of re­
ducing the amount of credit extended to
older persons.

FEDERAL REGISTER, V O L 42, NO. 4— THURSDAY, JANUARY 6, 1977

10

RULES AND REGULATIONS

1244
Because “elderly” is now defined as age
62 and above, the regulation has a dif­
ferent impact upon scoring systems.
Generally a demonstrably and statis­
tically sound, empirically derived credit
system which uses age as a scoring factor
should assign to an elderly applicant the
number of points indicated by experi­
ence. However, in no event may an elder­
ly applicant receive fewer points for age
than are assigned to the class of appli­
cants that are not elderly and are most
favored on the basis of their age. The
highest score on the basis of age given
to applicants who are less than 62 creates
a floor; persons 62 or older may not be
given a score beneath that floor. Except
for this limitation, applicants may be
given the number of points on the basis
of age which experience indicates.
Section
202.2 (w )—Definition
of
“Open-end credit ” . The definition is
identical to the November oronosal.
Section 202.2 (x )—Definition of “Per­
son”. The definition is identical to the
November proposal.
Section 202.2 (y )—Definition of “Perti­
nent element of creditworthiness”. The
definition is similar to the November pro­
posal. Section 701(b) (2) of the amended
Act permits a creditor to inquire about
an applicant’s age or whether an appli­
cant’s income derives from a public as­
sistance program, if such inquiry is for
the purpose of determining pertinent ele­
ments of creditworthiness. The Board
has defined pertinent element of creditworthiness as information having a de­
monstrable relationship to a determina­
tion of creditworthiness. The definition
varies from the November proposal by
expressly stating that this definition re­
lates only to judgmental systems. In ad­
dition, use of the term “manifest” in con­
nection with the information’s relation to
creditworthiness has been deleted. Credi­
tors should be on notice, however, that
court decisions pertaining to the socalled “effects test” do require t&at the
relationship between the defendant’s
practices and the defendant’s actual
needs be “manifest.” This definition does
not preclude a court applying the effects
test to credit practices from reading a
requirement of manifestness into the re­
lationship between credit practices and
cred itworthiness.
Section 202.2(z)—Definition of “Pro­
hibited basis”. The definition is substan­
tially similar to the November proopsal.
The phrase is defined in terms of those
characteristics that, under the amended
Act, may not be considered in any aspect
of a credit decision or may be considered
only in a limited fashion. A footnote in­
terprets the statutory language of sec­
tion 701(a)(1) as referring not only to
an applicant’s race, color, religion, na­
tional origin, sex, marital status, or age,
but also to such characteristics of other
persons who may be indirectly involved
in the transaction. This definition differs
from the November proposal by expressly
stating that an exercise of rights under a
State law substituted for the Consumer
Credit Protection Act is equally protected
by the Act and this regulation.
Section 202.2(aa)—Definition of “Pub­
lic assistance program”. Section 701(a)




need to explain reasons for adverse ac­
tion to all business credit applicants. Ap­
plicants for business credit who wish to
know the reason for adverse action may,
of course, request an explanation from
the creditor as provided in § 202.3(e) (2).
Similarly, § 202.3(e) (4) grants business
credit applicants the right to request re­
tention of records by the creditor within
90 days of adverse action. Under § 202.3
(e) (2), the period during which the re­
quest must be made commences only
when the applicant is notified orally or
in writing of the adverse action by the
creditor.
The Board has determined that spe­
cial treatment for business transactions
is also warranted for record retention
provisions of the regulation. The require­
ments to retain records involve signifi­
cant costs for creditors. The recordkeep­
ing requirement would be particularly
burdensome since applications for com­
mercial credit typically involve a much
greater volume of documents than appli­
cations for consumer credit.
C e r t a in C l a s s e s o f T r a n s a c t io n s
Four classes of transactions are given S e c t io 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 i o n
special treatment in the existing Regula­
tion B; incidental, business, securities,
The section is identical to the Novem­
and public utilities credit. Section 202.3 ber proposal.
provides specialized treatment for these
S e c t io n 202.5— R u l e s C o n c e r n in g
classes and for one additional class, cred­
A p p l ic a t i o n s
it extended to governmental units. The
Section
202.5(a)—Discouraging
appli­
Board has determined to adopt this sec­
tion as proposed with the changes dis­ cations. The section is identical to the
November proposal.
cussed below.
Section 202.5(b)—General rules con­
Public comments suggested that no
reason relating to creditworthiness cerning requests for information. Section
justifies an inquiry concerning the sex 202.5(b)(1) is unchanged from the No­
of an applicant for utilities, business, or vember proposal. It corresponds to § 202.incidental credit. In response to these 5(a) of existing Regulation B, except
comments, the Board has modified this that the phrase “continued ability to re­
section to provide that § 202.5(d) (3), pay” was deleted to underscore the fact
which prohibits inquiries about an ap­ that a creditor’s access to information is
plicant’s sex, applies to public utilities not limited to determining the probable
and business credit transactions. This continuity of an applicant’s income.
prohibition is also applicable to inci­ Thus, the only barriers to a creditor’s
dental credit transactions unless infor­ obtaining, as opposed to considering, in­
mation relating to the sex of an appli­ formation are those contained in § 202.5.
cant is required for medical records or Footnote 4 makes clear that § 202.5(b) <1)
similar purposes. This exception is in­ neither limits nor abrogates laws regard­
tended to allow persons providing health ing privacy, privileged information, or
services to rely upon medical records as similar matters.
a source of information when extending
Section 202.5(b) (2) deals with infor­
credit, even though the records may con­ mation collection relating to the moni­
tain information relating to the sex of toring or enforcement of compliance
an applicant.
with the amended Act, Regulation B, or
A number of commentators urged the other Federal or State laws. The first
Board to prohibit inquiries as to marital sentence refers explicitly to the infor­
status in business credit transactions. mation collection requirements of § 202.The Board has not followed this sugges­ 13. It has been revised from the Novem­
tion because to do so would require the ber proposal by the addition of an intro­
revision of forms and, in view of the ductory phrase, "notwithstanding any
variety and volume of business transac­ other provision of this section,” to clarify
tions, the revision would be costly and that this provision supersedes informa­
disruptive. Furthermore, it is doubtful tion barriers contained in subsections (c)
that this burden would be justified since and (d) of § 202.5. Any State law that
the traditionally close personal contact precludes a creditor from requesting an
between business creditor and applicant applicant’s race/national origin, sex, and
makes it likely that marital status will marital status, and thus conflicts with
be known by the creditor regardless of § 202.13, is preempted by § 202.11(b) (1)
the informational bar.
(ill).
The second sentence of § 202.5(b) (2)
The Board believes that, as a general
rule, applicants for business credit are permits creditors to comply with regula­
more sophisticated than applicants for tions, orders, or agreements (issued by
consumer credit and, thus, there is no or entered into with a Federal or State
(2) of the amended Act prohibits dis­
crimination against an applicant “be­
cause all or part of the applicant’s in­
come derives from any public assistance
program.” The definition provides some
examples of such programs, but the term
is not limited to the types of income
cited. This definition differs from ttie
November proposal by no longer requir­
ing that the periodic income supplement
be directed. A program’s assistance may
be indirect while still falling within the
ambit of this definition.
Section
202.2(bb)—Definition
of
“State”. The definition is identical to the
November proposal.
Section
202.2 (cc)—Captions
and
catchlines. The section is intended to in­
dicate the non-substantive nature of
captions and catchlines. It is derived
from § 226.2(11) of Regulation Z.
Section 202.2 (dd) — Footnotes. The sec­
tion gives footnotes to the regulation the
same legal effect as the text.
S e c t io n 202.3—S p e c ia l T r e a t m e n t f o r

FEDERAL REGISTER, VOL. 42, NO. 4— THURSDAY, JANUARY 6, 1977

11

RULES AND REGULATIONS
court or enforcement agency) that re­
quire the collection of information to
monitor or enforce compliance with the
amended Act or other State or Federal
law. such as the Federal Fair Housing
Act, administered by the U.S. Depart­
ment of Housing and Urban Develop­
ment. The Board has substituted the
words “may obtain” for “shall obtain”
to clarify that the provisions of the sec­
ond sentence of (b)(2) are permissive
and not mandatory. In addition, the
scope of the provision has been expanded
by the inclusion of the word “regulation”
in the first clause and by the insertion of
the words “or enforce” within the phrase
“to monitor compliance.”
Finally, § 202.5(b) (3) clarifies the
point that some information barriers of
§ 202.5 are not applicable to special pur­
pose credit programs as defined in § 202.8,
or with regard to § 202.7(e) relating to
insurance.
Section 202.5(0—Information about a
spouse or former spouse. Sections 202.5
(c> and (d) are specific exceptions to the
general rule of § 202.5(b) (1), Sections
202.5(0 (1) and (2) are identical to the
November proposal and are derived from
§ 202.5(b) of the existing regulation.
Paragraph (iv), relating to reliance on
community property, differs from the
corresponding provision of existing Reg­
ulation B, which permits a creditor to
request and consider information about
an applicant’s spouse if the applicant “is
relying on community property * * * as
a basis for repayment of the credit re­
quested.” The revised provision permits
such inquiries whenever the applicant
“resides” in a community property State
or when the applicant, in applying for
credit, is relying on property that Is
relying on property that is located in a
community property State.
Section 202.5(c) (3) has been expanded.
As in the November proposal, it permits
a creditor to ask an applicant to list any
account upon which the applicant is li­
able and to disclose the name and ad­
dress in which such an account is car­
ried. A second sentence has been added
that permits a creditor to ask about
other names in which the applicant has
previously received credit.
Section 202.5(d)■
—Information a credi­
tor may not request. Except for editorial
changes, this section is the same as the
November proposal. Section 202.5(d)(1)
restates the provisions of §§ 202.4(c) (1)
and (2) of existing Regulation B, except
that the language, “or as required to
comply with State law governing permis­
sible finance charges or loan ceilings,”
was deleted as unnecessary, since § 202.11
(b)(1) (ii) preempts any provision of
State law regarding married persons.
The structure of § 202.5(d) (1) has been
changed from the existing regulation to
state the rule relating to marital status
inquiries more clearly. If an applicant
applies for an individual, unsecured ac­
count, a creditor may not inquire about
the applicant’s marital status unless the
community property exception, which
conforms to 5 202.5(c)(2) (iv), applies.
Creditors should note that this informa­




1245

tional bar applies notwithstanding the
Section 202.5(d) (4) incorporates the
existence of a State necessaries law or limitation regarding child bearing in­
family expense statute.
quiries contained in the first sentence
In the second sentence of § 202.5(d) of § 202.5(h) of the existing regula­
(1) , the phrase that appeared in the No­ tion; the second sentence of § 202.5(h)
vember proposal, “in all other instances,” is found in § 202.6(b) (3) of this regu­
has been replaced by the phrase “Where lation. The provision makes clear that
an application is for other than indi­ the prohibition as to child bearing in­
vidual, unsecured credit * * *” In addi­ quiries does not preclude a creditor
tion, the limitation regarding terms that from asking about the number and
may be used in marital status inquiries ages of an applicant’s dependents or
is stated in a sepai'ate sentence, to clarify about dependent-related financial obli­
that the limitation applies in all instances gations or expenditures. For purposes of
where such inquiries are permissible, in­ clarification, the Board has added a final
cluding in community property States. clause to emphasize that a creditor may
Section 202.5(d) (1 > also makes clear that ask questions relating to dependents
a creditor may explain that the category only if it asks all applicants such
“unmarried” includes single, divorced, questions.
Section 202.5(d) (5) prohibits inquiries
and widowed persons.
Section 202.5(d)(2) replaces §§ 202.4 about the race, color, religion, or na­
(c) (3) and 202.5(d) (1) of existing Reg­ tional origin not only of applicants but
ulation B relating to alimony, child sup­ also of any other person in connection
port, and separate maintenance. The with a credit transaction, except as pro­
first sentence of this provision states the vided by § 202.5(b) (3) relating to special
general requirement that a creditor must purpose credit programs or as required
first disclose to an applicant that income by § 202.5(b) (2) for compliance-moni­
from alimony, child support, or separate toring purposes. The final sentence ex­
maintenance need not be revealed by plicitly permits a creditor to inquire
the applicant unless the applicant is re­ about an applicant’s permanent resi­
lying on such income to establish cred­ dence and immigration status.
Section 202.5(e)—Application forms.
itworthiness. The second sentence is in­
tended to alert creditors that a general The content of § 202.5(e) remains essen­
inquiry regarding source of income, tially unchanged from the November
without further specification, may lead proposal. However, a number of com­
an applicant to list alimony, child sup­ ments noted that certain provisions of
port, or separate maintenance income. this regulation might necessitate changes
Therefore, unless an inquiry is phrased in creditors’ forms less than a year after
in terms of salary, wages, or similarly creditors modified their forms to comply
specified income as opposed to general with the October 28, 1975 version of the
inquiries about income, disclosure by the regulation. In order to minimize the
creditor concerning the optional nature financial burden of any further changes
that may be required, a footnote has been
of such a listing is required.
Because the disclosure regarding ali­ added, permitting creditors to continue
mony, child support, or separate main­ to use application forms that comply
tenance income is required both in oral with the requirements of the 1975 version
and on written applications, the word of Regulation B until present stocks of
“appropriately” has been substituted for those forms are exhausted or until
March 23, 1978, whichever occurs first.
“first conspicuously.”
In response to numerous comments,
A number of commentators urged the § 202.5(e) has also been redrafted to un­
Board to delete the word “separate” from derscore the point that Regulation B
“separate maintenance” in the 202.5 does not require the use of written ap­
(d) (2) disclosure provision, on the plications or, if written forms are used,
ground that many application forms that does not require the use of any of the
comply with the existing version of Reg­ sample applications approved by the
ulation B do not draw such a distinction Board. If a creditor chooses to use writ­
and, thus, could be considered inade­ ten applications, it has four options.
quate under the new regulation. The First, a creditor may design its own
Board has adopted the provision as pro­ forms. Second, a creditor may use forms
posed. However, since these comments prepared by another person, for example,
express a valid concern, the Board has another creditor or a trade association.
added a footnote to 202.5(e) of the reg­ Third, a creditor may use any appropri­
ulation that permits a creditor to con­ ate model form included in Appendix B
tinue “to use any application form that of Regulation B. (The Appendix B forms
complies with the requirements of the will be published separately in the near
October 28, 1975, version of Regulation B future.) Finally, a creditor may use a
iuntil its present stock of those forms is modified version of any appropriate Ap­
exhausted or until March 23, 1978, pendix B form.
whichever occurs first.”
The phrase “appropriate model form”
Section 202.5(d) (3) expressly prohib- - has been used to emphasize that the five
its a creditor from asking about an ap­ forms contained in Appendix B are each
plicant's sex, and incorporates the cour­ designed for use in a different situation.
tesy titles provision of § 202.4(c) (4) of For example, one form is intended for
existing Regulation B. As in 5 202.5(d) use only in open end, unsecured credit
(2) , the word “appropriately” has re­ transactions; another is intended for use
placed the words “first conspicuously” in community property States. There­
for the reasons mentioned above.
fore, the protection accorded creditors

FEDERAL REGISTER, VOL. 42, NO. 4— THURSDAY, JANUARY 6, 1977

12

RULES AND REGULATIONS

1246
using the model forms applies only if the
form “appropriate” to a particular situa­
tion is used or modified as provided in
§ 202.5(e).
Section 202.5(e) enumerates the three
ways in which a creditor may modify an
appropriate Appendix B form to satisfy
its needs. First, a creditor may ask for
additional information if such a request
is not prohibited by § 202.5. Second, a
creditor may delete any information re­
quest. Third, a creditor may rearrange
the order of the questions. In each in­
stance, however, a creditor must include
the appropriate notices in the appropri­
ate places if information regarding cour­
tesy titles, alimony, child support, or
separate maintenance payments, or
marital status is solicited.
The modification of an appropriate
Appendix B form by deleting or re­
arranging informational items will not
affect a creditor’s protection under sec­
tion 706(e) of the amended Act from
civil liability arising from the use of the
form. If a creditor adds an informational
item not expressly permitted by the reg­
ulation, the creditor may not rely upon
the protection of .§ 706(e) with respect
to that additional item.
Finally, the language of the November
proposal expressly permitting creditors
to add the ECOA notice to their forms
has been deleted for two reasons. First,
footnote 6 addresses the problem of using
forms that contain the ECOA notice pre­
scribed by the October 28, 1975 version
of Regulation B. Second, supplying an
ECOA notice at the time that an appli­
cant applies for credit will not satisfy
the requirement of § 202.9(a) that such
a notice be provided when adverse action
is taken.
S e c t io n 202.6—R u l e s C o n c e r n in g
E v a l u a t io n

of

A p p l ic a t i o n s

Section 202.6 deals with the use of in­
formation in the evaluation of credit
applications, and elaborates on the sub­
stantive provisions of section 701 (a)
and (b) of the amended Act.
Section 202.6(a)—General rule con­
cerning the use of information. Section
202.6(a) is substantially similar to the
November proposal. Subject to two
qualifications, the basic provision of this
section is that a creditor may consider,
in evaluating an application, any infor­
mation that it obtains. The first qualifi­
cation is that no information may be used
to discriminate against an applicant on
a prohibited basis, except as provided in
§ 202.8 regarding special purpose credit
programs. Second, a creditor’s use of in­
formation is limited by the specific prohi­
bitions contained in §§ 202.5 and 202.6 of
the revised regulation. The rule adopted
in § 202.6(a) subsumes the first sentence
of § 202.5(k) of existing Regulation B.
The use of the words “to discriminate"
is intended to underscore the fact that
the general rule regarding use of infor­
mation is not limited to intentional acts
of discrimination. The amended Act pro­
scribes intentional discrimination and
also may be interpreted as prohibiting
actions that have the effect of discriml-




nating against applicants on any prohib­
ited basis.
The footnote has been shortened in the
final version. It refers to the legislative
history of the amended Act, which shows
that Congress intended certain judicial
decisions enunciating the “effects test”
in the employment area to be applied in
the credit area, especially with respect to
the allocation of burdens of proof.
As a judicial doctrine, the effects test
is not well suited to regulatory imple­
mentation. In addition, it is, of course,
subject to change as it is examined and
applied by the courts.
Section 202.6(b)—Specific rules con­
cerning use of information. Section 202.6(b) is substantially similar to the No­
vember proposal and contains specific
limitations on the use of information.
Section 202.6(b)(1), which bars (with
certain exceptions) a creditor from tak­
ing any prohibited basis into account in
evaluating creditworthiness, is identical
to the November version.
Footnote 8 does not broaden the au­
thority granted by § 202.5 to ask about
marital status; rather, where the credi­
tor can ask marital status under § 202.5,
the footnote permits a creditor to con­
sider it in connection with rights and
remedies.
Section 202.6(b) (2) has been adopted
without change from the November pro­
posal. Paragraph (i) expressly prohibits
a creditor from taking into account an
aDplicant’s age (provided the applicant is
old enough to enter into a binding con­
tract) or whether an applicant receives
income from any public assistance pro­
gram, except as otherwise provided in the
section. The wording of paragraphs (ii)
and (iii) emphasizes the distinction be­
tween the consideration of age in em­
pirically derived credit systems and Judg­
mental systems. In a judgmental system,
a creditor is permitted to consider an
applicant’s age and whether an appli­
cant’s income derives from any public as­
sistance program, but only for the pur­
pose of determining a pertinent element
of creditworthiness. A creditor may use
age itself as a predictive variable in a
credit scoring system, but only if such
system is a demonstrably and statistical­
ly sound, empirically derived system.
Paragraph (iv) is based on section 701
(b) (4) of the amended Act and provides
that, in any system of evaluating creditworthiness, a creditor may consider the
age of an elderly applicant when age is
used to favor the applicant.
With respect to § 202.6(b) (3), the
Board has inserted language, which ap­
pears in existing Regulation B, to make
clear that creditors are barred from con­
sidering statistics relating to childbear­
ing only in connection with evaluating
creditworthiness. Thus, for example, a
creditor may consider such statistics in
connection with marketing research.
Section 202.6(b) (4) is identical to the
corresponding provision in the November
proposal.
Section 202.6(b) (5) has been adopted
as it appeared in the November proposal,

except for the addition of annuity, pen­
sion, and other retirement income as in­
come that creditors may not discount or
exclude from consideration. This sub­
section corresponds to §§ 202.5(d) (2)
and 202.5(e) of existing Regulation B.
Section 202.6(b) (6) corresponds to
§ 202.5(j ) of the existing regulation, and
is unchanged from the November pro­
posal, except for the reinstatement of the
inadvertent error defense and the phrase
“contractually liable,” which appear in
the existing regulation. The words “when
available” in paragraphs (i) and (iii)
refer to the fact that such credit history
may not always be available to a creditor.
A creditor is required to consider such
credit history only “to the extent that a
creditor considers credit history in eval­
uating creditworthiness of similarly
qualified applicants for a similar type
and amount of credit.”
Section 202.6(b) (7) has been adopted
without change from the November pro­
posal. It provides that a creditor may
consider an applicant’s immigration
status, whether the applicant is a per­
manent resident of the United States,
and whatever additional information is
necessary to ascertain rights and reme­
dies regarding repayment.
Section 202.6(c)—State property laws.
This section incorporates the provisions
of § 705(b) of the Act and is substan­
tially identical to § 202.5(1) of the exist­
ing regulation. The Board has adopted
it without change from the November
proposal.
S e c t io n 202.7— R u l e s C o n c e r n in g
E x t e n s io n s

