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FED ER A L RESERVE BANK OF N EW YORK r Circular No. 8314 L April 4, 1978 ] AMENDMENT TO REGULATION B — Definition of Adverse Action — Solicitation of Information for Marketing Purposes To A ll Member Banks, and Others Concerned, in the Second Federal District: Following is the text of a statement issued by the Board of Governors of the Federal Reserve System announcing an amendment to its Regulation B, “Equal Credit Opportunity,” clarifying the definition of adverse action and limiting the applicability of an official staff interpretation dealing with the collection by creditors of information for marketing purposes. The Board of Governors of the Federal Reserve System today [M arch 16 , 19 78 ] announced that it has amended its Regulation B (Equal Credit Opportunity ) to specify what constitutes adverse action in a credit transaction at the point of sale. In a separate action, the Board instructed its staff to withdraw an official staff interpretation dealing with the collection, for marketing purposes, of information otherwise prohibited under Regulation B, and to issue a new interpretation restricting the applicability of the interpretation. T h e am en dm en t specifyin g w h a t con stitu tes a d verse action in a cred it transaction at the point of sale deals chiefly with credit card transactions. The amendment is effective immediately. The amendment specifies that a refusal or failure to authorize a transaction at the point of sale is an adverse action i f : 1. The terms of an account are changed at the point of sale unfavorably to the customer (for instance, refusal to authorize credit because the credit limit has been lowered by the creditor). 2. A creditor terminates an account at the point of sale. 3. A creditor denies an application, made in accordance with the creditor’s procedures at the point of sale, to increase the credit limit of an account. Regulation B provides that adverse action in a credit transaction must be followed by written notification to the consumer of the reason for refusal of credit, or notice to the consumer of the right to receive such an explanation. Other instances of denial of credit at the point of sale do not constitute adverse action requiring the creditor to advise the customer in writing why the credit was denied. Such instances include cases in which a credit card holder presents an expired card or does not provide other required information; a card that has been reported lost or stolen is presented; the amount of the transaction exceeds a cash advance lim it; circumstances that suggest fraud are present (such as excessive use of a credit card in a short period of time) ; the card issuer’s authorization facilities are not functioning; a party to the use of the card has disavowed responsibility for the account, or a billing statement has been returned for lack of a forwarding address. The amendment corresponds to one of two alternative proposals (Proposal A) published by the Board last October to solicit comment on issues raised by the Justice Department and the Federal Trade Commission concerning a staff interpretation of the definition of adverse action as applied to point of sale credit. The amendment to Regulation B takes the place of the staff interpretation. 