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F E D E R A L R E S E R V E BANK O F N E W YO R K No. 8158*1 [ Circular August 10, 1977 J R EG U LA TIO N B — Interpretation Regarding Special Purpose Credit Programs — Correction of Interpretation Regarding State Laws Setting Different Ages of Majority for Married and Unmarried Persons To A ll Member Banks, and Others Concerned, in the Second Federal Reserve D istrict: Following is the text of a statement issued August 4 by the Board of Governors of the Fed eral Reserve System regarding a provision of Section 202.8(a) of Regulation B (Equal Credit Opportunity) that deals with Federal or State special purpose credit programs: The Board of Governors of the Federal Reserve System today issued an interpretation of the provision of its Regulation B— Equal Credit Opportunity— dealing with Federal or State special purpose credit programs. The Equal Credit Opportunity Act and Regulation B provide that it is not illegal to deny credit solely because the applicant does not qualify for credit “ expressly authorized by Federal or State law” for the benefit of an economically disadvantaged class of persons. An example of such a special purpose credit program would be one designed to benefit economically disadvantaged American Indians. It is not illegal to exclude non-Indian applicants for credit under such a program. The interpretation states that a credit program is considered to be “ expressly authorized by Federal or State law” if it is authorized by the terms of a Federal or State statute or by a regulation lawfully promulgated by the Federal or State agency responsible for implementing the program. When it proposed (M ay 10, 1977) the interpretation now adopted, the Board announced that in its opinion determinations whether a Federal or State special purpose credit program benefits an economically disadvan taged class o f persons are best made by the agency charged with the administration of the loan program. In taking final action the Board added that it is the responsibility of governmental agencies operating special purpose loan programs to be sure their regulations are consistent with relevant State and Federal laws. Credi tors will not violate Regulation B by complying with State or Federal special purpose loan program laws. The Board of Governors has also advised us of an error in a recent interpretation of Reg ulation B dealing with State laws that set different ages of majority for married and unmarried persons. That interpretation, sent to you with our Circular No. 8146, dated July 13, 1977, referred to “ Nevada Rev. Stat. 38 § 101,” which has now been corrected to read “ Nebraska Rev. Stat. 38 § 101.” The third, seventh, and tenth paragraphs of that interpretation have been corrected accordingly. Enclosed are copies of both the new interpretation and the corrected interpretation of Regu lation B. Inquiries regarding either of the interpretations may be directed to our Consumer A f fairs Division (Tel. No. 212-791-5919). P aul A. V olcker , President. Board of Governors of the Federal Reserve System EQUAL CREDIT O P P O R TU N ITY CO RRECTED IN T E R P R E T A T IO N OF R E G U LA TIO N B (Docket No. R-0107) A G E N C Y : Board of Governors of the Federal Reserve System. A C T IO N : Interpretation. S U M M A R Y : In response to a request to deter mine whether an Alabama and a Nebraska law are inconsistent with the Equal Credit Oppor tunity Act and Regulation B, and therefore pre empted, the Board has issued an interpretation of its Regulation B, Equal Credit Opportunity. The Board has determined that laws that set a different age of majority for married and un married persons are not inconsistent with the Act and regulation. E FF E C T IV E D A T E : July 8, 1977. FO R F U R T H E R IN F O R M A T IO N CON T A C T : Anne Geary, Chief, Equal Credit Op portunity Section, Division of Consumer Affairs, Board of Governors of the Federal Reserve Sys tem, Washington, D.C. 20551 (202-452-3946). S U P P L E M E N T A R Y IN F O R M A T IO N : Pursuant to its authority under § 705(f) of the Equal Credit Opportunity Act to determine whether State laws are inconsistent with the Act and Regulation B, the Board has issued the following interpretation of Regulation B, which implements the Act. The Board has been asked whether State laws that set a different age of majority for married and unmarried persons are inconsistent with the Equal Credit Opportunity Act and are therefore preempted. These laws, combined with other State laws making contracts unenforceable against persons who have not reached the age of majority, result in different treatment of persons who are the same age, depending upon their marital status. Specifically, the Board has been asked to determine whether Nebraska Rev. Stat. 38 § 101 and Alabama Code 34 §§ 76 and 7 6 (1 ), which establish a younger age of ma jority for married persons than for unmarried persons, are inconsistent with the Equal Credit Opportunity Act. For the reasons set forth below, the Board has determined that these statutes are not inconsistent with the ECOA. The Equal Credit Opportunity Act prohibits P R IN T E D IN [Enc. Cir. No. 8158] discrimination in the granting of credit on sev eral bases, including age and marital status, and authorizes the Board to determine whether any State