FEDERAL REGISTER, V O L 42, N O . 4— THURSDAY, JA N U A R Y 6, 1977

13

of

C r e d it

Section 202.7(a)—Individual accounts.
This section is identical to the November
proposal. It corresponds to § 202.4(b) of
the existing regulation.
Section 202.7(b)—Designation
of
name. Section 202.7(b) has been adopted
without change from the November pro­
posal and is substantially the same as
§ 202.4(e) of existing Regulation B. The
section prohibits a creditor from requir­
ing an applicant to open and maintain
an account in a spouse’s name, although
an applicant may use such a name if de­
sired. The provision permits an appli­
cant to use a birth-given first name with
a birth-given surname, spouse’s sur­
name, or a combined or hyphenated sur­
name.
This provision should not be inter­
preted as requiring creditors to redesign
systems in order to handle occasional
requests for combined names or .other
names that contain more than the usual
number of characters.
Section 202.7(c)—Action concerning
existing open end accounts. Section
202.7(c) (1) is identical to the November
proposal and is derived from § 202.5(1)
(1) of existing Regulation B. It pro­
hibits creditors from taking certain ac­
tions on the basis of an applicant’s re­
tirement, attainment of a certain age,
change of name, or change of marital
status.

1247

RULES AND REGULATIONS
Section 202.7(c)(2) is substantially
similar to the November proposal and is
derived from § 202.5 (i) (2) of existing
Regulation B. It permits a creditor to re­
quire a reapplication on the basis of a
change in marital status in certain in­
stances where open end credit was
granted to an applicant based on income
earned by the applicant’s spouse. The
November proposal, unlike existing Reg­
ulation B, would have permitted credi­
tors to require reapplication in those
instances on the basis of a change in
name as well as on the basis of a change
in marital status. Comments pointed out
that a change in name does not always
indicate a change in marital status, and
that only the latter is a cause for possible
concern about changed financial cir­
cumstances. In addition, women are
more likely to change their names upon
change in marital status than are men,
so that the November version of this pro­
vision might disfavor women. Therefore,
the Board has decided to delete the
words “name or” before “marital status”
in § 202.7(c)(2).
S e c tio n 2 0 2 .7 ( d ) — S ig n a tu r e o f sp o u s e
o r o t h e r p e r s o n . Section 202.7(d) cor­

responds to § 202.7 of existing Regula­
tion B, governing requests for the signa­
ture of a spouse or other person. The
section has been revised for clarity.
Section 202.7(d) (1) states the general
rule contained in § 202.7(a) of the exist­
ing regulation, and in the first sentence
•of § 202.7(d)(1) of the November pro­
posal. It prohibits a creditor from requir­
ing the signature of a spouse or other
person, other than a joint applicant, on
any credit instrument if the applicant
qualifies under the creditor’s standards
of creditworthiness for the credit re­
quested.
The words “or other person, other than
a joint applicant” have been added to
the November version to accomplish two
objectives. The addition of the first part
of the phrase makes clear that creditors
may not discriminate in imposing signa­
ture requirements upon applicants,
whether or not the additional signature
required is that of the applicant’s spouse.
In this respect, the addition merely con­
tinues the rule of existing § 202.7(a).
The second part of the phrase has been
added to underscore the fact that where
two persons voluntarily apply jointly for
credit, a creditor may obtain the signa­
ture of the joint applicant.
The remainder of § 202.7(d) comprises
exceptions to. and elaborations on, the
general rule. Section 202.7(d) (2) relates
to unsecured credit where property is
relied upon. This subsection includes the
second sentence of § 202.7(d)(1) of the
November proposal, concerning the fac­
tors that creditors may consider in eval­
uating the property relied upon, with
new material that explains that the cred­
itor may require, if evaluation indicates
that it is necessary, a signature on any
instrument needed to gain access to the
property in the event of default. For ex­
ample, such an instrument might be a
waiver of dower rights.




Section 202.7(d) (3) ‘relates to unse­
cured credit in community property
States, and is substantially the same as
§ 202.7(d) (4) of the November proposal
and § 202.7(b) of the existing regulation.
The provision adopted by the Board dif­
fers from the November proposal in that
the criterion defining instruments on
which creditors may require signatures
is changed from “necessary” to “neces­
sary, or reasonably believed by the credi­
tor to be necessary, under applicable
State law.” This change is in response
to comments indicating the difficulty in
some States of determining what instru­
ments are legally required in some in­
stances. It conforms the standard for
this subsection to that established for
secured credit in existing Regulation B,
and for all categories (unsecured rely­
ing on property, unsecured in community
property State, and secured) ir: the final
regulation.
Section 202.7(d) (4) relates to secured
credit, and corresponds to § 202.7(d) (2)
of the November proposal and § 202.7(c)
of the existing regulation. The phrase
“and the applicant’s spouse has or will
have an interest in the property being
offered as security,” which appeared in
the November proposal, has been deleted
because some commentators cited State
laws under which, even though a per­
son’s spouse has no interest in property
owned by the person, the spouse’s signa­
ture is required to pass clear title. The
words “or other person” have been added
after “spouse” to take account of the
situation where a person other than the
applicant’s spouse holds an interest in
the property being offered as security.
Finally, “necessary” has been changed
to “necessary, or reasonably believed
* * * ,” as explained above with reference
to § 202.7(d) (3).
Section 202.7(d) (5) relates to credit in
connection with which the personal lia­
bility of a person other than the appli­
cant (and other than a joint applicant
or applicants, if any) has been found
necessary. An example, given in foot­
note 10, is the situation where an ap­
plicant requests individual credit and
relies on income of another person. This
subsection corresponds to § 202.7(d) (3)
of the November proposal. Aside from
the addition of footnote 10, it differs
from the November proposal in two re­
spects. First, “an additional party” re­
places “a party other than the appli­
cant” to indicate that, where persons
apply voluntarily for joint credit, the
restrictions stated in this paragraph do
not apply. For example, if a person and
his or her spouse apply for joint credit,
the creditor does not violate Regulation
B by obtaining the signature of the
spouse. Second, a new sentence has been
added, providing that guarantors, co­
signers, and the like have the same pro­
tection under § 202.7(d) as do appli­
cants. For example, a creditor cannot
require the spouse of a guarantor to co­
sign the guarantee, unless it could re­
quire such signature if the guarantor
were an applicant for the credit being
extended.

S e c t i o n 2 0 2 . 7 ( e ) —I n s u r a n c e . The pro­
vision is similar to the November pro­
posal. It states that differences in rates
and terms of credit-related insurance
provided to different applicants, and pro­
viding insurance to some applicants but
not to others, do not constitute viola­
tions of Regulation B. In response to
public comment, the Board has added
a proviso prohibiting creditors from de­
nying or terminating credit because
credit life, health, accident, or disability
insurance is unavailable due to the ap­
plicant’s age. This proviso does not pre­
vent creditors from varying the terms
and conditions of credit because of the
unavailability, rates, and terms of in­
surance.
The last sentence of the section, which
is also an addition to the November pro­
posal, states that creditors do not violate
Regulation B by asking applicants about
age, sex, or marital status in connection
with insurance applications.
S e c t io n 202.8— S p e c ia l P u r p o s e C r e d it

P

S e c tio n 2 0 2 .8 (a ) — S ta n d a r d s f o r p r o ­
g r a m s . Section 202.8(a) has been made

subject to the two general rules con­
tained in new § 202.8(b) discussed below.
Reversing the position taken in the No­
vember proposal, the denial of credit to
an applicant under a special purpose
credit program constitutes adverse ac­
tion, triggering the notice provisions of
§ 202.9. The Board has changed this sec­
tion for two reasons. First, the revised
provision more closely follows the lan­
guage of 701(c) of the Act. Second, while
§ 202.8 programs are accorded special
treatment by the Act and the regulation,
the Board believes that the intended
beneficiaries of those programs should
have the same right as other applicants
to receive a notice of action taken and
a statement of reasons for denial.
Section 202.8(a)(1) deals with credit
programs expressly authorized by Fed­
eral or State law. Despite numerous re­
quests, the Board has not listed any
programs that qualify under this pro­
vision. A great number of programs may
satisfy the requirements of § 202.8(a) (1),
but any attempt to list the programs that
do qualify would involve a detailed re­
view of the facts in each case and would
require an analysis of numerous Fed­
eral and State statutes, regulations, and
judicial and administrative decisions and
interpretations. Therefore, creditors will
have to determine, in conjunction with
any government agency involved in the
program, whether a particular program
meets the statutory requirements enun­
ciated in Section 701(c) of the Act.
Section 202.8(a) (2) concerns pro­
grams where the credit is offered by notfor-profit organizations. The only
change made in this section is the sub­
stitution of the phrase “offered by" for
the terms “administered by." This sub­
stitution was made in response to com­
ments to avoid any misunderstanding

FEOERAL REGISTER, V O L 42, NO. 4— THURSDAY, JANUARY 6, 1977

14

r o gr a m s

In response to comments, the Board
has made several substantive and tech­
nical changes.

RULES AND REGULATIONS

1248
that a program offered by a not-forprofit entity <e.g., a trust) may be ad­
ministered by a for-profit organization
(e.g., a commercial bank).
Section 202.8(a) (3) covers programs
involving for-profit organizations. It has
been changed in two respects. First,
language regarding such an organiza­
tion’s participation in a program has
been added to clarify the point that a
for-profit organization may satisfy the
requirements of this section by extend­
ing credit pursuant to a program spon­
sored by a not-for-profit organization
or by another for-profit organization.
For example, a student loan program
sponsored by a foundation where the
loans are made by commercial banks or
a program established by a for-profit
corporation where economically disad­
vantaged employees are assisted in ob­
taining credit from local creditors would
qualify.
The second change involved incor­
porating subsection (a) (3) (iii) into new
S 202.8(b) (2).
Section 202.8(b) — A p p lic a b ility o f
o th e r ru le s . This section is new. The first
paragraph has been added to make ex­
plicit what was implied in the previous
proposals, namely, that all of the other
provisions of the regulation apply to
special purpose credit programs to the
extent that those provisions are not in­
consistent with the specific terms of
S 202.8.
The second paragraph incorporates
the provisions of § 202.8(a) (3) (iii) of
the November proposal and applies them
not only to programs involving forprofit organizations (as was the case in
the November proposal), but also to pro­
grams offered by not-for-profit organi­
zations.
Section 202.8(b) (2) provides that a
creditor may determine eligibility for a
special purpose credit program using
one or more of the prohibited bases;
but, once the characteristics of the class
of beneficiaries are established, a credi­
tor may not discriminate among poten­
tial beneficiaries on a prohibited basis.
For example, a creditor might establish
a credit program for impoverished
American Indians. If the program met
the requirements of 8 202.8(a), the cred­
itor could refuse credit to non-Indians
but could not discriminate among Indian
applicants on the basis of sex or marital
status.
Sections 202.8 (c) and (d ) — S p e c ia l
ru le c o n c e rn in g r e q u e s ts a n d u se o f in ­
f o r m a tio n a n d S p e c ia l ru le in th e c a se o f
fin a n c ia l n e e d . Except for re-lettering,

the only modification in these sections
is that the phrase “or will be” has been
added to the first sentence of each to
underscore the point that new special
purpose credit programs may be estab­
lished after the effective date of the reg­
ulation. Both sections permit creditors
to seek information otherwise barred by
the regulation in order to determine eli­
gibility for special purpose credit pro­
grams.




S e c t io n 202.9—N o t if ic a t io n s
This section encompasses all of the re­
quirements for the notices that creditors
must provide to applicants, except for
the credit history notice required by
8 202.10(b). These requirements appear
in 88 202.4(d) and 202.5(m) of existing
Regulation B.
Section 202.9 (a.) — N o tific a tio n o f a c ­

tio n ta k e n , E C O A n o tic e , a n d s t a te m e n t
o f s p e c ific re a s o n s. 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. Section 202.9(a) (1) requires that
the notice of action taken be given with­
in 30 days after a creditor receives a
completed application, or within a simi­
lar period after taking adverse action.
In response to public comment, the
Board has added subsection (iv) to
8 202.9(a) (1). It provides that a creditor
shall notify an applicant of action taken
within 90 days after an applicant has
been notified by the creditor of an offer
to grant credit other than in substan­
tially the amount or in substantially the
terms requested by an applicant and the
applicant has not expressly accepted or
used the credit offered.
Section 202.9(a) (2) specifies the con­
tent of the notification when adverse ac­
tion is taken. The notification must con­
tain the statement of action taken re­
quired by existng 8 202.5(m) (1), the
ECOA notice required by existing 8 202.4
(d), and the statement of specific rea­
sons for adverse action (or disclosure of
the right to such a statement) similar to
the statement required by present 8 202.5
(m )(2). The revised regulation requires
the notices to be given together because
the Board believes that public under­
standing of the notices will be thereby
enhanced. Under the revised regulation,
the ECOA notice need be given only when
adverse action is taken. A creditor may
continue to provide the ECOA notice at
the application stage, as long as the
notice is also given when adverse action
is taken.
Section 202.9(a)(3) provides that, if
more than one applicant is Involved in a
credit transaction, the notification shall
be provided to the primary applicant
where one is readily apparent.
Section 202.9(a) (4) provides that, if
a transaction involves more than one
creditor and the applicant is offered and
accepts credit from any one of them,
no creditor need furnish a notification of
adverse action, the ECOA notice, reasons
for denial, or disclosure of the right to
such reasons. The creditor extending the
credit will, of course, give notification of
approval by implication, since the appli­
cant will have received the money, prop­
erty, or services requested. If no credit is
granted, or if credit is offered that is not
acceptable to the applicant, then each
creditor must give the required notifi­
cation. For example, if an auto dealer
“shops” an appliaction to several banks
and one bank extends credit, the provi­
sion requires only that bank to provide
the notice of action taken. However, if

none of the banks offers credit or if the
credit offered is not acceptable to the a p ­
p lic a n t, then all the banks must give the
required notices, as must the dealer if it
is a “creditor” in the transaction.
Where all creditors in a multiple credi­
tor situation are required to furnish the
notices, they may arrange for a joint
notification to be provided through one
party, provided that such a joint notifica­
tion Identifies each creditor that consid­
ered the application. Disclosure of each
creditor’s identity, however, is required
only when the notification is provided by
a third party. A creditor that directly
furnishes the required notification to a
rejected applicant need not identify other
creditors to whom the application was
“shopped.”
The last sentence of 8 202.9(a) (4) in­
sulates a creditor from liability for acts
or omissions of a third party in those
cases where the third party agrees to
supply the notice, provided that the cred­
itor follows reasonable procedures to in­
sure compliance.
S e c tio n 2 0 2 .9 (b )— F o rm o f E C O A
n o tic e a n d s t a te m e n t o f s p e c ific re a so n s.