7 he n ew official staff in terpretation dealing with the collection of information for marketing purposes is substantially the same in content as the previous interpretation, but its applicability has been narrowed. The initial interpretation (EC-0007) was issued April 13, 1977 in response to an enquiry from a seller of religious books operating primarily through door-to-door soliciting and making sales under an open end credit arrangement. The company’s sales agents orally request, and record on credit applications, information about the customer’s religious affiliation, on the grounds that this permits effective, non-offensive marketing of the creditor’s product. The staff issued an official interpretation stating that a seller of religious books may enquire about a cus tomer’s religion in a credit transaction so long as the information is used only for marketing purposes and not as a factor in determining whether to grant credit. To meet objections to the interpretation the Board instructed the staff to withdraw it and to issue a new interpretation applicable only to facts discussed in the interpretation. The original interpretation authorized other creditors to make otherwise prohibited enquiries in circumstances similar to those of the seller of religious books. Also, the new interpretation notes that a record of such enquiries must be retained by the creditor for 25 months and that this record will be available for review by the Federal Trade Commission, the Federal agency with jurisdiction over this creditor. Enclosed is a copy of the amendment, effective March 13, 1978. In addition, printed below is the text of the revised official staff interpretation. Questions regarding these matters may be directed to our Consumer Affairs and Bank Regu lations Department (Tel. No. 212-791-5919). P aul A. V olcker, President. Official Staff Interpretations Title 12— Banks and Banking CHAPTER II— FEDERAL RESERVE SYSTEM SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM d re sse d to th e S e c re ta ry , B o a rd o f G o v e rn o rs o f th e F e d e ra l R ese rv e S y s te m , W a s h in g t o n , D .C . 20551. EC-0010 ( S u p e r s e d e s EC-0007, W R e s c in d e d ) h ic h is [EC-00103 M arch 16, 1978. On April 13, 1977, th e staff issued an offi cial interpretation, subsequently designated PART 202— EQUAL CREDIT EC-007, in response to your letter of Febru ary 8, 1977. As you know, th e Board was OPPORTUNITY asked by the Federal Trade Commission and th e D epartm ent of Justice to rescind th a t O fficial S taff Interpretations interpretation. In Septem ber 1977, the Board considered the m atter and affirm ed A G E N C Y : B o a rd o f G o v e rn o rs o f th e th e sta ff’s position. F e d e r a l R e s e r v e S y s te m . New requests for rescission have been filed by th e FTC, Justice, and consumer rep A C T IO N : O ffic ia l S t a f f I n t e r p r e ta resentatives. Upon consideration of those t io n s . requests, th e staff is rescinding EC-0007 and is issuing this revised interpretation (desig S U M M A R Y : I n a c c o rd a n c e w ith th e nated EC-0010) in its place. This revised in B o a r d ’s r e g u l a t i o n s , t h e B o a r d is p u b terpretation does not change th e substance l i s h i n g t h e f o llo w in g o f f i c i a l s t a f f i n of our earlier letter to you, but is intended t e r p r e ta t io n o f R e g u la tio n B , issu e d to emphasize certain aspects of th e staff in b y a d u ly a u th o r iz e d o ffic ia l o f t h e D i terpretation. v is io n o f C o n s u m e r A f f a ir s . Your letter of February 8, 1977 was w rit ten on behalf of a seller of religious books E F F E C T I V E D A T E : M a r c h 16, 1978. and was based on th e following facts. Your client operates prim arily through home so FO R FU RTH ER IN F O R M A T IO