laws are inconsistent with this man date. The Board believes that the ECOA was not intended to preempt laws that provide rights and remedies in the event of default. Section 7 0 1 (a )(1 ) of the Act prohibits discrimination on the basis of age, but specifically allows credi tors to consider whether an applicant is old enough to execute an enforceable contract. In other words, a creditor may decline a credit application from a minor because, in the event of default, State contract law does not provide a means to enforce the contract. In addition, § 7 0 1 (b )(1 ) allows creditors to ask marital status in order to ascertain . . the creditor’s rights and remedies applicable to the particular extension of credit . . . .” Accordingly, Regulation B, which in general prohibits the consideration of age or marital status, permits creditors to determine whether the applicant’s a g e1 or marital status1 2 will affect the enforceability of the contract. Credit, therefore, may be denied if the creditor reason ably believes that, because of the age or marital status of the applicant, the credit contract would be unenforceable. Based upon this analysis, the Board has de termined that Nebraska Rev. Stat. 38 § 101 and Alabama Code 34 §§ 76 and 76(1) are not in consistent with the Equal Credit Opportunity Act and Regulation B. Creditors may, there fore, consider the effect of these laws without violating the Equal Credit Opportunity Act or Regulation B. By order of the Board of Governors, effective July 8, 1977, and corrected July 28, 1977. 1 § 202.6(b) (2 ) (i) : . . . a creditor shall not take into account an appli cant’s age (provided the applicant has the capacity to enter into a binding contract). . . . 2 § 202.6(b) (1 ), footnote 8 ; This provision does not prevent a creditor from considering the marital status of an applicant . . . for the purpose of ascertaining the creditor’s rights and remedies applicable to the particular extension of credit. . . . N E W YORK Board of Governors of the Federal Reserve System EQUAL CREDIT O P P O R TU N ITY IN T E R P R E T A T IO N OF R E G U LA TIO N B (Docket No. R-0109) A G E N C Y : Board of Governors of the Federal Reserve System. A C T IO N : Interpretation. S U M M A R Y : In response to requests for guid ance concerning the meaning of the term “ ex pressly authorized by Federal or State law” in Regulation B, the Board interprets it to mean expressly authorized either by statute or law fully promulgated regulation. Therefore, a gov ernment agency implementing a loan program authorized either by law or regulation may determine whether it benefits an economically disadvantaged class of persons and qualifies as a special purpose credit program under Regu lation B. Participating creditors will not violate Regulation B by complying with regulations promulgated by a government agency to imple ment a special purpose credit program. E F F E C TIVE D A T E : August 3, 1977. FO R FU R T H E R IN F O R M A T IO N CON T A C T : Anne Geary, Chief, Equal Credit Opportunity Section, Division of Consumer Affairs, Board of Governors of the Federal Reserve System, Washington, D.C. 20551 (202-452-3946). § 202.801— Special purpose credit program may be authorized by law or lawfully promulgated regulation. Participating creditors will not vio late Regulation B by complying with regulations implementing special purpose credit programs. (a) In order to provide guidance concerning the intended coverage of § 2 02.8(a)*1 of Regula tion B, the Board interprets a term used in that section as follow s: A credit program is considered to be “ expressly authorized by Fed eral or State law” if it is authorized by the terms of a Federal or State statute or by a regulation lawfully promulgated by the administering agency (i.e., the agency responsible for imple menting the program). (b ) It is the responsibility of the administer ing agency to ensure that implementing regu lations are consistent with applicable Federal and State law. A creditor participating in a loan program expressly authorized by Federal or State law will not violate Regulation B by complying in good faith with the law authoriz ing a program or with a regulation promulgated by an administering agency to implement a program that the agency has determined is a special purpose credit program under § 202.8 ( a ) ( 1 ) of Regulation B. (c ) In addition, the Board announces that it will not make determinations as to whether particular programs benefit an “ economically disadvantaged class of persons.” The Board believes that such a determination is more properly made by the agency charged with the administration of the loan program. By order of the Board of Governors, effective August 3, 1977. ! § 202.8(a) reads, in part, as follows: f a ) S ta n d a r d s f o r p r o g r a m s . Subject to the provi sions of subsection ( b) , the Act and this Part are not violated if a creditor refuses to extend credit to an ap plicant solely because the applicant does not qualify under the special requirements that define eligibility for the following types of special purpose credit programs : (1 ) any credit assistance program expressly author ized by Federal or State law for the benefit of an economically disadvantaged class of persons; . . . P R IN T E D IN N E W YORK
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