This section is identical to the November
proposal. It is drawn from existing
88 202.4(d) and 202.5(m)(2) and (3).
Unlike existing 8 202.4(d), which re­
quires creditors to use the sample ECOA
notice verbatim, 8 202.9(b) (1) provides
that substantial adherence to the sample
form constitutes compliance. In addition,
this section permits inclusion in the
notice of a reference to a similar State
statute or regulation and State en­
forcement agency.
The text of the notice is identical to
that contained in existing 8 202.4(d), ex­
cept that the additional bases of pro­
hibited discrimination have been added
and, in the last sentence, the word “cred­
itor” is used, rather than a blank requir­
ing a description of the particular type
of creditor. The latter change will fa­
cilitate the giving'of notices by third
parties on behalf of several different
types of creditors.
Numerous public comments strongly
urged the Board to amend 8 202.9(b) (2)
to allow creditors to state as the reason
for adverse action the fact that an ap­
plicant has "failed to achieve the qualify­
ing score on the creditor’s credit scoring
system.” The commentators argued that
such a statement is the only truthful,
accurate statement of the reasons for
adverse action under a statistically sound
credit scoring system.
Section 701(d) (3) of the amended Act
provides that “a statement of reasons
meets the requirements of this section
only if it contains the ‘specific’ reasons
for the adverse action taken.” (Emphasis
added) The Board is of the opinion that
a statement that an applicant has failed
to achieve the qualifying score on the
creditor’s credit scoring system would
not satisfy the language or intent of the
statute. A statement that the applicant
failed to achieve a qualifying score is
perhaps the ultimate reason for decline,
but is itself a conclusion. Such a state­
ment does not reveal the more funda­

FEDERAL REGISTER, V O L 42, N O . 4— THURSDAY, JA N U A R Y 6, 1977

15

RULES AND REGULATIONS
mental reasons why the applicant was
declined.
The Board believes that the intent of
the Congress was to require creditors to
provide applicants -with a more meaning­
ful explanation of denial than a state­
ment that denial was caused by a failure
to achieve a qualifying score. The Senate
Report on the 1976 Amendments
states “ * * * knowing the reasons for
adverse action will, over time, have a very
beneficial educational effect on the
credit-consuming public and a very
beneficial competitive effect on the credit
marketplace.” (S'. Rep. No. 589, 94th
Cong., 2d Sess. (1976), p. 7.)
The knowledge that one failed to
achieve a minimum score can have little
educational value. Providing more funda­
mental reasons for adverse action, as
contemplated by Regulation B, will en­
hance consumers’ awareness of the fac­
tors that are considered important by
credit-granters and often will enable an
applicant to correct erroneous informa­
tion or supplement information in the
application.
Section 202.9(b) (2) provides a sug­
gested form for the statement of specific
reasons for adverse action. The form in­
cludes a section regarding disclosure of
the use of information that was obtained
from an outside source, so that a creditor
could also satisfy the requirements of
the Pair Credit Reporting Act through
proper use of this form. The form also
contains a section for the ECOA notice.

to furnish credit information, however,
must do so as prescribed by this section.
Several comments requested clarifica­
tion of the term “primarily liable,”
which appears throughout this section
but nowhere else in the regulation. “Pri­
marily liable” was substituted for “con­
tractually liable” in the November pro­
posal in order to exclude guarantors or
sureties from the coverage of the sec­
tion. The return to “contractually liable,”
a defined term, and the addition of the
words “other than as guarantors, sure­
ties, endorsers, or similar parties” is in­
tended to clarify the coverage of the sec­
tion.
Footnote 12 was added at the end of
§ 202.10(a) (3) to clarify creditors’ re­
sponsibilities when new parties assume
responsibility for payment of a debt. If
a creditor that is furnishing credit infor­
mation on an account learns that a new
party or parties have assumed responsi­
bility for payment of the debt, the credi­
tor has the responsibility to determine
whether the assumptors are married to
each other and, therefore, entitled to
have information furnished on the ac­
count as required by § 202.10(a) (2) and
(3). If the new parties are so entitled,
credit information should be reported in
the names of the new parties. The regu­
lation does not require the creditor to
continue furnishing information in the
names of the former parties.
Section 202.10(a)(2) of the November
proposal would have required creditors
S e c tio n 2 0 2 .9 ( c ) — O r a l n o tif ic a tio n s .
to furnish information in the name of
This section is drawn from section 701 each spouse about whom information
<d) (5) of the amended Act and is iden­ was requested, except when furnishing
tical to the November proposal.
information to consumer reporting agen­
S e c tio n 2 0 2 .9 (d )— W ith d r a w n a p p li­
cies. When furnishing information to
c a t i o n s . This section is substantially
consumer reporting agencies, creditors
similar to the November proposal.
would have been required to do so in a
S e c tio n 2 0 2 .9 ( e ) — F a ilu r e o f c o m p li­
manner that would enable the agency to
a n c e . This section is identical to the
provide access to the information about
November proposal.
the account in the name of each spouse.
The approach of the November pro­
S e c tio n
2 0 2 . 9 ( f ) —N o t i f i c a t i o n .
This
section defines what constitutes notifica­ posal was based upon the assumption
tion. It provides that a creditor notifies that information is supplied by creditors
an applicant when a writing addressed to to consumer reporting agencies without
the applicant is delivered or mailed to a request for information about a spe­
the applicant’s last known address or, in cific account. Comments revealed that,
the case of an oral notification, when while this is generally true, some credi­
the creditor communicates with the tors furnish information to consumer re­
porting agencies only in response to a
applicant.
request about a specific account. There­
S e c t io n 202.10— F u r n is h in g o f C redit fore, creditors responding to a request
I n fo r m a t io n
from a consumer reporting agency for
Although numerous changes have information about one participant on a
been made in this section, the substantive joint account, by furnishing information
requirements remain substantially the about both spouses, might be in violation
same as the November proposal and of the Fair Credit Reporting Act.
Accordingly, § 202.10(a) (2) of the No­
existing Regulation B, as amended on
vember proposal was redrafted. Under
September 2, 1976 (41 FR 38759).
Section 202.10(a) requires the desig­ new subsections (a)(2) and (a )(3 ), the
nation and furnishing of information on manner in which information about an
accounts established on or after June 1, account designated under this section
1977 to reflect the participation of each must be furnished depends upon whether
spouse. The words “that furnishes credit it is furnished on a routine basis to con­
information” were added after “creditor” sumer reporting agencies or pursuant to
at the beginning of this subsection and a request for information on a specific
§ 202.10(b) to make clear that Regula­ account. In the former situation, it must
tion B does not require creditors to pro­ be provided in a manner that will enable
vide credit information to others. Fur­ an agency to provide access to the infor­
thermore, if a creditor does not furnish mation about the account in the name of
credit information to others, it need not each spouse, and in the latter situation in
comply with the designation require­ the name of the spouse about, whom the
ments of $ 202.10. A creditor that chooses information is requested.




FEDERAL REG:S7CP, VOL. 4 2 ,

1249
Several commentators requested clar­
ification of the requirement in § 202.10
(a) (2) of the November proposal that
creditors “report the designation” of ac­
counts. Because of the confusion caused
by this term and its doubtful value in
furthering the purpose of the section, it
has been deleted from the regulation
S e c tio n
2 0 2 .1 0 ( 6 ) — A c c o u n t s
e s ta b ­
l i s h e d p r i o r t o J u n e 1 , 1 9 7 7 . There are
two principal ways of complying with the
designation and reporting requirements
with respect to accounts established
prior to June 1, 1977. First, a creditor
may review its records and designate the
files of married account holders. This is
the procedure envisioned by § 202.10(b)
(1 ) . In the alternative, a creditor that
lacks information regarding use or lia­
bility for accounts or does not wish to
undertake the search of its records nec­
essary to comply with subsection (1) may
mail to all married account holders or to
all account holders the notice entitled
“Credit History for Married Persons.”
In some cases, a creditor may possess
the information about use and liability
for accounts necessary for designation
and reporting about some accounts but
not for others. The creditor may use both
methods described above, that is, mail the
notice to those accounts for which it lacks
the necessary information and designate
automatically those for which it possesses
the information.
The words “one copy of” were added
before “notice” in subsection (2) to make
it clear that only one notice need be sent
to each account for which any billing
statement will be sent between June 1
and October 1,1977.
Footnote 14 allows creditors to delete
any reference to “use” of an account
when notices are sent to closed end
account holders. This change was in­
tended to avoid the confusion that might
be caused when consumers holding ac­
counts on which there can be no users re­
ceived the notice.
The words “at any time prior to Octo­
ber 2,1977” were added in subsection <b)
(2) to allow creditors sending billing
statements monthly, regardless of activ­
ity on accounts, to begin sending the no­
tices before June 1.
A sentence added at the end of sub­
section (b)(2) allows creditors to com­
bine the alternate methods of compliance
provided in subsection (b) by designating
those accounts on which the creditor has
the information needed to do so and
sending the notice where it does not.
The notice entitled “Credit History For
Married Persons” was the subject of sev­
eral comments requesting clarification of
the language of the text. As a result, the
word “hold” before “the account” was
deleted, and the phrase “are responsible
for” was added. As used in the notice,
responsibility for an account is the equiv­
alent of contractual liability. No addi­
tional reporting requirements are im­
posed by this change.
With respect to the notice itself, com­
ments reflected a general lack of under­
standing of the phrase “paid for.” Since
the phrase merely restated the idea that.

N O . 4 — THURSDAY. JAN UAR Y 6,

16

1977

RULES AND REGULATIONS

1250
if both spouses share contractual liability
on an account, they are entitled to share
the credit history of that account, the
Board has decided to delete the phrase.
The word “complete” was substituted
for “fill out” in the notice to make it clear
to consumers that all information re­
quested in the notice (typed or printed
name, signature and account number)
must be supplied before any change in
credit information reporting will be
made.
The notice in the November proposal
ended with the applicant’s request to
furnish information in the names of both
spouses “as follows.” The words “as fol­
lows” were deleted to make clear that
consumers may not request a change in
the name in which the account is cur­
rently carried. A consumer may only add
a name to the account.
In response to comments expressing
concern that one spouse might deny the
other spouse a credit history, one signa­
ture line has been deleted at the end of
the notice. The words “of either spouse”
have been added after “signature” under
the remaining line to indicate that either
spouse may authorize the change in the
manner in which information is furn­
ished on the account.
Although several comments expressed
concern that, without the signature of
both spouses, a spouse could request a
change even when not entitled to share
the credit history, the Board believes that
this potential problem is outweighed by
the necessity to ensure that all married
account holders have access to the credit
histories that they have established.
Section 202.10(c) describes how credi­
tors must respond to requests to change
the manner in which information is re­
ported on an account. The words “prop­
erly completed request” were substituted
for “written request” to indicate that
creditors need respond only to requests
that contain all information necessary to
make the change on an account. Lan­
guage was also added to make clear that
a creditor need not change the name in
which an account is carried pursuant to
a request under this section.
Because the Board has determined that
one signature is sufficient to authorize a
change in the manner in which infor­
mation on an account is furnished, and
that requiring two signatures might frus­
trate the intent of the section, the pro­
vision allowing creditors to verify a re­
quest to provide separate credit histories
by signature or otherwise has been
deleted.
S e c t io n 202.11 — R

e l a t io n t o

S ta t e L aw

Section 202.11(a)—I n c o n s i s t e n t S t a t e
l a w s . Section 202.11(a) states the gen­
eral standard for preemption of State
law and is identical to the November
proposal. It is derived from section 705
(f) of the amended Act.
Section 202.11(b)—P r e e m p t e d p r o v i ­
s i o n s o f S t a t e l a w . Subsection (b)(1)
describes provisions of State law that
are preempted by the Act and Regula­
tion B.
The November proposal would have
preempted provisions of State law re­
quiring an applicant’s spouse to assume




liability for debts incurred by an ap­
plicant who has established independent
creditworthiness. This guideline, which
was intended to preempt State neces­
saries laws and family expense statutes
in limited situations, has been deleted;
however, creditors in States where such
laws exist must continue to observe the
informational bar relating to marital
status in § 202.5.
Paragraph (ii) continues the preemp­
tion of those provisions of State small
loan laws that forbid the separate ex­
tension of credit to both parties to a
marriage. No change from the treatment
of these laws in existing Regulation B
is intended.
Paragraph (v) of § 202.11(b) (1) is
identical to § 202.11(b) (6) of the No­
vember proposal except that the words
“or administer” have been added to
preempt State laws that forbid either
the establishment or implementation of
special purpose credit programs as de­
fined by § 202.8.
The Board has deleted subsection (b)
(7) of the November proposal, which
would have preempted State laws that
prohibit inquiries used in a model ap­
plication form set forth in Appendix B
of the regulation, because these laws may
be more protective of an applicant.
Creditors using the model forms must
conform them to informational prohi­
bitions of applicable State laws.
Subsection (b) (2) is new. It requires
creditors to request a formal Board in­
terpretation when seeking a determina­
tion as to whether a State law is
inconsistent with the Act and regula­
tion. The subsection incorporates § 202.1
(d) as that section relates to formal
Board interpretations. The factors upon
which such a determination will be based
are set forth in subsection (c) of Sup­
plement I. Notice of a determination will
be provided as specified in subsection
(e) (1) of Supplement I relating to revo­
cation, as modifications are also incor­
porated by reference.
The remainder of § 202.11(b) is iden­
tical to the November proposal, except
that the conjunction “and” that ap­
peared in subsection (b) has been
changed to “or” in subsection (b) (1)
(iv) to correct an inadvertent drafting
error.
Section 202.11(c)—F i n a n c e c h a r g e s
a n d l o a n c e i l i n g s . Section 202.11(c) re­
states § 202.8(b) of existing Regulation
B without substantive change. Footnote
10 in § 202.11(c) of the November pro­
posal provided an example of how the
regulation affected loan ceilings and
finance charges. Because commentators
found it confusing, the footnote has been
deleted.
Section 202.11(d)—S t a t e a n d F e d e r a l
l a w s n o t a f f e c t e d . Subsection (d) saves
certain types of laws from preemption
even though they may fall within one of
the categories of State laws preempted
by subsection (b)(1). The coverage of
the section has been broadened by adding
the word “Federal” before “banking reg­
ulations” and by deleting the word “com­
munity” before “property.” Accordingly,
Federal and State banking regulations
directed only towards insuring the sol­
vency of financial institutions and State

property laws are unaffected by the Act
and Regulation B.
Section 202.11(e)— E x e m p t i o n f o r
S t a t e r e g u l a t e d t r a n s a c t i o n s . The stand­
ards for exemption of State regulated
transactions in § 202.11(e) are identical
to those in the November proposal, ex­
cept that under this provision a violation
of an exempted State law is a violation
of the Federal law only to the extent that
it imposes requirements also imposed by
the Act or Regulation B. In response to
comments, the Board h*fc decided to re­
instate the provisions of § 202.11(d) (3)
(ii) of the July proposal as the more ap­
propriate way to handle enforcement of
exempted State equal credit laws.
S e c t io n 202.12—R ec o r d R e t e n t io n
Section 202.12(a)-—R e t e n t i o n o f p r o ­
h i b i t e d i n f o r m a t i o n . This section is iden­
tical to the November proposal.
Section 202.12(b)— P r e s e r v a t i o n o f
r e c o r d s . This section is substantially sim­
ilar to the November proposal.
Section 202.12(c)—F a i l u r e o f c o m p l i ­
a n c e . In response to public comment, the
Board has added an “inadvertent error”
provision to § 202.12. This section pro­
vides that a failure to comply with
§ 202.12 shall not constitute a violation
when caused by an “inadvertent error.”
The term “inadvertent error” is defined
in § 202.2(s).
S e c t io n 202.13—I n f o r m a t io n f o r
M o n it o r in g P u r p o s e s

The Board has determined to adopt a
simple notation requirement applicable
to all creditors that extend credit for
the purpose of purchasing residential
real property. The resulting data are
intended to assist the agencies respon­
sible for enforcing the amended Act, and
to assist the Department of Housing and
Urban Development in exercising its re­
sponsibilities under Title VIII of the Civil
Rights Act of 1968.
This section is limited to applications
for loans for the purpose of purchasing
residential real property. The Board be­
lieves this limitation is appropriate for
several reasons. First, a home is in most
cases the single most important purchase
a consumer makes, and access to mort­
gage credit has a profund impact on the
quality of life. Second, there have been
frequent and serious allegations of dis­
crimination in this area of credit. Third,
the per unit cost of notation will be small
in relation to the dollar amount of appli­
cations for mortgage credit.
A number of commentators urged the
Board to require notation of race/national origin, etc., in connection with
secured and unsecured home improve­
ment loans on the ground that home im­
provement loans are covered by the
Home Mortgage Disclosure and Fair
Housing Acts. The Board has determined
not to broaden the category of applica­
tions subject to a notation requirement
for several reasons. There is no univer­
sally accepted understanding of what
constitutes a home improvement loan.
In addition, the Board is of the opinion
that the effectiveness of racial notation
as an enforcement tool should be eval­
uated before this requirement is applied
to other types of applications.

FEDERAL REGISTER, VOL. 4 2 , N O . 4 — THURSDAY, J A N U AR Y 6 ,

17

1977

RULES AND REGULATIONS
This section requires creditors to ask
that applicants respond to questions
about age, sex, marital status, and race/
national origin. The term "race/national
origin” is used instead of "race” because
certain of the categories required to be
used describe national origin rather
than race.
The racial categories to be used are
categories that are already widely in use
in the employment field, plus one addi­
tional category, “Other (Specify),” to
permit an applicant to supply a differ­
ent description of his or her race/
national origin.
The regulation gives creditors the op­
tion of placing questions regarding per­
sonal characteristics on the creditor’s
application form or on a separate form.
On the Board’s Appendix B model form
for residential loan applications, to be
published in the near future, the ques­
tions will appear on the form itself.
Creditors are not required to supply
information about personal character­
istics if an applicant declines to do so.
The provision requires creditors to in­
form applicants that answering the
questions is voluntary, and that the in­
formation is sought by the Federal gov­
ernment for the purpose of monitoring
compliance with Federal anti-discrim­
ination laws.
In response to comments from agen­
cies charged with responsibility for
administrative enforcement of the Act,
the Board has added a new subsection
<d), which explains that any monitor­
ing program required by such an agency
may be substituted for the requirements
imposed by Regulation B. This provision
should prevent duplication as well as
facilitate experimentation.
It was also suggested that the Board
add to Regulation B a requirement that
creditors tabulate the responses to the
questions about race/national origin,
etc. Since creditors affected by § 202.13
are supervised by different enforcement
agencies, the Board has determined that
to impose a uniform tabulation require­
ment is not appropriate. The Board ex­
pects that the enforcement agencies will
devise their own procedures for collec­
tion and use of the data, acting under
the authority granted by section 704^d)
of the Act.
S upplement I

Supplement I, which follows Appendix
A. sets forth the procedure under which
a State may apply for an exemption
for any class of transactions from the
provisions of sections 701 and 702 of the
Act. Applications must be signed by the
Governor, Attorney General, or other
official of the State having primary en­
forcement or interpretive responsibilities
under the State lawT in question, and
must include a copy of the full text of
the State law, a comparison of sections
701 and 702 of the Act with correspond­
ing provisions of the State law, verifica­
tion of the existence of adequate en­
forcement mechanisms, and a statement
explaining how any differences be­
tween the State and Federal law do not




result in a diminution of protection to
applicants.
Footnote 1 is new. It provides that
any reference to State law in Supple­
ment I includes a reference to State
regulations implementing the State law
and formal interpretations of the law
or regulation by a court or authorized
agency of that State.
Footnote 3 is also new and provides
that any reference to sections 701 and
702 of the Act includes a reference to
the corresponding and implementing
provisions of the regulation, as well as
any formal Board or official staff inter­
pretations of these sections. Also in­
cluded in any reference to sections 701
and 702 are §§ 705 (a), (b), (c), and (d)
of the Act and the corresponding pro­
visions of Regulation B.
Part 202 is being revised as follows:
Sec.
202.1

A uthority, scope, enforcem ent, p e n ­
a lties a n d liabilities, in te rp re ta ­
tions.
202 2
D efinitions a n d ru les of c o n stru c ­
tio n .
202.3
Special tre a tm e n t for c erta in classes
of tran sac tio n s.
202.4
G eneral ru les p ro h ib itin g discrim in a­
tion.
202.5
R ules c o ncerning applications.
202.6
R ules concerning e v alu atio n of a p ­
plications.
202.7
R ules concerning extensions of
credit.
202.8
Special purpose c red it program s.
202.9
N otifications.
202.10 F u rn ish in g o f c red it inform ation,
202.11 R e la tio n to S ta te law
202.12 Record re te n tio n .
202.13 In fo rm a tio n fo r m o n ito rin g p u r ­
poses.
Appendix A—Federal E nforcem ent Agen­
cies.
A ppendix B—Model A pplication F o rm s 1
[R eserved].
S u p p lem en t I—P rocedures for S ta te Ex­
em ption.
A u t h o r i t y : Sec. 703 of E qual C redit Op­
p o rtu n ity Act, 15 U.S.C. 1691 e t seq.
§ 2 0 2 .1
A uthority, S cop e, E n forcem en t,
P en a lties and L iab ilities, In terpreta­
tions.