N licitation sales and perm its customers to CONTACT: purchase the m erchandise under an open A n n e J . G e a r y , A c t in g C h i e f , E q u a l end credit arrangem ent. T he sales agent orally requests and records inform ation C r e d i t O p p o r t u n i t y S e c ti o n , D iv is io n about th e customer (such as age, address, o f C o n s u m e r A f f a ir s , B o a r d o f G o v employer, bank account, and credit refer e rn o rs of th e F e d e ral R e se rv e ences) on an applicant inform ation form S y s te m , W a s h i n g t o n , D .C . 20551, printed on th e reverse of th e credit agree 2 0 2 -4 5 2 -3 9 4 6 . m ent th a t is signed by the customer. The sales agent also inquires about an appli S U P P L E M E N T A R Y IN F O R M A T IO N : cant's religious affiliation and records this (1 ) I d e n t i f y i n g d e t a i l s h a v e b e e n d e inform ation in a box labeled “Church le te d to th e e x te n t re q u ire d to p re v e n t (group)” located on th e first line of th e ap a c le a r l y u n w a r r a n t e d i n v a s io n o f p e r plicant inform ation form. s o n a l p r iv a c y . T h e B o a r d m a i n t a i n s You stated in your letter th at, given the a n d m a k e s a v a i l a b l e f o r p u b l ic in s p e c nature of your client’s business, inform ation about a custom er’s religion is essential to t io n a n d c o p y in g a c u r r e n t i n d e x p r o selling the books in an effective, non-offen v id in g i d e n t i f y i n g i n f o r m a t i o n f o r t h e sive way. You expressed concern, however, p u b lic s u b j e c t t o c e r t a i n l i m i t a t i o n s th a t asking for inform ation about religious s t a t e d in 12 C F R 261.6. (2 ) O f f i c i a l s t a f f i n t e r p r e t a t i o n s m a y affiliation, even for non-credit purposes, m ight violate § 202.5(d)(5) of Regulation B. b e re c o n s id e re d u p o n r e q u e s t o f i n te r T h at section specifies in relevant p art th a t a e s te d p a r tie s a n d in a c c o rd a n c e w ith creditor shall not request the “religion • • • 12 CFR 2 0 2 .1 (d ). A r e q u e s t f o r r e c o n of an applicant or any otner person in con s i d e r a t i o n s h o u l d c le a r l y i d e n t i f y t h e nection with a credit transaction.” n u m b e r o f t h e o ffic ia l s ta f f i n te r p r e t a T he staff's opinion is th a t your client may t i o n in q u e s t io n , a n d s h o u l d b e a d inquire about a custom er's religion in con [Reg. B; EC-00103 nection with the m arketing of its books, since th a t characteristic is specifically and directly related to your client’s product. We remind your client, however, that: (1) This exception is available to your client only w ith regard to a custom er’s reli gion; it does not extend to information about other characteristics th a t Regulation B bars a creditor from soliciting. (2) Although th e inform ation is available to your client under this limited m arketing exception, inform ation about a client’s reli gious affiliation may not be considered by your client in making any credit decision. (3) T he record retention provisions of Regulation B provide th a t your client is re quired to retain a copy of any credit applica tion form for a period of 25 m onths. Under th e facts you describe, th e custom er’s reli gious affiliation will be noted on th e credit application form itself and, thus, will be available for review by the Federal Trade Commission, the federal enforcement agency th a t has jurisdiction over your client, should th e occasion arise. (4) If