ia) A u t h o r i t y a n d s c o p e . This P artu
comprises the regulations issued by the
Board of Governors of the Federal Re­
serve System pursuant to Title VII
<Equal Credit Opportunity Act) of the
Consumer Credit Protection Act, as
amended (15 U.S.C. 1601 et seq.). Ex­
cept as otherwise provided herein, this
Part applies to all persons who are cred­
itors, as defined in § 202.2(1).
<b) A d m i n i s t r a t i v e e n f o r c e m e n t . <1)
As set forth more fully in section 704 of
the Act, administrative enforcement of
the Act and this Part regarding certain
creditors is assigned to the Comptroller
of the Currency, Board of Governors of
the Federal Reserve System, Board of Di­
rectors of the Federal Deposit Insurance
Corporation, Federal Home Loan Bank
Board (acting directly or through the
Federal Savings and Loan Insurance
Corporation), Administrator of the Na-*

1251
tional Credit Union Administration,
Interstate Commerce Commission, Civil
Aeronautics Board, Secretary of Agricul­
ture, Farm Credit Administration, Secu­
rities and Exchange Commission, and
Small Business Administration.
(2)
Except to the extent that adminis­
trative enforcement is specifically com­
mitted to other authorities, compliance
with the requirements imposed under the
Act and this Part will be enforced by the
Federal Trade Commission.
(c)
P e n a l t i e s a n d l i a b i l i t i e s , (1) Sec­
tions 706(a) and <b) of the Act provide
that any creditor who fails to comply
with any requirement imposed under the
Act or, pursuant to section 702(g), this
Part is subject to civil liability for actual
and punitive damages in individual or
class actions. Pursuant to section 704 of
the Act, violations of the Act or, pursu­
ant to section 702(g), this Part consti­
tute violations of other Federal laws that
may provide further penalties. Liability
for punitive damages is restricted by sec­
tion 706( b) to non-governmental entities
and is limited to $10,000 in individual ac­
tions and the lesser of $500,000 or one
percent of the creditor’s net worth in
class actions. Section 706(c) provides for
equitable and declaratory relief. Section
706(d) authorizes the awarding of costs
and reasonable attorney’s fees to an ag­
grieved applicant in a successful action.
(2)
Section 706 <e) relieves a creditor
from civil liability resulting from any act
done or omitted in good faith in con­
formity with any rule, regulation, or in­
terpretation by the Board of Governors
of the Federal Reserve System, or with
any interpretations or approvals issued
by a duly authorized official or employee
of the Federal Reserve System, notwith­
standing that after such act or omission
has occurred, such rule, regulation, in­
terpretation. or approval is amended,
rescinded, or otherwise determined to be
invalid for any reason.
(?) As provided in section 706<f). a
civil action under the Act or this Part
may be brought in the appropriate
United States district court without
regard to the amount in controversy or
in any other court of competent jurisdic­
tion within two years after the date of
the occurrence of the violation or within
one year after the commencement of an
administrative enforcement proceeding
or a civil action brought by the Attorney
General within two years after the al­
leged violation.
(4)
Section 706 'g) and (hi provide
that, if the agencies responsible for ad­
ministrative enforcement are unable to
obtain compliance with the Act or, pur­
suant to section 702(g), this Part, they
may refer the matter to the Attorney
General. On such referral, or whenever
the Attorney General has reason to be­
lieve that one or more creditors are en­
gaged in a pattern or practice in violation
of the Act or this Part, the Attorney Gen­
eral may bring a civil action.

- T he Appendix B form s will be approved
b y th e Board a n d p u blished in th e F ederal
R e g ist e r in th e n ear fu tu re .

u As used herein, th e words “th is P art '
m ean R egulation B, 12 CFR P a rt 202

FEDERAL REGISTER, V O L 42, NO. 4— THURSDAY, JANUARY 6, 1977

18

1252

RULES AND REGULATIONS

(d)
I n t e r p r e t a t i o n s . (1) A request for
nor required, or where time strictures dures established by a creditor for the
a formal Board interpretation or an of­ require a rapid response.
type of credit requested. The term does
ficial staff interpretation of this Part
not include the use of an account or line
§
2
0
2
.2
D
efin
itio
n
s
and
R
u
les
o
f
C
on­
must be addressed to the Director of the
of credit to obtain an amount of credit
struction.
Division of Consumer Affairs, Board of
that does not exceed a previously estab­
For
the
purposes
of
this
Part,
unless
Governors of the Federal Reserve "Sys­
lished credit limit. A c o m p l e t e d a p p l i c a ­
tem, Washington, D.C. 20551. Each re­ the context indicates otherwise, the fol­ t i o n f o r c r e d i t means an application in
quest for an interpretation must contain lowing definitions and rules of construc­ connection with which a creditor has re­
a complete statement, signed by the per­ tion shall apply : 2
ceived all the information that the cred­
(a) A c c o u n t means an extension of itor regularly obtains and considers in
son making the request or a duly author­
ized agent, of all relevant facts of the credit. When employed in relation to an evaluating applications for the amount
transaction or credit arrangement relat­ account, the word u s e refers only to open and type of credit requested (including,
ing to the request. True copies of all per­ end credit.
but not limited to, credit reports, any
(b) A c t means the Equal Credit Op­ additional information requested from
tinent documents must be submitted with
the request. The relevance of such docu­ portunity Act (Title VII of the Consumer the applicant, and any approvals or re­
ments must, however, be set forth in the Credit Protection Act).
ports by governmental agencies or other
(c) A d v e r s e a c t i o n . (1) For the pur­ persons that are necessary to guarantee,
request, and the documents must not
merely be incorporated by reference. The poses of notification of action taken, insure, or provide security for the credit
request must contain an analysis of the statement of reasons for denial, and rec­ or collateral); provided, however, that
bearing of the facts on the issues and ord retention, the term means:
the creditor has exercised reasonable
(1)
. A refusal to grant credit in sub­
must specify the pertinent provisions of
diligence in obtaining such information.
stantially
the
amount
or
on
substantially
the statute and regulation. Within 15
Where an application is incomplete re­
business days of receipt of the request, the terms requested by an applicant un­ specting matters that the applicant can
a substantive response will be sent to the less the creditor offers to grant credit complete, a creditor shall make a rea­
person making the request, or an ac­ other than in substantially the amount sonable effort to notify the applicant of
knowledgment will be sent that sets a or on substantially the terms requested the incompleteness and shall allow the
reasonable time within which a substan­ by the applicant and the applicant uses applicant a reasonable opportunity to
or expressly accepts the credit offered; complete the application.
tive response will be given.
(2) Any request for reconsideration of or
(g) B o a r d means the Board of Gov­
(ii) A termination of an account or ernors of the Federal Reserve System.
an official staff interpretation of this
Part must be addressed to the Secretary, an unfavorable change in the terms of
(h) C o n s u m e r c r e d i t means credit ex­
Board of Governors of the Federal Re­ an account that does not affect all or a tended to a natural person in which the
substantial
portion
of
a
classification
of
serve System, Washington, D.C. 20551,
money, property, or service that is the
within 30 days of the publication of such a creditor’s accounts; or
subject of the transaction is primarily for
(iii)
A
refusal
to
increase
the
amount
interpretation in the F ed e r a l R e g i s t e r .
personal, family, or household purposes.
Each request for reconsideration must of credit available to an applicant when
(i) C o n t r a c t u a l l y l i a b l e means express­
contain a statement setting forth in full the applicant requests an increase in ac­ ly obligated to repay all debts arising on
the reasons why the person making the cordance with procedures established by an account by reason of an agreement to
request believes reconsideration would be the creditor for the type of credit in­ that effect.
appropriate, and must specify and dis­ volved.
(j) C r e d i t means the right granted by
(2) The term does not include:
cuss the applicability of the relevant
a creditor to an applicant to defer pay­
(i) A change in the terms of an ac­ ment of a debt, incur debt and defer its
facts, statute, and regulations. Within 15
business days of receipt of such request count expressly agreed to by an appli­ payment, or purchase property or serv­
for reconsideration, a response granting cant; or
ices and defer payment therefor.
(ii) Any action or forbearance relat­
or denying the request will be sent to the
(k) C r e d i t c a r d means any card, plate,
ing
to
an
account
taken
in
connection
person making the request, or an ac­
coupon book, or other single credit device
with
inactivity,
default,
or
delinquency
knowledgment will be sent that sets a
existing for the purpose of being used
reasonable time within which such re­ as to that account; or
from time to time upon presentation to
(iii) A refusal to extend credit at a obtain money, property, or services on
sponse will be given.
(3) Pursuant to section 706(e) of the point of sale or loan in connection with credit.
Act, the Board has designated the Direc­ the use of an account because the credit
(l) C r e d i t o r means a person who, in
tor and other officials of the Division of requested would exceed a previously es­ the ordinary course of business, regular­
Consumer Affairs as officials “duly au­ tablished credit limit on the account; or ly participates in the decision of wheth­
(iv) A refusal to extend credit because er or not to extend credit. The term in­
thorized’’ to issue, at their discretion,
official staff interpretations of this Part. applicable law prohibits the creditor cludes an assignee, transferee, or sub­
This designation shall not be interpreted from extending the credit requested; or
rogee of an original creditor who so
(v) A refusal to extend credit because participates; but an assignee, trans­
to include authority to approve partic­
the
creditor
does
not
offer
the
type
of
ular creditors’ forms in any manner.
feree, subrogee, or other creditor is not
(4) The type of interpretation issued credit or credit plan requested.
a creditor regarding any violation of
(d)
A
g
e
refers
only
to
natural
persons
will be determined by the Board and the
the Act or this Part committed by the
and
means
the
number
of
fully-elapsed
designated officials by the following
original or another creditor unless the
years from the date of an applicant’s assignee, transferee, subrogee, or other
criteria:
(i) Official Board interpretations will birth.
creditor knew or had reasonable notice
(e) A p p l i c a n t means any person who of the act, policy, or practice that con­
be issued upon those requests that in­
volve potentially controversial issues of requests or who has received an exten­ stituted the violation before its involve­
general applicability dealing with sub­ sion of credit from a creditor, and in­ ment with the credit transaction. The
stantial ambiguities in this Part and that cludes any person who is or may be con­ term does not include a person whose
tractually liable regarding an extension only participation in a credit transac­
raise significant policy questions.
(ii) Official staff interpretations will of credit other than a guarantor, surety, tion involves honoring a credit card.
be issued upon those requests that, in the endorser, or similar party.
(m) C r e d i t t r a n s a c t i o n means every
(f) A p p l i c a t i o n means an oral or writ­ aspect of an applicant’s dealings with a
opinion of the designated officials, re­
quire clarification of technical ambigui­ ten request for an extension of credit creditor regarding an application for or
ties in this Part or that have no signifi­ that is made in accordance with proce­ an existing extension of credit, includ­
cant policy implications.
ing, but not limited to, information re­
(iii) Unofficial staff interpretations
» Note t h a t some of th e definitions In th is quirements; investigation procedures;
will be issued where the protection of P a rt are n o t id entical to those in 12 CFR 226 standards of creditworthiness; terms of
credit; furnishing of credit information;
§ 706(e) of the Act is neither requested (R egulation Z ).




FEDERAL REGISTER, VOL. 42, NO. 4— THURSDAY, JANUARY 6, 1977

19

RULES AND REGULATIONS
revocation, alteration, or termination of form and include, but are not limited to,
credit; and collection procedures.
credit granted in addition to any existing
(n)
D i s c r i m i n a t e a g a i n s t a n a p p l i c a n tcredit or credit limit; credit granted pur­
means to treat an applicant less favor­ suant to an open end credit plan; the
ably than other applicants.
refinancing or other renewal of credit,
<o) E l d e r l y means an age of 62 or including the issuance of a new credit
older.
card in place of an expiring credit card
<p) E m p i r i c a l l y d e r i v e d c r e d i t s y s t e m . or in substitution for an existing credit
(1)
The term means a credit scoring card; the consolidation of two or more
system that evaluates an applicant’s obligations; or the continuance of exist­
creditworthiness primarily by allocating ing credit without any special effort to
points (or by using a comparable basis collect at or after maturity.
for assigning weights) to key attributes
(r) G o o d f a i t h means honesty in fact
describing the applicant and other as­ in the conduct or transaction.
pects of the transaction. In such a sys­
(s) I n a d v e r t e n t e r r o r means a me­
tem, the points (or weights) assigned to chanical, electronic, or clerical error
each attribute, and hence the entire that a creditor demonstrates was not
score:
intentional and occurred notwithstand­
(1) Is derived from an empirical com­ ing the maintenance of procedures rea­
parison of sample groups or the popula­ sonably adapted to avoid any such error.
tion of creditworthy and non-credit(t) J u d g m e n t a l s y s t e m o f e v a l u a t i n g
worthy applicants of a creditor who a p p l i c a n t s means any system for evalu­
applied for credit within a reasonable ating the creditworthiness of an appli­
preceding period of time; and
cant other than a demonstrably and
(ii)
Determines, alone or in conjunc­statistically sound, empirically derived
tion with an evaluation of additional credit system.
information about the applicant, wheth­
<u) M a r i t a l s t a t u s means the state of
er an applicant is deemed creditworthy. being unmarried, married, or separated,
(2) A d e m o n s t r a b l y a n d s t a t i s t i c a l l y
as defined by applicable State law. For
so u n d , e m p ir ic a lly d e r iv e d c r e d it s y s ­
the purposes of this Part, the term “un­
te m . is a system:
married” includes persons who are sin­
(i) In which the data used to develop gle, divorced, or widowed.
the system, if not the complete popula­
<v) N e g a t i v e f a c t o r o r v a l u e , in rela­
tion consisting of all applicants, are ob­ tion
the age of elderly applicants,
tained from the applicant file by using meanstoutilizing
a factor, value, or weight
appropriate sampling principles;
is less favorable regarding elderly
(ii) Which is developed for the pur­ that
applicants than the creditor’s experi­
pose of predicting the creditworthiness ence
warrants or is less favorable than
of applicants with respect to the legiti­ the factor,
value, or weight assigned to
mate business interests of the creditor the class of
applicants that are not
utilizing the system, including, but not
classified as elderly applicants and are
limited to, minimizing bad debt losses most
favored by a creditor on the basis
and operating expenses in accordance
with the creditor’s business judgment; of age.
<w) O p e n e n d c r e d i t means credit ex­
(iii) Which, upon validation using ap­
propriate statistical principles, separates tended pursuant to a plan under which
creditworthy and non-creditworthy ap­ a creditor may permit an applicant to
plicants at a statistically significant rate; make purchases or obtain loans from
time to time directly from the creditor
and
(iv) Which is periodically revalidated or indirectly by use of a credit card,
as to its predictive ability by the use of check, or other device as the plan may
approprate statistical principles and is provide. The term does not include ne­
adjusted as necessary to maintain its gotiated advances under an open end
real estate mortgage or a letter of credit.
predictive ability.
(x) P e r s o n means a natural person,
(3) A creditor may use a demonstrably
and statistically sound, empirically de­ corporation, government or govern­
rived credit system obtained from mental subdivision or agency, trust, es­
partnership,
cooperative,
or
another person or may obtain credit ex­ tate,
perience from which such a system may association.
be developed. Any such system must
(y) P e r t i n e n t e l e m e n t o f c r e d i t w o r t h ­
satisfy the tests set forth in subsections i n e s s , in relation to a judgmental sys­
(1) and (2); provided that, if a creditor tem of evaluating applicants, means any
is unable during the development proc­ information about applicants that a
ess to validate the system based on its creditor obtains and considers and that
own credit experience in accordance with has a demonstrable relationship to a
subparagraph (2) (iii) of this paragraph determination of creditworthiness.
then the system must be validated when
(z) P r o h i b i t e d b a s i s means race, color,
sufficient credit experience becomes religion, national origin, sex, marital
available. A system that fails this valid­ status, or age (provided that the appli­
ity test shall henceforth be deemed not cant has the capacity to enter into a
to be a demonstrably and statistically binding contract); the fact that all or
sound, empirically derived credit sys­ part of the applicant’s income derives
tem for that creditor.
from any public assistance program, or
(q) E x t e n d c r e d i t and e x t e n s i o n o f the fact that the applicant has in good
c r e d i t mean the granting of credit in any faith exercised any right under the Con­




1253
sumer Credit Protection A ct3 or any
State law upon which an exemption has
been granted by the Board.
(aa) P u b l i c a s s i s t a n c e p r o g r a m means
any Federal, State, or local governmen­
tal assistance program that provides a
continuing, periodic income supplement,
whether premised on entitlement or need.
The term includes, but is not limited to,
Aid to Families with Dependent Chil­
dren, food stamps, rent and mortgage
supplement or assistance programs, So­
cial Security and Supplemental Security
Income,,and unemployment compensa­
tion.
<bb) S t a t e means any State, the Dis­
trict of Columbia, the Commonwealth of
Puerto Rico, or any territory or posses­
sion ol the United States.
<cc) Captions and catchlines are in­
tended solely as aids to convenient refer­
ence. and no inference as to the sub­
stance of any provision of this Part may
be drawn from them.
tdd) Footnotes shall have the same le­
gal effect as the text of the regulation,
whether they are explanatory or illustra­
tive in nature.
2 0 2 .3
Sp ecial T reatm en t for (V rlain
Classes o f transactions.

(a)
s p e c ia l

703«a) of the Act, the following classes
of transactions are afforded specialized
treatment:
'1) Extensions of credit relating to
transactions under public utility tariffs
involving services provided through pipe,
wire, or other connected facilities if the
charges for such public utility services,
the charges for delayed payment, and
any discount allowed for early payment
are filed with, or reviewed or regulated
by, an agency of the Federal Govern­
3 T he first clause of th e d efinition is not
lim ite d to c h ara cte ristics of th e applicant.
T herefore, “p ro h ib ite d basis” as used in th is
P a rt refers n o t only to th e race, color, re li­
gion, n a tio n a l origin, sex, m a rita l sta tu s, or
age of a n a p p lic a n t (or of p a rtn e rs or officers
of a n a p p lic a n t), b u t refers also to th e c h a r­
a cteristics of individuals w ith w hom a n a p ­
p lic a n t deals. T his m eans, for exam ple, the!
u n d e r th e general ru le sta te d in § 202.4, a
cred ito r m ay n o t discrim inate a g ain st a nonJew ish a p p lic a n t because of t h a t person's
business dealings w ith Jews, or discrim in ate
a g ain st a n a p p lic a n t because of th e c h ara c ­
teristics of persons to w hom th e extension of
c red it relates (e.g., th e prospective te n a n ts
in a n a p a rtm e n t complex to be c o n stru cted
w ith th e proceeds of th e c red it requested >,
o r because of th e c h aracteristics of other
Individuals residing in th e neighborhood
w here th e p roperty offered as collateral is
located. A cred ito r m ay tak e in to account,
however, any applicable law, regulation, or
executive order re stric tin g dealings w ith c iti­
zens or governm ents of o th e r co u n tries or
im posing lim ita tio n s regarding c red it ex­
ten d ed for th e ir use.
T he second clause is lim ited to a n a p ­
p lic a n t’s re ce ip t of pu b lic assistance incom e
an d to a n a p p lic a n t’s good fa ith exercise of
rig h ts u n d e r th e C onsum er C redit Protection
Act or applicable S ta te law.

FEDERAL REGISTER, VOL. 42. NO. 4— THURSDAY, JANUARY 6, 1977

20

C la s s e s o f tr a n s a c tio n s a ffo r d e d
t r e a t m e n t . Pursuant to section

RULES AND REGULATIONS

1254
ment, a State, or a political subdivision
thereof;
(2) Extensions of credit subject to reg­
ulation under section 7 of the Securities
Exchange Act of 1934 or extensions of
credit by a broker or dealer subject to
regulation as a broker or dealer under
the Securities Exchange Act of 1934;
(3) Extensions of incidental consumer
credit, other than of the types described
in paragraph (a) (1) and (2) of this
section:
(i) That are not made pursuant to
the terms of a credit card account;
(ii) On which no finance charge as
defined in § 226.4 of this Title (Regula­
tion Z, 12 CFR 226.4) is or may be im­
posed; and
(iii) That are not payable by agree­
ment in more than four installments;
(4) Extensions of credit primarily for
business or commercial purposes, includ­
ing extensions of credit primarily for
agricultural purposes, but excluding ex­
tensions of credit of the types described
in paragraphs (a) (1) and (2) of this
section; and
(5) Extensions*of credit made to gov­
ernments or governmental subdivisions,
agencies, or instrumentalities.
(b) P u b l i c u t i l i t i e s c r e d i t . The follow­
ing provisions of this Part shall not apply
to extensions of credit of the type de­
scribed in paragraph (a) (1) of this
section:
(1) Section 202.5(d)(1) concerning
information about marital status;
(2) Section 202.10 relating to furnish­
ing of credit information; and
(3) Section 202.12(b) relating to rec­
ord retention.
(c) S e c u r i t i e s c r e d i t . The following
provisions of this Part shall not apply to
extensions of credit of the type described
in paragraph (a)(2) of this sections
(1) Section 202.5(c) concerning infor­
mation about a spouse or former spouse;
(2) Section 202.5(d)(1) concerning
information about marital status;
(3) Section 202.5(d) (3) concerning
information about the sex of an appli­
cant;
(4) Section 202.7(b) relating to desig­
nation of name, but only to the extent
necessary to prevent violation of rules
regarding an account in which a broker
or dealer has an interest, or rules neces­
sitating the aggregation of accounts of
spouses for the purpose of determining
controlling interests, beneficial interests,
beneficial ownership, or purchase limita­
tions and restrictions;
(5) Section 202.7(c) relating to action
concerning open end accounts, but only
to the extent the action taken is on the
basis of a change of name or marital
status;
(6) Section 202.7(d) relating to sig­
natures of a spouse or other person;
(7) Section 202.10 relating to furnish­
ing of credit information; and
(8) Section 202.12(b) relating to rec­
ord retention.
(d) I n c i d e n t a l c r e d i t . The following
provisions of this Part shall not apply to
extensions of credit of the type described
in paragraph (a) (3) of this section:




(1) Section 202.5(c) concerning infor­
mation about a spouse or former spouse;
(2) Section 202.5(d)(1) concerning
information about marital status;
(3) Section 202.5(d)(2) concerning
information about income derived from
alimony, child support, or separate main­
tenance payments;
(4) Section 202.5(d) (3) concerning
information about the sex of an appli­
cant to the extent necessary for medical
records or similar purposes;
(5) Section 202.7(d) relating to sig­
natures of a spouse or other person;
(6) Section 202.9 relating to notifica­
tions ;
(7) Section 202.10 relating to furnish­
ing of credit information; and
(8) Section 202.12(b) relating to rec­
ord retention.
(e) B u s i n e s s c r e d i t . The following pro­
visions of this Part shall not apply to
extensions of credit of the type described
in paragraph (a) (4) of this section:
(1) Section 202.5(d) (1) concerning in­
formation about marital status;
(2) Section 202.9 relating to notifica­
tions, unless an applicant, within 30 days
after oral or written notification that ad­
verse action has been taken, requests in
writing the reasons for such action;
(3) Section 202.10 relating to furnish­
ing of credit information; and
(4) Section 202.12(b) relating to rec­
ord retention, unless an applicant, with­
in 90 days after adverse action has been
taken, requests in writing that the rec­
ords relating to the application be re­
tained.
(f) G o v e r n m e n t a l c r e d i t . Except for
§ 202.1 relating to authority, scope, en­
forcement, penalties and liabilities, and
interpretation, § 202.2 relating to defini­
tions and rules of construction, this sec­
tion, § 202.4 relating to the general rule
prohibiting discrimination, § 202.6(a) re­
lating to the use of information, § 202.11
relating to State laws, and § 202.12(a)
relating to the retention of prohibited in­
formation, the provisions of this Part
shall not apply to extension of credit of
the type described in paragraph (a) (5)
of this section.
§ 2 0 2 .4 G eneral R u le P roh ib itin g D is­
crim in ation .

A creditor shall not discriminate
against an applicant on a prohibited
basis regarding any aspect of a credit
transaction.
§ 2 0 2 .5

R u les C on cern ing A p plications.

12) Notwithstanding any other provi­
sion of this section, a creditor shall re­
quest an applicant's race/national origin,
sex, and marital status as required in
§ 202.13 (information for monitoring
purposes). In addition, a creditor may
obtain such information as may be re­
quired by a regulation, order, or agree­
ment issued by or entered into with a
court or an enforcement agency (includ­
ing the Attorney General or a similar
State official) to monitor or enforce com­
pliance with the Act, this Part, or other
Federal or State statute or regulation.
(3)
The provisions of this section limit­
ing permissible information requests are
subject to the provisions of § 202.7(e)
regarding insurance and § 202.8 (c) and
(d) regarding special purpose credit pro­
grams.
(c) I n f o r m a t i o n a b o u t a s p o u s e o r
f o r m e r s p o u s e . (1) Except as permitted
in this subsection, a creditor may not. re­
quest any information concerning the
spouse or former spouse of an applicant.
(2) A creditor may request any infor­
mation concerning an applicant’s spouse
(or former spouse under paragraph (c)
(2) (v) of this section) that may be re­
quested about the applicant if:
(i) The spouse will be permitted to use
the account; or
(ii) The spouse will be contractually
liable upon the account; or
(iii) The applicant is relying on the
spouse’s income as a basis for repay­
ment of the credit requested; or
(iv) The applicant resides in a com­
munity property State or property upon
which the applicant is relying as a basis
for repayment of the credit requested
are located in such a State; or
(v) The applicant is relying on ali­
mony, child support, or separate main­
tenance payments from a spouse or for­
mer spouse as a basis for repayment of
the credit requested.
(3) A creditor may request an appli­
cant to list any account upon which the
applicant is liable and to provide the
name and address in which such account
is carried. A creditor may also ask the
names in which an applicant has previ­
ously received credit.
(d) I n f o r m a t i o n a c r e d i t o r m a y n o t r e ­
q u e s t . (1) If an applicant applies for an
individual, unsecured account, a creditor
shall not request the applicant’s marital
status, unless the applicant resides in a
community property State or property
upon which the applicant is relying as a
basis for repayment of the credit re­
quested are located in such a State.*
Where an application is for other than
individual, unsecured credit, a creditor
may request an applicant’s marital
status. Only the terms “married,” “un­
married,” and “separated” shall be used,
and a creditor may explain that the cate-

(a) D i s c o u r a g i n g a p p l i c a t i o n s . A credi­
tor shall not make any oral or written
statement, in advertising or otherwise, to
applicants or prospective applicants that
would discourage on a prohibited basis
a reasonable person from making or pur­
suing an application.
(b) G e n e r a l r u l e s c o n c e r n i n g r e q u e s t s
f o r i n f o r m a t i o n . (1) Except as otherwise
provided in this section, a creditor may
request any information in connection p o rtin g lim itatio n s, or sim ilar re stric tio n s on
o b tain a b le info rm atio n . F u rth erm o re, p e r­
with an application.4*
4 T his subsection is n o t in te n d e d to lim it
o r abrogate any Federal or S ta te law re g ard ­
ing privacy, privileged in form ation, c red it re-

m ission to re q u est in fo rm a tio n sho u ld n o t be
confused w ith how it m ay be utilized, w hich
is governed by § 202.6 (rules concerning eval­
u a tio n s of a p p lic atio n s).

FEDERAL REGISTER, VOL. 42, NO. 4— THURSDAY, JANUARY 6, 1977

21

RULES AND REGULATIONS
gory '•unmarried” includes single, di­
vorced, and widowed persons.
<2) A creditor shall not inquire whether
any income stated in an application is
derived from alimony, child support, or
separate maintenance payments, unless
the creditor appropriately discloses to the
applicant that such income need not be
revealed if the applicant does not desire
the creditor to consider such income in
determining the applicant’s creditworthi­
ness. Since a general inquiry about in­
come, without further specification, may
lead an applicant to list alimony, child
support, or separate maintenance pay­
ments, a creditor shall provide an appro­
priate notice to an applicant before in­
quiring about the source of an applicant’s
income, unless the terms of the inquiry
(such as an inquiry about salary, wages,
investment income, or similarly specified
income) tend to preclude the uninten­
tional disclosure of alimony, child sup­
port, or separate maintenance payments.
(3) A creditor shall not request the
sex of an applicant. An applicant may be
requested to designate a title on an ap­
plication form (such as Ms., Miss, Mr., or
Mrs.) if the form appropriately discloses
that the designation of such a title is op­
tional. An application form shall other­
wise use only terms that are neutral as to
sex.
(4) A creditor shall not request infor­
mation about birth control practices, in­
tentions concerning the bearing or rear­
ing of children, or capability to bear chil­
dren. This does not preclude a creditor
from inquiring about the number and
ages of an applicant’s dependents or
about dependent-related financial obliga­
tions or expenditures, provided such in­
formation is requested without regard to
sex, marital status, or any other pro­
hibited basis.
(5) A creditor shall not request the
race, color, religion, or national origin of
an applicant or any other person in con­
nection with a credit transaction. A
creditor may inquire, however, as to an
applicant’s permanent residence and im­
migration status.
(e) A p p l i c a t i o n f o r m s . A creditor need
not use written applications. If a creditor
chooses to use written forms, it may
design its own,*
78 use forms prepared by

whether an applicant’s income derives
from any public assistance program.
(ii) In a demonstrably and statis­
tically sound, empirically derived credit
system, a creditor may use an appli­
cant’s age as. a predictive variable, pro­
vided that the age of an elderly appli­
cant is not assigned a negative factor
or value.
(iii) In a judgmental system of eval­
uating creditworthiness, a creditor may
consider an applicant’s age or whether
an applicant’s income derives from any
public assistance program only for the
purpose of determining a pertinent ele­
ment of creditworthiness.0
<iv) In any system of evaluating cred­
itworthiness, a creditor may consider the
age of an elderly applicant when such
age is to be used to favor the elderly
applicant in extending credit.
<3> A creditor shall not use, in evalu­
ating the creditworthiness of an appli­
cant, assumptions or aggregate statis­
tics relating to the likelihood that any
group of persons will bear or rear chil­
dren or, for that reason, will receive
diminished or interrupted income in the
future.
<4) A creditor shall not take into a § 2 0 2 .6
R u les C on cern ing E valuation o f
count the existence of a telephone list­
A pplications.
in the name of an applicant for
(a) G e n e r a l r u l e c o n c e r n i n g u s e o f i n ­ ing
consumer
credit. A creditor may take
f o r m a t i o n . Except as otherwise provided
into account the existence of a telephone
in the Act and this Part, a creditor may in the residence of such an applicant.
consider in evaluating an application any
(5)
A creditor shall not discount or
information that the creditor obtains, so
long as the information is not used to dis­ exclude from consideration the income
criminate against an applicant on a pro­ of an applicant or the spouse of the ap­
plicant because of a prohibited basis or
hibited basis.7
because the income is derived from part(b) S p e c i f i c r u l e s c o n c e r n i n g u s e o f time employment, or from an annuity,
i n f o r m a t i o n . (1) Except as provided in
the Act and this Part, a creditor shall pension, or other retirement benefit; but
not take a prohibited basis into ac­
count in any system of evaluating the
»C oncerning incom e derived from a p u b ­
lic assistance program , a creditor m ay c o n ­
creditworthiness of applicants.8
(2Mi) Except as permitted in this sider, for exam ple, th e le n g th of tim e an
section, a creditor shall not take into a p p lic a n t h a s been receiving such incom e,
account an applicant’s age (P r o v i d e d , w h eth er a n a p p lic a n t in te n d s to c o n tin u e
to reside in th e ju risd ic tio n in re la tio n to
That the applicant has the capacity to residency
re q u ire m e n ts for benefits; and
enter into a binding contract) or th e s ta tu s of a n a p p lic a n t’s depen d en ts to
another person, or use the appropriate
model application forms contained in
Appendix B. If a creditor chooses to use
an Appendix B form, it may change the
form:
(1) By asking for additional informa­
tion not prohibited by this section;
(2) By deleting any information re­
quest; or
(3) By rearranging the format with­
out modifying the substance of the in­
quiries; provided that in each of these
three instances the appropriate notices
regarding the optional nature of courtesy
titles, the option to disclose alimony,
child support, or separate maintenance,
and the limitation concerning marital
status inquiries are included in the ap­
propriate places if the items to which
they relate appear on the creditor’s form.
If a creditor uses an appropriate Ap­
pendix B model form or to the extent
that it modifies such a form in accord­
ance with the provisions of clauses (2) or
f3) of the preceding sentence or the in­
structions to Appendix B, that creditor
shall be deemed to be acting in compli­
ance with the provisions of paragraphs
(c.) and (d) of this section.

1978, w hichever occurs first. The provisions
of th is P a rt shall n o t determ in e a n d are n o t
evidence of th e m eaning of th e re q u ire m e n ts
of th e previous version of R eg u latio n B.
7 T he legislative h isto ry of th e A ct in d i­
6
T his provision does n o t preclude re q u e st­cates t h a t th e Congress in te n d e d a n "effects
ing re le v an t in fo rm a tio n t h a t m ay in directly te s t” concept, as o u tlin e d in th e em ploym ent
disclose m a rita l sta tu s , su c h as asking a b o u t field by th e S uprem e C o u rt in th e cases of
liab ility to pay alim ony, ch ild su p p o rt, or Griggs v. D uke Power Co., 401 U.S. 424 (1971),
se p arate m ain ten a n ce ; th e source of incom e a n d A lbem arle Paper Co. v. Moody, 422
to be used as a basis for th e repaym ent of U.S. 405 (1975), to be applicable to a credi­
th e cred it requested, w hich m ay disclose t h a t t o r ’s d e te rm in a tio n of creditw orthiness. See
it is a spouse’s incom e; w h eth er any obliga­ S enate R eport to accom pany H.R. 6516, No.
tio n disclosed by th e a p p lic a n t h a s a co­ 94-589, pp. 4-5; House R eport to accom pany
obligor, w hich m ay disclose t h a t th e co­ H.R. 6516, No. 94-210, p. 5.
obligor is a spouse or form er spouse; or th e
8 T his provision does n o t p rev en t a cred ­
ow nership of assets, w hich m ay disclose th e ito r from considering th e m a rita l s ta tu s of
In terest of a spouse, w hen such assets are a n a p p lic a n t or th e source of a n a p p li­
relied u p o n in exten d in g th e credit. Such c a n t’s incom e for th e purpose of a sc e rta in ­
in q u iries are allowed by th e general ru le of ing th e c re d ito r’s rig h ts a n d rem edies a p ­
su b p a rag ra p h (b) (1) of th is section.
plicable to th e p a rtic u la r extension of
8 A cred ito r also m ay c o n tin u e to use any c red it a n d n o t to discrim in ate in a d e te r­
ap p lic atio n form t h a t com plies w ith th e re ­ m in a tio n of creditw orthiness. F u rth e r­
q u irem en ts of th e O ctober 28, 1975 version m ore, a p ro h ib ite d basis m ay be considered
of R eg u latio n B u n til its p re se n t stock of in accordance w ith § 202.8 (special purpose
those form s is ex h au sted or u n til M arch 23, c red it p rogram s).




1255

FEDERAL REGISTER, VOL. 42, NO. 4— THURSDAY. JANUARY

22

a sc e rta in w h eth er benefits th a t th e a p p li­
c a n t is presently receiving will continue.
C oncerning age, a creditor m ay consider,
for exam ple, th e o ccupation a n d len g th of
tim e to re tire m e n t of a n a p p lic a n t to as­
c e rta in w h e th er th e a p p lic a n t’s incom e
(Including re tire m e n t incom e, as ap p li­
cable) will su p p o rt th e extension o f cred it
u n til its m atu rity ; or th e adequacy of any
security offered if th e d u ra tio n of th e
c red it extension will exceed th e life ex­
p ectancy of th e ap p lican t. An elderly a p ­
p lic a n t m ig h t n o t q ualify for a five-per­
c e n t down, 30-year m ortgage loan because
th e d u ra tio n of th e loan exceeds th e a p ­
p lic a n t’s life expectancy a n d th e cost of
realizing on th e co llateral m ig h t exceed
th e a p p lic a n t’s equity. T he sam e a p p lic an t
m ig h t qualify w ith a larger dow npaym ent
a n d a sh o rte r loan m a tu rity . A creditor
could also consider a n a p p lic a n t’s age, for
exam ple, to assess th e significance of th e
a p p lic a n t’s le n g th of em ploym ent or resi­
dence (a young a p p lic an t m ay have Just
e n te red th e job m arket; a n elderly ap p li­
c a n t m ay recen tly have re tired an d moved
from a lo n g -tim e re sid en c e).