th e inform ation concernisg an appli can t’s religion is solicited on a document other th an th e application form, th a t docu m ent will be deemed to be p art of the credit application subject to the retention require m ents of § 202.12(b). T he staff emphasizes th a t this interpreta tion sanctions th e soliciting of inform ation about religious affiliation only for m arket ing purposes. The interpretation in no way alters th e prohibition against considering this type of inform ation in an evaluation of creditworthiness. Moreover, th e risk re mains of your client’s having to demon stra te th a t it does not discriminate against applicants, on th e basis of religion, even though it possesses such information. W hether to accept th a t risk is, of. course, a decision th a t your client m ust make. This is an official staff interpretation of Regulation B, issued pursuant to 5 202.1(d) and lim ited in its application to th e facts discussed in this lette . Sincerely, N athaniel E. B utler , Associate Director. B o a rd of G o v e rn o rs of th e F e d e ra l R e s e r v e S y s te m , e f f e c ti v e M a r c h 16, 1978. T h eodore E. A l l iso n Secretary o f the Board. [FR Doc. 78-7728 Filed 3-22-78; 8:45 am] FEDERAL REGISTER, VOL. 43, NO. 57— THURSDAY, MARCH 23, 1978 Board of Governors of the Federal Reserve System EQUAL CREDIT OPPORTUNITY A M EN D M EN T TO REGULATION B ( effective March 13, 1978) Title 12— Banks and Banking CHAPTER II— FEDERAL RESERVE SYSTEM SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [Reg. B; Docket No. R-01171 PART 202— EQUAL CREDIT OPPORTUNITY Amendment to Definition of Adverse Action A G E N C Y : B o a rd of G o v e rn o rs o f th e F e d e r a l R e s e r v e S y s te m . A C T IO N : F i n a l r u l e . S U M M A R Y : T h is a m e n d m e n t to th e B o a r d ’s E q u a l C r e d i t O p p o r t u n i t y r e g u l a t i o n ( R e g u l a t i o n B ) c la r if i e s t h e d e f i n i t i o n o f a d v e r s e a c t i o n a n d l im i ts t h e c a s e s in w h i c h f a i l u r e s o r r e f u s a l s to a u th o r iz e a n a c c o u n t tr a n s a c tio n a t p o i n t o f s a le o r l o a n c o n s t i t u t e a d v e r s e a c t i o n f o r p u r p o s e s o f t h e r e g u l a t i o n ’s n o tific a tio n re q u ire m e n ts . T h e a m e n d m e n t c o rre sp o n d s to P ro p o s a l A, o n e o f tw o a l t e r n a t i v e p r o p o s a l s p u b l i s h e d f o r c o m m e n t o n O c t o b e r 11, 1977 (42 F R 5 4 8 3 4 ). I t s u p e r s e d e s O f f i c i a l S t a f f I n t e r p r e t a t i o n E C -0 0 0 8 , w h i c h is r e s c in d e d . EFFECTIVE DATE: Immediately. FO R FU RTH ER CONTACT: IN F O R M A T IO N A n n e G e a ry , C h ie f S ta f f A tto rn e y , D iv is io n o f C o n s u m e r A f f a ir s , B o a r d o f G o v e rn o rs o f th e F e d e ra l R ese rv e S y s te m , W a s h i n g t o n , D .C . 20551, 2 0 2 -4 5 2 -2 7 6 1 . S U P P L E M E N T A R Y IN F O R M A T IO N : T h e E q u a l C re d it O p p o r tu n ity A c t a n d R e g u la tio n B r e q u ir e t h a t w r itte n n o t i f i c a t i o n b e g iv e n t o a n a p p l i c a n t w h e n a d v e r s e a c t i o n o c c u r s . S e c ti o n 2 0 2 .2 (c )(1 ) o f R e g u l a t i o n B , a s a m e n d e d o n M a r c h 23, 1977, p r o v id e s t h a t a d v e r s e a c t i o n o c c u r s in t h r e e i n s ta n c e s : W h e n t h e r e is a r e f u s a l t o g r a n t c re d it in s u b s ta n tia lly t h e a m o u n t o r o n s u b s ta n tia lly th e te r m s re q u e s te d b y a n a p p lic a n t, u n le s s t h e a p p lic a n t u se s o r e x p re s s ly a c c e p ts th e a m o u n t o r te rm s t h a t th e c re d ito r o ffe rs, W h e n t h e r e is a t e r m i n a t i o n o f a n a c c o u n t o r a n u n f a v o r a b l e c h a n g e in [Enc. Cir. No. 8314] i t s t e r m s t h a t d o e s n o t a f f e c t a ll o r a s u b s t a n t i a l p o r t i o n o f a c la s s if i c a t io n o f t h e c r e d i t o r ’s a c c o u n ts , a n d F i n a ll y , w h e n t h e r e is a r e f u s a l t o i n c r e a s e t h e a m o u n t o f c r e d i t a v a ila b le to a n a p p lic a n t w h o h a s re q u e s te d a n i n c r e a s e in a c c o r d a n c e w i t h t h e c r e d i t o r ’s p r o c e d u r e s f o r t h a t t y p e o f c r e d i t. T h e r e g u l a t i o n a ls o e x c l u d e s fiv e e v e n ts fro m t h e d e fin itio n o f a d v e rse a c t i o n . A m o n g t h e e v e n t s e x c l u d e d is a re fu s a l to e x te n d c re d it a t p o in t of s a le o r lo a n b e c a u s e t h e c re d it r e q u e s t e d w o u ld e x c e e d a p r e v io u s ly e s t a b l is h e d c r e d i t l im i t. A q u e s t i o n r e m a i n s a s t o w h e t h e r , g iv e n t h i s e x c lu s io n , a d v e rse a c tio n o c c u rs a t p o in t o f s a le o r l o a n w h e n a c u s t o m e r a p p li e s f o r a n in c re a s e in t h e c re d it lim it a n d t h e in c r e a s e is d e n ie d . I n a d d it i o n , n e i t h e r t h e A c t n o r t h e r e g u l a t i o n is e x p li c it a s t o w h e t h e r a d v e rse a c tio n o c c u rs w h e n a p o in t o f s a l e o r l o a n t r a n s a c t i o n t h a t w o u ld n o t e x c e e d t h e c r e d i t l i m i t is d e n ie d . T h e a m e n d m e n t to th e d e fin itio n o f a d v e r s e a c t i o n r e s o lv e s t h e s e a m b i g u i ti e s b y p r o v i d in g t h a t a r e f u s a l o r f a i l u r e t o a u t h o r i z e a p o i n t o f s a le o r l o a n tra n s a c tio n is n o t a d v e r s e a c t i o n u n l e s s i t is (1 ) a n u n f a v o r a b l e c h a n g e in t h e t e r m s o f a n a c c o u n t, (2 ) a t e r m i n a t i o n o f a n a c c o u n t, o r (3 ) a d e n ia l o f a n a p p l i c a t i o n ( m a d e in a c c o r d a n c e w i t h t h e c r e d i t o r ’s p r o c e d u r e s ) t o i n c r e a s e t h e c r e d i t l im i t. T h e e x c l u s i o n in t h e e x i s t i n g r e g u l a tio n re g a rd in g tra n s a c tio n s th a t e x c e e d t h e c r e d i t l i m i t is s u b s u m e d i n t o t h e n e w s u b s e c t i o n (2 )(iii). T h a t is t o s a y , d e n ia l o f a p o i n t o f s a l e o r l o a n tr a n s a c tio n t h a t e x c e e d s a n e x is tin g c r e d i t l i m i t is n o t a d v e r s e a c t i o n u n l e s s t h e c u s t o m e r is a p p l y i n g f o r a n i n c r e a s e d c r e d i t l i m i t a n d is r e je c t e d . T h e B o a r d b e lie v e s t h i s c o n s t r u c t i o n o f t h e s t a t u t o r y l a n g u a g e is s u p p o r t e d b y t h e l e g is la tiv e h i s t o r y . S e n a t e R e p o r t 9 4 -5 8 9 m a k e s c l e a r t h a t C o n g r e s s d id n o t i n t e n d t o r u l e o u t t h e p o s s ib i l it y t h a t a f o r m a l i z e d a p p li c a t i o n f o r a n i n c r e a s e d c r e d i t l i m i t c o u ld o c c u r a t p o i n t o f s a le . R a t h e r , t h e l e g is l a t i v e i n t e n t w a s t o e s t a b l i s h t h e g e n e r a l r u l e t h a t a c u s t o m e r ’s i n e x p l ic i t o r i m p lie d r e q u e s t f o r a n i n