6

,

1977

1256

RULES AND REGULATIONS

a creditor may consider the amount and dence of inability or unwillingness to re­ the event of default, for example, any
probable continuance of any income in pay, a creditor shall not take any of instrument to create a valid lien, pass
evaluating an applicant’s creditworthi­ the following actions regarding an appli­ clear title, waive inchoate rights, or as­
ness. Where an applicant relies on ali­ cant who is contractually liable on an sign earnings.
(5)
If, under a creditor's standards of
mony, child support, or separate main­ existing open end account on the basis of
tenance payments in applying for credit, the applicant’s reaching a certain age or creditworthiness, the personal liability
a creditor shall consider such payments retiring, or on the basis of a change in of an additional party is necessary to
as income to the extent that they are the applicant’s name or marital status: support the extension of the credit re­
quested,10a creditor may request that the
(1) Require a reapplication; or
likely to be consistently made. Factors
(ii) Change the terms of the account; applicant obtain a co-signer, guarantor,
that a creditor may consider in deter­
or the like. The applicant’s spouse may
mining the likelihood of consistent pay­ or
(iii) Terminate the account.
serve as an additional party, but a cred­
ments include, but are not limited to,
(2) A creditor may require a reappli­ itor shall not require that the spouse
whether the payments are received pur­
suant to a written agreement or court cation regarding an open end account on be the additional party. For the purposes
decree; the length of time that the pay­ the basis of a change in an applicant’s of paragraph (d) of this section, a
ments have been received; the regularity marital status where the credit granted creditor shall not impose requirements
of receipt; the availability of procedures was based on income earned by the appli­ upon an additional party that the cred­
to compel payment; and the creditworth­ cant’s spouse if the applicant’s income itor may not impose upon an applicant.
(e)
I n s u r a n c e . Differentiation in the
iness of the payor, including the credit alone at the time of the original applica­
history of the payor where available to tion would not support the amount of availability, rates, and terms on which
credit-related casualty insurance or
the creditor under the Fair Credit Re­ credit currently extended.
(d)
S i g n a t u r e o f s p o u s e o r o t h e r p e r ­credit life, health, accident, or disability
porting Act or other applicable laws.
(6) To the extent that a creditor con­ s o n . (1) Except as provided in this sub­ insurance is offered or provided to an
siders credit history in evaluating the section, a creditor shall not require the applicant shall not constitute a violation
creditworthiness of similarly qualified signature of an applicant’s spouse or of the Act or this Part; but a creditor
applicants for a similar type and amount other person, other than a joint appli­ shall not refuse to extend credit and shall
of credit, in evaluating an applicant’s cant, on any credit instrument if the not terminate an account because credit
creditworthiness, a creditor shall con­ applicant qualifies under the creditor’s life, health accident, or disability insur­
sider (unless the failure to consider re­ standards of creditworthiness for the ance is not available on the basis of the
amount and terms of the credit re­ applicant’s age. Notwithstanding any
sults from an inadvertent error):
other provision of this Part, information
(i) The credit history, when available, quested.
(2) If an applicant requests unsecured about the age, sex, or marital status of
of accounts designated as accounts that
the applicant and a spouse are permitted credit and relies in part upon property an applicant may be requested in an
to use or for which both are contractual­ to establish creditworthiness, a creditor application for insurance.
may consider State law; the form of
ly liable;
§ 2 0 2 .8 S p ecial P u rp ose Credit P ro­
(ii) On the applicant’s request, any ownership of the property; its suscepti­
gram s.
bility
to
attachment,
execution,
sever­
information that the applicant may pre­
ance,
and
partition;
and
other
factors
(a)
S t a n d a r d s f o r p r o g r a m s . Subject to
sent tending to indicate that the credit
history being considered by the creditor that may affect the value to the creditor the provisions of paragraph (b) of this
does not accurately reflect the appli­ of the applicant’s interest in the prop­ section, the Act and this Part are not
erty. If necessary to satisfy the creditor’s violated if a creditor refuses to extend
cant’s creditworthiness; and
(iii) On the applicant’s request, the standards of creditworthiness, the credi­ credit to an applicant solely because the
credit history, when available, of any tor may require the signature of the ap­ applicant does not qualify under the
account reported in the name of the ap­ plicant’s spouse or other person on any special requirements that define eligi­
plicant’s spouse or former spouse that instrument necessary, or reasonably be­ bility for the following types of special
the applicant can demonstrate accurate­ lieved by the creditor to be necessary, purpose credit programs:
(1) Any credit assistance program ex­
ly reflects the applicant’s creditworthi­ under applicable State law to make the
property relied upon available to satisfy pressly authorized by Federal or State
ness.
the
debt
in
the
event
of
default.
law for the benefit of an economically
(7) A creditor may consider whether
(3) If a married applicant requests disadvantaged class of persons; or
an applicant is a permanent resident of unsecured
credit and resides in a com­
(2) Any credit assistance program of­
the United States, the applicant’s im­
property State or if the property fered by a not-for-profit organization, as
migration status, and such additional in­ munity
upon which the applicant is relying is defined under section 501(c) of the In­
formation as may be necessary to ascer­ located
such a State, a creditor may ternal Revenue Code of 1954, as
tain its rights and remedies regarding require in
the signature of the spouse on amended, for the benefit of its members
repayment.
,
any instrument necessary, or reasonably or for the benefit of an economically dis­
(c)
S t a t e p r o p e r t y l a w s . A creditor’s
believed by the creditor to be necessary, advantaged class of persons; or
consideration or application of State under
applicable State law to make the
(3) Any special purpose credit pro­
property laws directly or indirectly af­ community property available to satisfy
gram offered by a for-profit organiza­
fecting creditworthiness shall not con­ the debt in the event of default if:
tion or in which such an organization
stitute unlawful discrimination for the
(i) applicable State law denied the ap­ participates to meet special social needs,
purposes of the Act or this Part.
plicant power to manage or control suffi­ provided that:
§ 2 0 2 .7 R u les C on cern ing E x ten sio n s o f cient community property to qualify for
(i) The program is established and
the amount of credit requested under administered pursuant to a written plan
Credit.
the
creditor’s
standards
of
creditworthi­
that (A) identifies the class or classes of
(a) I n d i v i d u a l a c c o u n t s . A creditor
persons that the program is designed to
shall not refuse to grant an individual ness; and
(ii) the applicant does not have suffi­ benefit and (B) sets forth the proce­
account to a creditworthy applicant on
the basis of sex, marital status, or any cient separate property to qualify for dures and standards for extending credit
the amount of credit requested without pursuant to the program; and
other prohibited basis.
(ii) The program is established and
(b) D e s i g n a t i o n o f n a m e . A creditor regard to community property.
(4) If an applicant requests secured administered to extend credit to a class
shall not prohibit an applicant from
opening or maintaining an account in credit, a creditor may require the signa­ of persons who, pursuant to the custom­
a birth-given first name and a surname ture of the applicant’s spouse or other
that is the applicant’s birth-given sur­ person on any instrument necessary, or
“ If a n a p p lic an t re q u ests individual cred it
name, the spouse’s surname, or a com­ reasonably believed by the creditor to be relying on th e se p arate incom e of a n o th e r
necessary, under applicable State law to person, a cred ito r m ay re q u ire th e sig n a tu re
bined surname.
(c) A c t i o n c o n c e r n i n g e x i s t i n g o p e n make the property being offered as se­ of th e o th e r person to m ake th e incom e a vail­
curity available to satisfy the debt in able to pay th e debt.
e n d a c c o u n t s . (1) In the absence of evi­




FEDERAL REGISTER, V O L 42, NO. 4— THURSDAY, JANUARY 6, 1977

23

RULES AND REGULATIONS

1257

ary standards of creditworthiness used addition, notwithstanding the prohibi­
(4) M u t i p l e c r e d i t o r s . If a transaction
by the organization extending the tions of § 202.7(d), a creditor may obtain involves more than one creditor and the
credit, either probably would not receive the signature of an applicant’s spouse or applicant expressly accepts or uses the
such credit or probably would receive it other person on an application or credit credit offered, this section does not re­
on less favorable terms than are ordinar­ instrument relating to a special purpose quire notification of adverse action by
ily available to other applicants apply­ program if required by Federal or State any creditor. If a transaction involves
ing to the organization for a similar type law. In such circumstances, the solicita­ more than one creditor and either no
and amount of credit.
tion and consideration of that Informa­ credit is offered or the applicant does
<b) A p p l i c a b i l i t y o f o t h e r r u l e s . (1) tion and the obtaining of a required sig­ not expressly accept or use any credit
Ail of the provisions of this Part shall nature shall not constitute unlawful dis­ offered, then each creditor taking ad­
apply to each of the special purpose crimination for the purposes of the Act verse action must comply with this sec­
credit programs described in paragraph or this Part.
tion. The required notification may be
(a) of this section to the extent that § 2 0 2 .9 N otifications.
provided indirectly through a third
those provisions are not inconsistent with
party, which may be one of the creditors,
<a) N o t i f i c a t i o n o f a c t i o n t a k e n . E C O A provided that the identity of each credi­
the provisions of this section.
n
o
t
i
c
e
,
a
n
d
s
t
a
t
e
m
e
n
t
o
f
s
p
e
c
i
f
i
c
r
e
a
­
(2)
A program described in subpara­
tor taking adverse action is disclosed.
graphs (a) (2) or (a) (3) of this section s o n s — Q) N o t i f i c a t i o n o f a c t i o n t a k e n . Whenever the notification is to be pro­
shall qualify as a special purpose credit A creditor shall notify an applicant of vided through a third party, a creditor
program under paragraph (a) of this action taken within:
shall not be liable for any act or omis­
section only if it was established and is
(i)
30 days after receiving a com­sion of the third party that constitutes
administered so as not to discriminate pleted application concerning the credi­ a violation of this section if the creditor
against an applicant on the basis of race, tor’s approval of, or adverse action re­ accurately and in a timely manner pro­
color, religion, national origin, sex, mari­ garding. the application (notification of vided the third party with the informa­
tal status, age <P r o v i d e d , That the appli­ approval may be expressed or by implica­ tion necessary for the notification and
cant has the capacity to enter into a tion, where, for example, the applicant was maintaining procedures reasonably
binding contract), income derived from receives a credit card, money, property, adapted to avoid any such violation.
a public assistance program, or good or services in accordance with the appli­
(b)
F o rm o f E C O A n o tic e a n d s ta te ­
faith exercise of any right under the cation) ;
m e n t o f s p e c i f i c r e a s o n s —(1) E C O A
Consumer Credit Protection Act or any
<di) 30 days after taking adverse action n o t i c e . A creditor satisfies the require­
State law upon which an exemption has on an uncompleted application;
ments of paragraph (a) (2) of this sec­
been granted therefrom by the Board:
tion regarding a statement of the provi­
(iii)
30
days
after
taking
adverse
ac­
except that all program participants tion regarding an existing account; and sions of section 701(a) of the Act and
may be required to share one or more of
<iv) 90 days after the creditor has the name and address of the appropriate
those characteristics so long as the pro­
Federal enforcement agency if it pro­
gram was not established and is not ad­ notified the applicant of an offer to grant vides the following notice, or one that
ministered with the purpose of evading credit other than in substantially the is substantially similar:
the requirements of the Act or this Part. amount or on substantially the terms
T he Federal E qual C redit O ppo rtu n ity
(c)
S p e c i a l r u l e c o n c e r n i n g r e q u e s t s requested by the applicant if the appli­
Act p ro h ib its c reditors from discrim in atin g
a n d u s e o f i n f o r m a t i o n . If all partici­ cant during those 90 days has not ex­
a g a in st c red it a p p lic an ts o n th e basts of
pants in a special p u rp o s e credit pro­ pressly accepted or used the credit race, color, religion, n a tio n a l origin, sex,
gram described in paragraph (a) of this offered.
m a rita l sta tu s , age (provided t h a t th e a p p li­
<2) C o n t e n t o f n o t i f i c a t i o n . Any noti­ c a n t h a s th e capacity to e n te r in to a binding
section are or will be required to pos­
fication
given
to
an
applicant
against
c o n tr a c t) ; because all or p a rt of th e a p p li­
sess one or more common characteris­
tics relating to race, color, religion, na­ whom adverse action is taken shall be in c a n t’s incom e derives from an y p ublic a s­
sistan
ce program : or because th e ap p lican t
writing
and
shall
contain:
a
statement
tional origin, sex, marital status, age, or
receipt of income from a public assist­ of the action taken; a statement of the h a s in good fa ith exercised an y rig h t under
e C onsum er C redit P ro te ctio n Act. The
ance program and if the special purpose provisions of section 701(a) of the Act; th
F ederal agency t h a t a d m in isters com pliance
credit program otherwise satisfies the the name and address of the Federal w ith th is law concerning th is cred ito r is
requirements of paragraph (a) of this agency that administers compliance (nam e a n d address as specified by th e a p ­
section, then, notwithstanding the pro­ concerning the creditor giving the noti­ p ro p riate agency liste d in A ppendix A).
hibitions of §§ 202.5 and 202.6, the credi­ fication; and
sample notice printed above may
tor may request of an applicant and
<i) A statement of specific reasons for beThe
modified immediately following the
may consider, in determining eligibility the action taken; or
required references to the Federal Act
for such program, information regarding
<ii) A disclosure of the applicant’s
the common characteristics required for right to a statement of reasons within 30 and enforcement agency to include ref­
erences to any similar State statute or
eligibility.
days after receipt by the creditor of a re­ regulation and to a State enforcement
In such circumstances, the solicitation quest made within 60 days of such notifi­ agency.
and consideration of that information cation, the disclosure to include the
(2)
S t a t e m e n t o f s p e c ific r e a s o n s . A
shall not constitute unlawful discrimi­ name, address, and telephone number of statement of reasons for adverse action
the
person
or
office
from
which
the
state­
nation for the purposes of the Act or
shall be sufficient if it is specific and
ment of reasons can be obtained. If the indicates
this Part.
the principal reason(s) for the
creditor
chooses
to
provide
the
statement
fd) S p e c i a l r u l e in t h e c a s e o f f i n a n ­
adverse action. A creditor may formulate
of
reasons
orally,
the
notification
shall
c i a l n e e d . If financial need is or will be
its own statement of reasons in check­
one of the criteria for the extension of also include a disclosure of the appli­ list or letter form or may use all or a por­
credit under a special purpose credit pro­ cant’s right to have any oral statement tion of the sample form printed below,
gram described in paragraph (a) of this of reasons confirmed in writing within which, if properly completed, satisfies the
section, then, notwithstanding the pro­ 30 days after a written request for con­ requirements of subparagraph (a) (2) <i)
hibitions of §§ 202.5 and 202.6, the cred­ firmation is received by the creditor.
of this section. Statements that the ad­
itor may request and consider, in de­
(3)
M u l t i p l e a p p l i c a n t s . If there is
action was based on the creditor’s
termining eligibility for such program, more than one applicant, the notifica­ verse
internal standards or policies or that the
information regarding an applicant’s
applicant failed to achieve the qualifying
marital status, income from alimony, tion need only be given to one of them,
child support, or separate maintenance, but must be given to the primary appli­ score on the creditor’s credit scoring sys­
tem are insufficient
and the spouse’s financial resources. In cant where one is readily apparent.




FEDERAL REGISTER, VOL

42

NO

4 — THURSDAY. JANUARY 6,

24

1977

RULES AND REGULATIONS

1258

STATEMENT OF CREDIT DENIAL, TERMINATION, OR CHANGE
DATE _
Applicant’s Name:

_

Applicant's Address:

Description of Account, Transaction, or Requested Credit:

Description of Adverse Action Taken:

PRINCIPAL REASONS(S) FOR ADVERSE ACTION CONCERNING CREDIT

/

Credit application incomplete

/

/

7

Insufficient credit references

/ / Temporary residence

/

J

Unable to verify credit references

/ / Unable to verify residence

/

J

Temporary or irregular employment

/

7

No credit file

rj

Unable to verify employment

/

7

Insufficient credit file

n

Length of employment

I'

1

Delinquent credit obligations

/ " / Garnishment, attachment, fore­
closure, repossession, or suit

/

J

Insufficient income

/

/

Excessive obligations

/

7

Unable to verify income

7

Too short a period of residence

J

/ / Bankruptcy
/ 7 Inadequate collateral
/ 7 We do not grant credit to any applicant on the terms and conditions
you request.
/ / Other, specify:




-

FEDERAL REGISTER, VOL. 42, NO. 4— THURSDAY, JANUARY 6, 1977

25

RULES AND REGULATIONS

DISCLGJURE OF USE OF INFORMATION OBTAINED FROM

r j

1259

AN

OUTSIDE

SOURCE

Disclosure inapplicable

rj inf ormation

obtained in a report from a consumer reporting

agency
Name:

Street Address:

Phone:

j__/

____ __________________________________________________

Information obtained from an outside source other than
sumer reporting agency.

a con­

Under the Fair Credit Reporting

you have the right to make a written request, within

Act,

60 days

of receipt of this notice, for disclosure of the nature

of the

adverse information.

Creditor's name:
Creditor's address:

Creditor's telephone number:

[Add ECOA Notice)
<3) O t h e r i n f o r m a t i o n . The notifica­
<c) O r a l n o t i f i c a t i o n s . The applicable itor approves the application and the
tion required by subparagraph <a) (1) of requirements of this section are satis­ applicant has not inquired within 30 days
this section may include other informa­ fied by oral notifications (including state­ after applying, then the creditor may
tion so long as it does not detract from ments of specific reasons) in the case of treat the application as withdrawn and
the required content. This notification any creditor that did not receive more need not comply with subparagraph <a>
also may be combined with any dis­ than 150 applications during the cal­ (1) of this section.
closures required under other titles of endar year immediately preceding the
(e) F a i l u r e o f c o m p l i a n c e . A failure to
the Consumer Credit Protection Act or calendar year in which the notification comply with this section shall not con­
any other law, provided that all require­ of adverse action is to be given to a par­ stitute a violation when caused by an
ments for clarity and placement are sat­ ticular applicant.
inadvertent error; provided that, on dis­
isfied and it may appear on either or
(d) W i t h d r a w n a p p l i c a t i o n s . Where an covering the error, the creditor corrects
both sides of the paper if there is a clear applicant submits an application and the it as soon as possible and commences
reference on the front to any informa­ parties contemplate that the applicant compliance with the requirements of
tion on the back.
will inquire about its status, if the cred­ this section.