c re a se (b y a n a tte m p te d p u rc h a s e e x c e e d in g t h e l im i t) d o e s n o t t r i g g e r t h e a d v e rse a c tio n n o tific a tio n re q u ire m e n ts . T h e B o a r d b e lie v e s t h a t e x c l u d i n g p o i n t o f s a le o r l o a n d e n ia l s t h a t a r e u n d e r t h e c r e d i t l im i t f r o m t h e d e f i n i tio n o f a d v e rse a c tio n , e x c e p t w h e re s u c h d e n ia l s c o n s t i t u t e a b a s ic , . u n i l a t e r a l c h a n g e b y a c r e d i t o r , is a ls o c o n s i s t e n t w i t h t h e s t a t u t o r y p r o v is io n s a n d w i t h t h e l e g is la tiv e h i s t o r y r e g a r d in g a d v e r s e a c t i o n . T h e B o a r d e m p h a s iz e s t h a t t h e e x c l u s i o n o f m o s t p o i n t Of s a le o r l o a n d e n ia l s f r o m t h e a d v e rse a c tio n re q u ir e m e n ts d o e s n o t r e lie v e c r e d i t o r s o f t h e o b l ig a t io n to m a k e c re d it a v a ila b le to c re d itw o rth y c u s to m e rs w ith o u t re g a rd to ra c e , c o lo r, n a t i o n a l o r ig in , s e x , o r a n y o t h e r p r o h i b i t e d b a s is . I n p a r t i c u l a r , th e B o a rd re m in d s c re d ito rs t h a t th e j u d ic i a l l y c o n s t r u c t e d “ e f f e c t s t e s t ” is a p p li c a b l e t o c r e d i t t r a n s a c t i o n s . A c c o r d in g ly , c r e d i t o r s s h o u l d e x a m i n e t h e i r s e c u rity m e c h a n is m s a n d o th e r o p e ra tio n a l a s p e c ts o f t h e c re d it e x te n s io n s to e n s u re t h a t th e s e m e a s u re s d o n o t d is c rim in a te a g a in s t a p r o te c t e d c la s s in a n u n l a w f u l m a n n e r . B a se d o n th e s ta tu t o r y d e fin itio n o f “ a p p l i c a n t , ” t h e t e r m “ a p p l i c a t i o n ” is d e f in e d in t h e r e g u l a t i o n n o t t o i n c lu d e t r a n s a c t i o n s t h a t a r e w i t h i n a p r e v io u s ly e s t a b l i s h e d c r e d i t lim it. T h e d e n ia l o f t h e s e t r a n s a c t i o n s , th e re fo re , d o es n o t c o n s titu te th e d e n ia l o f a n a p p l i c a t i o n f o r c r e d i t. T h is le a v e s th e q u e s tio n o f w h e th e r t h e d e n ia l in a n u n d e r - t h e - l i m i t t r a n s a c t i o n is “ a d e n ia l o r r e v o c a ti o n o f c r e d i t [ o r ] a c h a n g e in t h e t e r m s o f a n e x is tin g c re d it a r r a n g e m e n t.” P ro p o n e n t s o f a b r o a d a d v e r s e a c t i o n d e f in i t i o n a r g u e t h a t a d e n ia l a t p o i n t o f s a le o r l o a n is a t l e a s t a t e m p o r a r y r e v o c a tio n o f c re d it a n d , th u s , s h o u ld be c a t e g o r i z e d a s a d v e r s e a c t i o n . T h e r e is n o c le a r s ta tu t o r y g u id a n c e o n th is p o i n t. H o w e v e r, t h e B o a r d b e lie v e s a d o p tio n o f s u c h a n i n te r p r e ta tio n w o u ld b e i n c o n s i s t e n t w i t h t h e le g i s l a tiv e i n t e n t a s e v id e n c e d in S e n a t e C o m m i t te e R e p o r t 9 4 -5 8 9 . T h e r e p o r t o f t h e C o m m i t te e o n B a n k in g , H o u s in g a n d U r b a n A f f a ir s m a k e s c le a r th a t : “T h e (a d v erse a c t i o n ) p r o v is io n is i n t e n d e d t o o p e r a t e in a s e n s i b l e a n d f l e x i b l e w a y .” T h e r e p o r t a ls o e x p l a i n s t h a t t h e t e r m “ a d v e rs e a c tio n ” re fe rs to “ u n ila te r a l” c h a n g e s in t h e t e r m s o f a c r e d i t p la n , a n d t h a t : “ T h e C o m m i t te e d o e s n o t i n t e n d t o r e q u i r e t h e g iv in g o f r e a s o n s w h e re n o s u c h e x p la n a tio n c a n re a s o n a b ly b e e x p e c te d b y t h e d e b t o r . ” For this Regulation to be complete, retain: 1) Regulation B pamphlet, effective March 23, 1977. 2) This slip sheet. P R IN T E D IN N EW YOR K , FROM FEDERAL R EG ISTER , VOL. 4 3 , NO. 5 7 P o i n t o f s a l e o r l o a n d e n ia l s w ill f r e q u e n tly r e s u lt fro m a c tio n in itia te d b y a c u s t o m e r —f o r e x a m p l e b e c a u s e t h e c u s t o m e r (1 ) h a s f a i l e d t o p r e s e n t a c u r r e n t c re d it c a rd o r th e a d d itio n a l id e n tific a tio n r e q u ire d b y a m e r c h a n t, (2 ) h a s r e p o r t e d t h e c r e d i t c a r d t o b e l o s t o r s t o l e n , (3 ) h a s m o v e d w i t h o u t n o t i f y i n g t h e c r e d i t o r o f t h e n e w b i ll in g a d d r e s s , o r (4 ) h a s d is a v o w e d r e s p o n s ib i l it y o n t h e a c c o u n t. In o th e r in sta n c e s , tu rn d o w n s a re n o t th e r e s u lt o f a “ c h a n g e ” in te rm s b u t r a th e r re la te to te rm s (su c h as se c u r i t y d e v ic e s d e s i g n e d t o p r e v e n t fra u d u le n t u se o f c re d it c a rd s) t h a t h a v e a p p li e d t o t h e a c c o u n t s in c e i t w as e sta b lish e d . In th e s e cases, r e q u ir in g a c r e d i t o r t o d e s c r ib e t h e s p e c if ic s a fe g u a rd t h a t r e s u lte d in t h e t u r n d o w n c o u ld b e d e t r i m e n t a l t o i t s c o n t i n u e d e f f e c ti v e n e s s . T h e B o a rd r e c o g n iz e s t h a t t h e a m e n d m e n t a d o p te d d o e s n o t re s p o n d to t h e c o n c e rn e x p re ss e d re g a rd in g t h e e m b a r r a s s m e n t a n d in d ig n ity e x p e r ie n c e d b y a p e r s o n w h o p r e s e n t s a c u r r e n t c r e d i t c a r d a n d is t u r n e d d o w n a t p o i n t o f s a l e o r lo a n . I n t h e B o a r d ’s o p in io n , h o w e v e r , t h i s p r o b l e m is d is t in c t fro m t h e p ro b le m o f c re d it d is c r i m i n a t i o n o n a p r o h i b i t e d b a s is . M o r e o v e r , c a t e g o r i z in g p o i n t o f s a le o r lo a n tu rn d o w n s as a d v e rse a c tio n w o u ld d o l i t t l e t o a l l e v i a t e t h e e m b a r r a s s m e n t a n d in d ig n ity to t h e c u s to m e r a t p o i n t o f s a l e o r lo a n . W h il e a r e j e c t e d c u s t o m e r w o u ld b e e n t i t l e d t o a n e x p l a n a t i o n , a c r e d i t o r w o u ld n o t h a v e t o p r o v id e t h a t e x p l a n a t i o n im m e d i a te ly . U n d e r t h e s t a t u t o r y a n d r e g u l a t o r y p r o v is io n s , a c r e d i t o r h a s 30 d a y s w ith in w h ic h to n o tify t h e c u s t o m e r o f t h e r e a s o n f o r t h e d e n i a l o r, a t t n e c r e d i t o r ’s e le c t i o n , o f t h e c u s t o m e r ’s r i g h t t o r e q u e s t t h e r e a s o n s . E x pl a n a tio n of A m endm ent T h e w o rd s “ in a n a p p lic a tio n ” h a v e b e e n s u b s titu te d f o r t h e w o rd s “ b y a n a p p lic a n t” in s u b s e c tio n ( l) ( i) o f th e e x is ti n g a d v e r s e a c t i o n d e f i n i t i o n . T h e c h a n g e is i n t e n d e d t o c l a r i f y t h a t t h i s p ro v is io n is a p p li c a b l e o n ly w ith re g a rd to a re fu s a l o f a n a p p lic a tio n f o r c r e d i t . A c t io n o n a n e x i s t i n g a c c o u n t is g o v e r n e d b y t h e s u c c e e d in g p