FEDERAL REGISTER, V O l . 42, N O

4 — THURSDAY, JANUAR Y 6,

26

1977

1260

RULES AND REGULATIONS

billing statement or other mailing. All section. The signature of an applicant or
such notices shall be mailed or delivered the applicant's spouse on a request to
by October 1, 1977. As to open end ac­ change the manner in which information
counts, this requirement may be satisfied concerning an account is furnished shall
by mailing one notice at any time prior not alter the legal liability of either
to October 2, 1977 regarding each account spouse upon the account or require the
for which a billing statement is sent be­ creditor to change the name in which the
tween June 1 and October 1, 1977. The account is carried.
§ 2 0 2 .1 0
F u rn ish in g o f Credit In fo rm a ­ notice may be supplemented as necessary
(d)
I n a d v e r t e n t e r r o r s . A failure to
tion.
to permit identification of the account by comply with this section shall not consti­
(a)
A c c o u n t s e s t a b l i s h e d o n o r a f t e r the creditor or by a consumer reporting tute a violation when caused by an inad­
J u n e 1, 1 9 7 7 . (1) For every account es­ agency. A creditor need only send notices vertent error, provided that, on discover­
tablished on or after June 1, 1977, a relating to those accounts on which it ing the error, the creditor coi’rects it as
creditor that furnishes credit informa­ lacks the information necessary to make soon as possible and commences com­
the proper designation regarding partici­ pliance with the requirements of this
tion shall:
(1) Determine whether an account pation or contractual liability.
section.
offered by the creditor is one that an ap­
N o t ic e
§ 2 0 2 .1 1
R elation to State law.
plicant’s spouse is permitted to use or
C r e d it H i s t o r y f o r M a r r ie d P e r s o n s
(a) I n c o n s i s t e n t S t a t e l a w s . Except as
upon which the spouses are contractually
T he Federal E qual C redit O p p o rtu n ity Act otherwise provided in this section, this
liable other than as guarantors, sureties,
p ro h ib its c red it d isc rim in atio n on th e basis Part alters, affects, or preempts only
endorsers, or similar parties; and
(ii)
Designate any such account to re­of race, color, religion, n a tio n a l origin, sex, those State laws that are inconsistent
flect the fact of participation of both m a rita l sta tu s , age (provided t h a t a person with this Part and then only to the ex­
h a s th e c apacity to e n te r in to a b in d in g co n ­ tent of the inconsistency. A State law is
spouses.11
tr a c t) ; because all or p a rt of a p erson’s in ­
(2) Except as provided in paragraph come derives from any public assistance p ro ­ not inconsistent with this Part if it is
(a) (3) of this section, if a creditor fur­ gram ; o r because a person in good f a ith has more protective of an applicant.
(b) P r e e m p t e d p r o v i s i o n s o f S t a t e l a w .
nishes credit information concerning an exercised any rig h t u n d e r th e F ederal C on­
account designated under this section (or su m e r C redit P ro te ctio n Act. R egulations (1) State law is deemed to be inconsist­
designated prior to the effective date of u n d e r th e Act give m arried persons th e rig h t ent with the requirements of the Act and
this Part) to a consumer reporting agen­ to have c red it in fo rm a tio n in clu d ed in cred it this Part and less protective of an appli­
p o rts in th e nam e of b o th th e wife an d th e cant within the meaning of section 705
cy, it shall furnish the information in a re
a n d if b o th use or are responsible for (f) of the Act to the extent that such
manner that will enable the agency to hthuesbacc
o u n t. T h is rig h t was created, in p a rt,
provide access to the information in the to in su re t h a t c red it histo ries will be avail­ law:
(1) Requires or permits a practice or
name of each spouse.
able to w om en w ho becom e divorced or
act prohibited by the Act or this Part;
(3) If a creditor furnishes credit in­ widowed.
(ii) Prohibits the individual extension
If your a cc o u n t w ith u s is one t h a t b o th
formation concerning an account desig­
nated under this section (or designated h u sb a n d an d w ife signed for or is a n acco u n t of consumer credit to both parties to a
prior to the effective date of this Part* t h a t is being used by one of you who did n o t marriage if each spouse individually and
th e n you a re e n title d to have us re ­ voluntarily applies for such credit;
in response to an inquiry regarding a par­ sign,
it in fo rm a tio n re la tin g to th e ac­
(iii) Prohibits inquiries or collection
ticular applicant, it shall furnish the in­ pc oo urtn tc red
in b o th your nam es. I f you choose to
formation in the name of the spouse have c re d it in fo rm a tio n concerning your a c ­ of data required to comply with the Act
about whom such information is re­ c o u n t w ith u s rep o rted in b o th your nam es, or this Part;
(iv) Prohibits asking age or consider­
quested.*123*
please com plete a n d sign th e s ta te m e n t
ing age in a demonstrably and statis­
Cb) A c c o u n t s e s t a b l i s h e d p r i o r t o J u n e below an d re tu rn i t to us.
F ederal reg u latio n s provide t h a t signing tically sound, empirically derived credit
1 , 1 9 7 7 . For every account established
prior to and in existence on June 1, 1977, y o u r n a m e below will n o t change your or system, to determine a pertinent ele­
your
legal lia b ility on th e a ccount. ment of creditworthiness, or to favor an
a creditor that furnishes credit informa­ Y our spouse’s
sig n a tu re will only re q u e st t h a t c red it elderly applicant; or
tion shall either:
in fo rm a tio n be re p o rte d in b o th your nam es.
(v) Prohibits inquiries necessary to es­
(1) Not later than June 1, 1977
I f you do n o t com plete a n d r e tu r n th e
(1) Determine whether the account is fo rm below, we will c o n tin u e to re p o rt your tablish or administer a special purpose
one that an applicant’s spouse, if any, is c red it h isto ry in th e sam e way t h a t we do credit program as defined by § 202.8.
(2) A determination as to whether a
permitted to use or upon which the now.
State law is inconsistent with the re­
spouses are contractually liable other
W hen you fu rn ish c red it in fo rm a tio n on quirements of the Act and this Part will
than as guarantors, sureties, endorsers,
th is a cco u n t, please re p o rt all in fo rm a tio n be made only in response to a request
or similar parties;
for a formal Board interpretation. All
(ii) Designate any such account to re­ concerning th e a cc o u n t in b o th o u r nam es.
requests for such interpretations, in ad­
flect the fact of participation of both
A ccount nu m b er
P rin t o r ty p e nam e
dition to meeting the requirements of
spouses;11 and
(iii) Comply with the reporting re­
§ 202.1(d), shall comply with the appli­
P rin t or type nam e
cable provisions of subsections (b) (1)
quirements of paragraphs (a) (2) and (a>
S ig n a tu re of
and (2) of Supplement I to this Part. A
(3) of this section; or
e ith e r spouse
(2) Mail or deliver to all applicants, or
determination shall be based on the fac­
all married applicants, in whose name an
(c)
R e q u e s t s t o c h a n g e m a n n e r i n tors enumerated in this subsection and,
account is carried on the creditor’s rec­ w h i c h i n f o r m a t i o n is r e p o r t e d . Within 90 as applicable, subsection (c) of Supple­
ords one copy of the notice set forth days after receipt of a properly com­ ment I. Notice of the interpretation shall
below.11 The notice may be mailed with a pleted request to change the manner in be provided as specified in subsection
which information is reported to con­ (e)(1) of Supplement I, but the inter­
sumer
reporting agencies and others re­ pretation shall be effective in accord­
it a cred ito r need n o t d istin g u ish betw een
p a rtic ip a tio n as a user or as a c o n tra ctu a lly garding an account described in para­ ance with § 202.1. The interpretation
graph (b) of this section a creditor shall shall be subject to revocation or modifi­
liable p a rty .
12 If a cred ito r learn s t h a t new p a rties have
designate the account to reflect the fact cation at any time, as provided in sub­
u n d e rta k e n p a y m e n t on a n account, th e n th e of participation of both spouses,15*When section (g) (4) of Supplement I.
su b seq u e n t h isto ry of th e a cco u n t sh a ll be furnishing information concerning any
(c) F i n a n c e c h a r g e s a n d l o a n c e i l i n g s .
fu rn ish e d in th e nam es o f th e new p a rties
If married applicants voluntarily apply
such
account,
the
creditor
shall
comply
an d need n o t c o n tin u e to be fu rn ish e d in
w’ith the reporting requirements of sub- for and obtain individual accounts with
th e nam es of th e form er p arties.
same creditor, the accounts shall not
i= See fo o tn o te 11.
paragraphs (a) (2) and (a) (3) of this the
be aggregated or otherwise combined for
11 A c red ito r m ay delete th e references to
purposes of determining permissible fi­
th e “use” of a n a cc o u n t w hen providing n o ­
“ See fo o tn o te 11.
nance charges or permissible loan ceil­
tices regarding closed end accounts.
( f » N o t i f i c a t i o n . A creditor notifies an
applicant when a writing addressed to
the applicant is delivered or mailed to
the applicant’s last known address or, in
the case of an oral notification, when the
creditor communicates with the appli­
cant.




FEDERAL REGISTER, VOL. 42, NO. 4— THURSDAY, JANUARY 6, 1977

27

RULES AND REGULATIONS

ings under any Federal or State law.
Permissible loan ceiling laws shall be
construed to permit each spouse to be­
come individually liable up to the
amount of the loan ceilings, less the
amount for which the applicant is jointly
liable.171819
(d) S t a t e a n d F e d e r a l l a w s n o t a f f e c t e d . This section does not alter or an­
nul any provision of State property laws,
laws relating to the disposition of de­
cedents’ estates, or Federal or State
banking regulations directed only to­
wards insuring the solvency of financial
institutions.
(e) E x e m p t i o n f o r S t a t e r e g u l a t e d
t r a n s a c t i o n s . (1) In accordance with the
provisions of Supplement I to this Part,
any State may apply to the Board for an
exemption from the requirements of sec­
tions 701 and 702 of the Act and the cor­
responding provisions of this Part for any
class of credit transactions within the
State. The Board will grant such an ex­
emption i f :
(1) The Board determines that, under
the law of that State, that class of credit
transactions is subject to requirements
substantially similar to those imposed
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
State enforcement.
(2) In order to assure that the concur­
rent jurisdiction of Federal and State
courts created in section 706(f) of the
Act will continue to have substantive pro­
visions to which such jurisdiction shall
apply; to allow Federal enforcement
agencies to retain their authority regard­
ing any class of credit transactions ex­
empted pursuant to paragraph ie) (1) of
this section and Supplement I; and, gen­
erally, to aid in implementing the Act;
(i) no such exemption shall be deemed
to extend to the civil liability provisions
of section 706 or the administrative en­
forcement provisions of section 704 of the
Act; 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, ex­
cept to the extent such State law im­
poses requirements not imposed by the
Act or this Part.
(3) Exemptions granted by the Board
to particular classes of credit transac­
tions within specified States will be set
forth in Supplement n to this Part.
§ 2 0 2 .1 2

(a)

R ecord R eten tion .

R e te n tio n o f p r o h ib ite d in fo r m a ­

t i o n . Retention in a creditor’s files of any
information, the use of which in evalu­
ating applications is prohibited by the
Act or this Part, shall not constitute a vi-

J«For exam ple, in a S ta te w ith a perm is­
sible lo an celling of $1,000, If a m arried cou­
ple were Jointly liable for u n p a id d e b t in th e
a m o u n t of $250, each spouse could subse­
q u e n tly becom e in d ividually liable for $750.




1261

olation of the Act or this Part where such til final disposition of the matter, un­
information was obtained:
less an earlier time is allowed by order
(1) From any source prior to March of the agency or court.
23,1977; "or
(4)
In any transaction Involving more
(2) At any time from consumer re­ than one creditor, any creditor not re­
porting agencies; or
quired to comply with § 202.9 (notifica­
(3) At any time from any applicant tions) shall retain for the time period
or others without the specific request of specified in paragraph (b) of this sec­
tion all written or recorded information
the creditor; or
(4) At any time as required to monitor in its possession concerning the appli­
compliance with the Act and this Part cant, including a notation of action
or other Federal or State statutes or reg­ taken in connection with any adverse
action.
ulations.
F a i l u r e o f c o m p l i a n c e . A failure
(b)
P r e s e r v a t i o n o f r e c o r d s . (1) For (c)
25 months after the date that a creditor to comply with this section shall not con­
notifies an applicant of action taken on stitute a violation when caused by an in­
an application, the creditor shall retain advertent error.
as to that application in original form or § 2 0 2 .1 3 In form ation for M onitoring
a copy thereof: 18
P urposes.
(1) Any application form that it re­
(a)
S c o p e a n d in f o r m a tio n r e q u e s te d .
ceives, any information required to be ob­
tained concerning characteristics of an (1) For the purpose of monitoring com­
applicant to monitor compliance with pliance with the provisions of the Act
the Act and this Part or other similar and this Part, any creditor that receives
for consumer credit relat­
law, and any other written or recorded an application
to the purchase of residential real
information used in evaluating the ap­ ing
property, where the extension of credit
plication and not return to the applicant is
to be secured by a lien on such prop­
at the applicant’s request;
erty,
shall request as part of any written
<ii) A copy of the following documents
for such credit the following
if furnished to the applicant in written application
regarding the applicant and
form (or, if furnished orally, any nota­ information
applicant (if a n y );
tion or memorandum with respect there­ joint
<i) Race/national origin, using the
to made by the creditor):
categories American Indian or Alaskan
(A) The notification of action taken; Native; Asian or Pacific Islander; Black:
and
White; Hispanic; Other (Specify);
(B) The statement of specific reasons
(ii) Sex;
for adverse action; and
(iii) Marital status, using the catego­
(iii)
Any written statement submittedries married, unmarried, and separated;
by the applicant alleging a violation of and
(iv) Age.
the Act or this Part.
(2) “Residential real property” means
(2) For 25 months after the date that
a creditor notifies an applicant of adverse improved real property used or intended
action regarding an account, other than to be used for residential purposes, in­
in connection with an application, the cluding single family homes, dwellings
creditor shall retain as to that account, for from two to four families, and indi­
vidual units of condominiums and co­
in original form or a copy thereof:1*
(i) Any written or recorded informa­ operatives.
(b) M e t h o d o f o b t a i n i n g i n f o r m a t i o n .
tion concerning such adverse action; and
regarding race/national ori­
(ii) Any written statement submitted Questions
by the applicant alleging a violation of gin, sex, marital status, and age may be
listed- at the creditor’s option, either on
the Act or this Part.
the application form or on a separate
(3) In addition to the requirements form that refers to the application.
of paragraphs (b)(1) and (2), of this
(c) D i s c l o s u r e t o a p p l i c a n t a n d j o i n t
section, any creditor that has actual no­ a p p l i c a n t . The applicant and joint ap­
tice that it is under investigation or is plicant (if any) shall be informed that
subject to an enforcement proceeding for the information regarding race/national
an alleged violation of the Act or this origin, sex, marital status, and age is
Part by an enforcement agency charged being requested by the Federal Govern­
with monitoring that creditor’s compli­ ment for the purpose of monitoring
ance with the Act and this Part, or that compliance with Federal anti-discrimi­
has been served with notice of an action nation
statutes and that those statutes
filed pursuant to section 706 of the Act prohibit creditors from discriminating
and § 202.1(b) or (c) of this Part, shall against applicants on those bases. The
retain the information required in para­ applicant and joint applicant shall be
graphs <b) (1) and (2) of this section un­ asked, but not required, to supply the
requested information. If the applicant
17 P u rs u a n t to th e O ctober 28. 1975 version or joint applicant chooses not to pro­
of R egulation B, th e applicable d a te for sex vide the information or any part of it,
a n d m a rita l s ta tu s in fo rm a tio n is J u n e 30,
that fact shall be noted on the form on
1976.
18 “A copy th e re o f” Includes carbon copies, which the information is obtained.
photocopies, m icrofilm or m icrofiche copies,
(d) S u b s t i t u t e m o n i t o r i n g p r o g r a m .
or copies produced by an y a cc u rate in fo rm a ­ Any monitoring program required by
tio n re triev a l system . A c red ito r w ho uses an agency charged with administrative
a com puterized or m echanized system
need n o t keep a w ritte n copy of a d o cu m en t enforcement under section 704 of the
if i t c an regenerate th e precise te x t of th e Act may be substituted for the require­
ments contained in paragraphs (a), (b),
d o cu m en t u p o n request.
and (c) of this section.
19See fo o tn o te 18.

FEDERAL REGISTER, VOL. 42, NO. 4

28

-THURSDAY, JANUARY 6, 1977

RULES AN D REGULATIONS

1262
A.— F e d e r a l

A p p e n d ix

E n fo rcem en t

A g e n c ie s

T he follow ing lis t Indicates w hich F ed­
eral agency enforces R egu latio n B for p a r­
tic u la r classes of creditors. Any q uestions
concerning a p a rtic u la r creditor should be
d irec te d to its enforcem ent agency.
N ational B anks: C om ptroller of th e C u r­
rency, C onsum er Affairs Division, W ash­
ington, D.C. 20219.
S ta te M em ber B anks: Federal Reserve B ank
serving th e d istric t in w hich th e S ta te
m em ber b a n k is located.
N onm em ber Insured B anks: F ederal D eposit
In su ra n c e C orporation Regional D irector
fo r th e region in w hich th e nonm em ber
in su red b a n k is located.
Savings In stitu tio n s Insured by th e FSLIC
and M em bers o f th e FHLB S y stem (ex­
c ep t fo r Savings B anks insured by
F D IC ): T he Federal Home Loan B ank
B oard Supervisory A gent In th e d istric t
in w hich th e in s titu tio n is located.
Federal C redit U nions: Regional office of
th e N ational C redit U nion A dm in istratio n
serving th e area in w hich th e Federal
c red it u n io n is located.
C reditors S u b je c t to Civil A eronautics
Board: D irector, B ureau of E nforcem ent,
Civil A eronautics Board, 1825 C o n n e cticu t
Avenue, N.W., W ashington, D.C. 20428.
Creditors S u b je c t to In te rsta te Comm erce
C om m ission: Office of Proceedings, I n te r ­
s ta te Com m erce Com m ission, W ashington,
D.C. 20523.
Creditors S u b je c t to Packers and Stockyards
A ct: N earest Packers an d Stockyards Ad­
m in istra tio n area supervisor.
Sm a ll B usiness In v e s tm e n t Com panies: U.S.
S m all B usiness A d m in istratio n , 1441 L
S treet, N.W., W ashington, D.C. 20416.
Brokers and Dealers: S ecurities an d Exchange
Com m ission, W ashington, D.C. 20549.
Federal Land B anks, Federal L and B ank A s­
sociations, Federal In term ed ia te C redit
B a n ks and P roduction C redit Associations:
F a rm C redit A dm in istratio n , 490 L ’E n fa n t
Plaza, S.W., W ashington, D.C. 20578.
R etail, D ep a rtm en t Stores, C onsum er Fi­
nance C om panies, All o th er Creditors, and
A ll N onbank C redit Card Issuers: (L enders
o p e ratin g on a local o r regional basis
sh o u ld use th e address of th e F.T.C. R e­
gional Office in w hich th e y o p e ra te ). F ed­
eral T rade Com m ission, E qual C redit Op­
p o rtu n ity , W ashington, D.C. 20580.
A p p e n d i x B— M o d e l A p p l i c a t i o n F o r m s
[R eser v ed ]

»

•

S u pplem en t

•
I— P r o c e d u r e s

**6
for

*
S tate

E x e m p t io n

P rocedures a n d c rite ria u n d e r w hich a
S ta te m ay apply for an exem ption p u rs u a n t
to sectio n 705(g) of th e Act a n d section
202.11(e) of th is P a rt.
(a)
A pplication. Any S ta te m ay apply
th e Board p u rs u a n t to th e provisions of th is
S u p p le m e n t and th e B oard’s R ules of P ro­
cedure (12 CFR 262) fo r a d e te rm in a tio n
th a t, u n d e r th e law s of t h a t S ta te ,1 a class
o f c re d it tra n s a c tio n s * w ith in th e S ta te is
su b je c t to re q u ire m e n ts t h a t are s u b s ta n ­
tia lly sim ilar to, or provide g re ater p ro tec ­
tio n for a p p lic an ts th a n those im posed u n d e r
1 Any reference to S ta te law in th is S u p ­
p lem e n t in clu d es a reference to any re g u la ­
tio n s t h a t im p le m e n t S ta te law an d form al
In te rp re ta tio n s th ere o f by a c o u rt of com ­
p e te n t Jurisdiction or d uly a u th o rize d agency
of t h a t S ta te .
* As applicable, references to "class of cred it
tra n sa c tio n s" in th is S u p p lem en t Include
one or m ore of su c h classes of c red it tra n s ­
actions.




(iv) A scope of discovery re la tin g to a
sections 701 a n d 702 of th e Act,’ and t h a t
th e re is ad eq u ate provision for S ta te enforce­ c red ito r’s c red it g ra n tin g sta n d ard s u n d e r
m e n t of such req u irem en ts. The a p p licatio n ap p ro p riate discovery procedures in a c o u rt
shall be in w riting, addressed to th e Board, a ctio n or agency proceeding t h a t is s u b s ta n ­
signed by th e Governor, A ttorney G eneral, or tia lly sim ilar to, or m ore extensive th a n , th a t
S ta te official having prim ary enforcem ent or provided u n d e r section 706(j) of th e Act.
in te rp retiv e responsibilities u n d e r th e S ta te
(5)
A s ta te m e n t identifying th e office des­
law t h a t is applicable to th e class of c redit ignated or to be d esignated to a d m in ister
tran sac tio n s, a n d shall be su p p o rte d by th e th e S ta te law referred to in su b p arag rap h
docum ents specified in subsection ( b ) .
(b )(1 ) of th is sup p lem en t, to g eth er w ith
(b)
Sup p o rtin g docum ents. T he applica­ com plete in fo rm a tio n regarding th e fiscal
a rra n g e m e n ts for a d m in istra tiv e enforce­
tio n shall be accom panied by:
(1) A copy of th e fu ll te x t of th e S ta te m e n t (including th e a m o u n t of fu n d s avail­
able
or to be provided), th e n u m b er and
law th a t is claim ed to c o n ta in re q u ire m e n ts
su b s ta n tia lly sim ilar to those im posed u n d e r qualifications of personnel engaged or to be
sections 701 an d 702 of th e Act, or to provide engaged in enforcem ent, an d a description
g re ater p ro tec tio n to a p p lican ts th a n sec­ of th e procedures u n d e r w hich such S ta te
tio n s 701 a n d 702 of th e Act, regarding th e law is to be a d m in istrativ ely enforced, in ­
class of cred it tran sa c tio n s w ith in t h a t S ta te . cluding, if relevant, ad m in istrativ e enforce­
(2) A com parison of each provision of sec­ m e n t regarding F ed erally -ch artered cred ­
itors.*
tio n s 701 a n d 702 of th e Act w ith th e corre­
sponding provision of th e S ta te law, to ­ T he sta te m e n t should also include reasons to
g e th e r w ith reasons su p p o rtin g th e claim su p p o rt th e claim t h a t th e re is a d eq u a te p ro ­
t h a t th e corresponding provisions of th e vision for enforcem ent of such S ta te law.
S ta te law are su b sta n tia lly sim ilar to, or
(c)
Criteria for determ in a tio n . T he Board
provide g reater p ro tectio n to ap p lic an ts th a n , will consider th e c riteria set fo rth below, and
provisions of sections 701 a n d 702 of th e Act any o th e r re le v an t in form ation, in d e te rm in ­
regarding th e class of c redit tra n sa c tio n s an d ing w h eth er th e law of a S ta te is su b s ta n ­
ex plaining why any differences are n o t in ­ tia lly sim ilar to, or provides greater p ro tec ­
c o n sisten t w ith th e provisions of sections 701 tio n to a p p lican ts th a n , th e provisions of sec­
a n d 702 of th e Act an d do n o t re s u lt in a tio n s 701 an d 702 of th e Act regarding th e
d im in u tio n in th e p ro tec tio n otherw ise a f­ class of actio n tra n sa c tio n s w ith in t h a t S tate,
forded a pplicants; an d a sta te m e n t th a t no an d w h eth er th ere is ad eq u a te provision for
o th e r S ta te laws (in clu d in g a d m in istrativ e S ta te en forcem ent of such law. In m aking
or ju d ic ial in te rp re ta tio n s) are re la te d to, t h a t d e te rm in a tio n , th e B oard prim arily will
or w ould have a n effect u pon, th e S ta te law consider each provision of th e S ta te law in
t h a t is being considered by th e Board in com parison w ith each corresponding provi­
m ak in g its d e te rm in a tio n .
sion in sections 701 a n d 702 of th e Act, and
(3) A copy of th e fu ll tex t of th e S ta te law n o t th e S ta te law as a w hole in com parison
t h a t provides for enforcem ent of th e S ta te w ith th e Act as a whole.
law referred to in su b p a rag ra p h (b )(1 ) of
(1)
I n order for provisions of S ta te law to
th is sup p lem en t.
be su b sta n tia lly sim ilar to, or provide greater
(4) A com parison of th e provisions of th e p ro tec tio n to a p p lic an ts t h a n th e provisions
S ta te law t h a t provides fo r en forcem ent w ith of sections 701 a n d 702 of th e Act, th e p ro ­
th e provisions of sections 704 a n d 706 of th e visions of S ta te la w 5 a t lea st shall provide
Act, to g eth e r w ith reasons su p p o rtin g th e th a t:
claim t h a t such S ta te law provides for:
(i) D efinitions a n d ru les of c o n stru ctio n ,
(1)
A d m inistrative enforcem ent of th e as applicable, im p o rt th e sam e m eaning and
have th e sam e a p p licatio n as those prescribed
S ta te law referred to in su b p a rag ra p h (b) (1)
of th is su p p le m e n t t h a t is su b s ta n tia lly sim ­ by sections 701 a n d 702 of th e Act.
ila r to, or m ore extensive th a n , th e enforce­
(ii) C reditors provide all of th e applicable
m e n t provided u n d e r section 704 of th e Act; notificatio n s req u ired by th e provisions of
(ii)
Civil liab ility for a fa ilu re to com plysections 701 a n d 702 of th e Act, w ith th e con­
w ith th e re q u ire m e n ts of th e S ta te law t h a t te n t a n d in th e term inology, form , a n d tim e
is su b s ta n tia lly sim ilar to, or m ore extensive periods prescribed by th is P a rt p u rs u a n t to
th a n t h a t provided u n d e r section 706 of th e sections 701 an d 702; however, req u ired re f­
Act, including class a ctio n liab ility a n d th e erences to S ta te law m ay be s u b s titu te d for
a b ility of th e S ta te A ttorney G eneral or o th e r th e references to Federal law req u ired in th is
a p p ro p ria te S ta te official to com m ence a civil P a rt. N otification re q u ire m e n ts u n d e r S ta te
a c tio n u n d e r circum stances su b s ta n tia lly law in a d d itio n al circum stances or w ith a d d i­
sim ilar to those prescribed in section 706 of tio n a l d e ta il t h a t does n o t fru s tra te any of
th e Act, except t h a t su ch S ta te law m ay p ro ­
vide a g re ater dam age rem edy or oth er, m ore th e purposes of th e Act m ay be d eterm ined
by th e Board to be c o n sisten t w ith sections
extensive rem edies;
(ill) A s ta tu te of lim ita tio n s t h a t p re ­ 701 a n d 702 of th e Act.
scribes a period for civil actions of su b s ta n ­
to tia lly sim ilar d u ra tio n to t h a t provided u n d e r
‘ T ran sactio n s w ith in a S ta te in w hich a
section 706 (f) of th e Act. or a longer period;
F ederally -ch artered in s titu tio n is a creditor
an d
sh all n o t be considered su b je ct to exem ption,
an d su ch F ederally -ch artered credito rs shall
3 Any reference in th is S u p p lem en t to sec­ re m a in su b je c t to th e re q u ire m e n ts of th e
tio n s 701 and 702 of th e Act includes a re fe r­ Act a n d ad m in istrativ e en forcem ent by th e
ence to th e corresponding an d Im plem enting ap p ro p riate Federal a u th o rity u n d e r section
provisions of th is P art, th e B oard’s form al 704 of th e Act, unless a S ta te establishes to
in te rp re ta tio n s thereof, and official in te rp re ­ th e sa tisfac tio n of th e B oard t h a t ap p ro ­
ta tio n s or approvals Issued by a n au th o rized p ria te arra n g e m e n ts have been m ade w ith
official or employee of th e Federal Reserve su c h F ederal a u th o ritie s to assure effective
System . A dditionally, any reference to sec­ en forcem ent of th e re q u ire m e n ts of S ta te
tio n s 701 an d 702 of th e Act includes a re f­ law s regarding su ch creditors.
6 T his subsection is n o t to be c o n stru ed
erence to sections 705 (a ), (b ), (c), an d (d)
of th e Act an d th e corresponding provisions as in d ic a tin g t h a t th e B oard would consider
adversely
an y a d d itio n al re q u ire m e n ts of
of th is P a rt, w hich, th o u g h tech n ically n o t
a p a rt of sections 701 an d 702, Im plem ent and S ta te law t h a t are n o t in co n siste n t w ith th e
re la te to su b sta n tiv e re q u ire m e n ts of sec­ purpose of th e Act or th e re q u ire m e n ts im ­
posed u n d e r sections 701 a n d 702 of th e Act.
tio n s 701 an d 702.

FEDERAL REGISTER, VOL. 42, NO. 4— THURSDAY, JANUARY 6, 1977

29

RULES A N D REGULATIONS
(iii) C reditors tak e all affirm ative actions of th e Act, a n d to th e A ttorney G eneral of
a n d abide by o b ligations su b s ta n tia lly sim ilar th e U n ited S tates. A dditionally, th e Board
to or m ore extensive th a n , th o se prescribed sh a ll in clu d e any exem ption g ra n te d in a n
by sections 701 a n d 702 of th e Act u n d e r a p p ro p ria te listin g in S u p p le m e n t II to th is
su b s ta n tia lly sim ilar or m ore strin g e n t con­ P a rt. Any exem ption g ra n te d sh a ll be effec­
d itio n s-a n d w ith in th e sam e or m ore s tr in ­ tive 90 days a fte r th e d a te of p u b lic a tio n of
g e n t tim e periods as are prescribed in sec­ su c h n otice in th e F e d e r a l R e g i s t e r .
(2) T he a p p ro p ria te official o f an y S ta te
tio n s 701 a n d 702 of th e Act.
(iv) C reditors abide by th e sam e or m ore t h a t receives a n exem ption sh a ll inform th e
strin g e n t p ro h ib itio n s as are prescribed by Board in w ritin g w ith in 30 days of any
change in th e S ta te law s referred to in su b ­
sections 701 a n d 702 of th e Act.
(v) O bligations or responsibilities im posed sections (b) (1) a n d (b) (3) of th is su p p le ­
on a p p lic an ts are no m ore costly, lengthy, or m ent. T he re p o rt of an y su ch change shall
burdensom e relativ e to a p p lic a n ts’ exercising c o n ta in copies of th e fu ll te x t of t h a t change,
any of th e rig h ts or gaining th e benefits of to g eth e r w ith sta te m e n ts se ttin g fo rth th e
th e p ro tec tio n s provided in th e S ta te law in fo rm a tio n a n d opinions regarding t h a t
th a n corresponding obligations or responsi­ chan ge t h a t are specified in subsections
bilities im posed on ap p lic an ts in sections 701 (b) (2) a n d (b) (4) of th is supplem ent. The
a p p ro p ria te official of any S ta te t h a t h a s re ­
a n d 702 of th e Act.
(vi) A p p lican ts’ rig h ts a n d pro tectio n s are ceived such a n exem ption also shall file w ith
su b s ta n tia lly sim ilar to, or m ore favorable th e Board from tim e to tim e such re p o rts as
th a n , th o se provided by sections 701 a n d 702 th e Board m ay require.
(3) T he Board shall inform th e a p p ro p ri­
of th e Act u n d e r con d itio n s or w ith in tim e
periods t h a t are su b s ta n tia lly sim ilar to, or ate. official of any S ta te t h a t receives su ch
m ore favorable to a p p lic an ts th a n , th o se p re ­ a n exem ption of an y su b seq u e n t a m e n d ­
m en ts of th e Act (in clu d in g th e im p le m e n t­
scribed by sections 701 a n d 702 of th e Act.
(2)
I n d e te rm in in g w h e th er provisions foring provisions of th is P a rt, th e B oard’s fo r­
en fo rc e m e n t o f th e S ta te law referred to in m al in te rp re ta tio n s, a n d in te rp re ta tio n s or
su b sectio n (b )(1 ) of th is su p p le m e n t are approvals issued by a n a u th o rize d official or
a d eq u a te , co n sid eratio n will be given to th e em ployee of th e F ederal Reserve System )
e x te n t to which,, u n d e r S ta te law, provision is t h a t m ig h t necessitate th e a m e n d m en t of
S ta te law for th e exem ption to con tin u e.
m ade fo r:
(4) No exem ption shall e x ten d to th e a d ­
(i) A dm in istrativ e enforcem ent, in clu d in g
necessary facilities, personnel, an d fun d in g : m in istra tiv e enforcem ent o r civil lia b ility
provisions
of sections 704 a n d 706 of th e
(ii) Civil lia b ility for a fa ilu re to com ply
w ith th e re q u ire m e n ts of su ch a S ta te law Act. A fter a n exem ption is gran ted , th e re ­
t h a t is s u b s ta n tia lly sim ilar to, or m ore ex­ q u ire m e n ts of th e applicable S ta te law shall
tensive th a n , t h a t provided u n d e r section c o n s titu te th e re q u ire m e n ts of sections 701
a n d 702 of th e Act, except to th e e x te n t such
706 of th e Act;
(iii) A s ta tu te of lim ita tio n s for civil lia ­ S ta te law im poses re q u ire m e n ts n o t im posed
b ility of s u b s ta n tia lly sim ilar o r longer d u ra ­ by th e Act or th is P a rt.
(f) A dverse d e te rm in a tio n . (1) If, a fte r
tio n as t h a t provided u n d e r section 706 of
p u b lic a tio n of a notice in th e F e d e r a l R e g ­
th e Act; an d
i s t e r as provided u n d e r section (d) of th is
(iv) A scope of discovery re la tin g to a su p p lem en t, th e Board finds on th e basis of
c re d ito r’s c re d it g ra n tin g sta n d a rd s t h a t is th e in fo rm a tio n before i t t h a t i t c a n n o t
s u b s ta n tia lly sim ilar to, o r m ore extensive m ake a favorable d e te rm in a tio n in connec­
th a n , t h a t provided u n d e r section 706 (j) of tio n w ith th e applicatio n , th e Board shall
th e Act.
n o tify th e a p p ro p ria te S ta te official of th e
(d) P ublic notice o f filing and proposed fa cts u p o n w hich su c h findings are based
rule m aking. I n conn ectio n w ith an y a p p li­ a n d shall afford t h a t S ta te a u th o rity a re a ­
c a tio n t h a t h a s been filed in accordance w ith sonable o p p o rtu n ity to d e m o n stra te or
th e re q u ire m e n ts of subsections (a) a n d (b)
achieve com pliance.
of th is S u p p le m e n t a n d follow ing in itia l re ­
(2) If, a fte r hav in g afforded th e S ta te a u ­
view of th e ap p licatio n , a n otice of su c h fil­ th o rity su c h o p p o rtu n ity to d e m o n stra te or
ing a n d proposed ru le m aking shall be p u b ­ achieve com pliance, th e B oard finds on th e
lish ed by th e B oard in th e F e d e r a l R e g i s t e r , basis of th e In fo rm atio n before i t t h a t it
a n d a copy o f su c h a p p lic atio n shall be m ade still c a n n o t m ake a favorable d e te rm in a tio n
available for e x am in atio n by in te re ste d p e r­ in con n ectio n w ith th e a pplication, th e Board
sons d u rin g business h o u rs a t th e Board a n d shall p u b lish in th e F e d e r a l R e g i s t e r a n o ­
a t th e Federal Reserve B ank for each F e d ­ tice of its d e te rm in a tio n regarding th e a p ­
eral Reserve D istrict in w hich th e S ta te m ak ­ p lic a tio n a n d sh all fu rn ish a copy of such
ing th e ap p lic atio n is situ a te d . A period of notice to th e S ta te official who m ade a p p li­
tim e sh a ll be allow ed from th e d a te of su c h c atio n for such exem ption.
p u b lic a tio n for in te re ste d p a rties to su b m it
(g) R evocation o f e xem ption. (1) The
w ritte n com m en ts to th e Board regarding Board reserves th e rig h t to revoke any ex­
t h a t a pplication.
em p tio n g ra n te d u n d e r th e provisions of
(e) E xem p tio n fro m requirem ents. If th e th is S u p p le m e n t if a t any tim e i t d eterm ines
B oard determ in es on th e basis of th e in fo r­ t h a t th e S ta te law does not, in fact, impose
m a tio n before i t th a t, u n d e r th e law of a re q u ire m e n ts t h a t are su b sta n tia lly sim ilar
S tate, a class of c red it tra n sa c tio n s is su b je c t to, or t h a t provide greater p ro tec tio n to a p ­
to re q u ire m e n ts s u b s ta n tia lly sim ilar to, or p lic a n ts th a n , those im posed u n d e r sections
t h a t provide g re ater p ro tec tio n to a p p lic an ts 701 a n d 702 of th e Act or t h a t th e re is not,
th a n , those im posed u n d e r sections 701 and in fact, ad eq u a te provision for S ta te enforce­
702 of th e A ct a n d t h a t th e re is ad eq u a te m en t.
provision for S ta te enforcem ent, th e B oard
(2) Before revoking any su ch exem ption,
will exem pt th e class of c red it tra n sa c tio n s th e B oard shall n o tify th e ap p ro p ria te S ta te
in t h a t S ta te from th e re q u ire m e n ts of sec­ official of th e fa cts or co n d u ct th a t, in th e
tio n s 701 a n d 702 of th e Act in th e follow ing B oard’s opinion, w a rra n ts su ch revocation,
m a n n e r a n d su b je c t to th e follow ing a n d shall afford t h a t S ta te su ch o p p o rtu n ity
c o n d itio n s:
as th e Board deem s a p p ro p ria te in th e c ir­
(1) Notice of th e exem ption shall be p u b ­ cum stances to d em o n stra te or achieve com ­
lished in th e F e d e r a l R e g i s t e r , an d th e pliance.
(3) If, a fte r h aving been afforded th e op­
B oard sh all fu rn ish a copy of such notice to
th e S ta te official who m ade a p p licatio n for p o rtu n ity to de m o n stra te or achieve com pli­
su c h exem ption, to each F ederal a u th o rity ance, th e Board d eterm ines t h a t th e State
responsible fo r a d m in istra tiv e en fo rcem en t h a s n o t done so, notice of th e B oard’s in ­
of th e re q u ire m e n ts of sections 701 a n d 702 te n tio n to revoke such exem ption shall be




1

p u b lish ed as a notice of proposed rule m ak ­
ing in th e F e d e r a l R e g i s t e r . A period of
tim e shall be allowed from th e d a te of such
p u b lic a tio n for th e Board to receive w ritten
com m ents from in te re ste d persons to su b m it
w ritte n com m ents to th e B oard regarding th e
proposed ru le m aking.
(4)
If su ch exem ption is revoked, notice
of su c h revocation shall be p u blished by th e
Board in th e F e d e r a l R e g i s t e r , a n d a copy
of su c h n otice shall be fu rn ish e d to th e a p ­
p ro p riate S ta te official, to th e Federal a u ­
th o ritie s responsible for en forcem ent of th e
re q u ire m e n ts of th e Act, an d to th e A ttorney
G eneral of th e U nited S tates. T he revocation
shall becom e effective, an d th e class of tra n s ­
a ctions affected w ith in t h a t S ta te shall be­
come su b je ct to th e re q u ire m e n ts of sec­
tions 701 a n d 702 of th e Act, 90 days a fte r
th e d a te of p u b licatio n of th e notice in the
F ed e r a l R e g is t e r .

By order of the Board of G o v e rn o rs.
December 22, 1976.
T h e o d o r e E. A l l i s o n ,
S e c r e ta r y o f th e B o a rd .

| FR Doc.77-454 Filed 1-6-77;8:45 am |

FEDERAL REGISTER, VOL. 42, NO. 4— THURSDAY, JANUARY 6, 1977

30