ro v is io n s r e g a rd in g te r m in a tio n , u n fa v o ra b le c h a n g e , a n d a re fu s a l to in c r e a s e a c r e d i t l im it. “ A p p l i c a t i o n ” a s d e f in e d in t h e e x is tin g r e g u la tio n m e a n s a re q u e s t m a d e “ in a c c o r d a n c e w i t h p r o c e d u r e s e sta b lish e d b y a c re d ito r.” T h u s, a d v e rse a c tio n d o e s n o t o c c u r if a c u s t o m e r a p p li e s f o r a n i n c r e a s e d c r e d i t l im i t a n d , w h ile t h e a p p l i c a t i o n is p e n d in g , is t u r n e d d o w n a t p o i n t o f s a le o r lo a n b e c a u s e t h e tr a n s a c tio n w o u ld e x c e e d t h e p r e v io u s ly e s t a b l is h e d c r e d i t l im i t. a s u s e d in e x i s t i n g § 2 0 2 .2 (c )(1 )(h ) a n d in t h e n e w § 2 0 2 .2 (c )(2 )(iii), t h e p h r a s e “ u n f a v o r a b l e c h a n g e in t e r m s o r c o n d itio n s ” re fe rs , fo r e x a m p le , to a c h a n g e in s u c h c o n tr a c t te rm s a s th e a n n u a l p e r c e n t a g e r a t e , c r e d i t l im its , s c h e d u l e o f r e p a y m e n t s , a n d t h e lik e . W h e re t h e u n d e rly in g c re d it a r ra n g e m e n t r e m a i n s i n e f f e c t s u b j e c t t o i ts o r i g in a l t e r m s , t h e p h r a s e d o e s n o t r e fe r to a te m p o ra ry fa ilu re o r re fu s a l to p e rm it tra n s a c tio n s o n th e a c c o u n t o c c a s io n e d , f o r e x a m p l e , b y t h e f o llo w in g t y p e s o f o c c u r r e n c e s : 1. P r e s e n t a t i o n o f a c r e d i t c a r d t h a t h a s e x p ir e d o r t h a t is p r e s e n t e d in a d v a n c e o f i t s e f f e c ti v e d a te , 2. A c u s t o m e r ’s f a i l u r e t o p r e s e n t t h e c re d it c a rd o r r e q u ire d id e n tific a tio n , 3. A m a l f u n c t i o n in e q u i p m e n t a t th e a u th o riz a tio n c e n te r, a t p o in t o f s a le o r lo a n , o r e ls e w h e r e , 4. A n i n a b i l i t y t o c o m m u n i c a te w i t h t h e a u t h o r i z a t i o n c e n t e r b e c a u s e i t is c lo s e d , 5. T h e a p p l i c a t i o n o f s e c u r i t y c o n t r o l m e c h a n i s m s d e s ig n e d t o p r e v e n t f ra u d u le n t u se o f c re d it c a rd s (su c h as l im i ts o n t h e n u m b e r o r d o l l a r a m o u n t o f d a il y t r a n s a c t i o n s , o r p a t t e r n s o f u se ), 6. T h e r e s e r v a t i o n o f t h e a m o u n t o f a p r e v io u s t r a n s a c t i o n , w h i c h w h e n a d d e d t o a u t h o r i z a t i o n s p r e v io u s ly a p p ro v e d b y t h e c a rd is s u e r o n t h a t a c c o u n t, w o u ld e x c e e d t h e c r e d i t l im it, or 7. P r e s e n t a t i o n o f a c r e d i t c a r d r e p o rte d b y t h e c a r d h o ld e r a s lo s t o r s to le n . T h e a m e n d m e n t a d o p t e d is e s s e n tia lly t h e s a m e a s P ro p o s a l A, p u b l is h e d f o r c o m m e n t o n O c t o b e r 11. T h e f o llo w in g c l a r i f y i n g c h a n g e s a r e n o t in te n d e d to a lte r t h e e ffe c t o f th e p r o p o s e d a m e n d m e n t in a n y s u b s t a n t iv e w ay : (1 ) T h e l a n g u a g e in s u b s e c t io n (c )(2 ) (iii) a s p r o p o s e d r e a d : “ T h e t e r m d o e s n o t in c l u d e a r e f u s a l o r f a i l u r e t o a u th o riz e t h e u se o f a n a c c o u n t * * \ e x c e p t w h e n t h e r e f u s a l is caused by a te rm in a tio n o r a n u n fa v o ra b le c h a n g e * * * o r w h e n t h e r e f u s a l results in t h e d e n ia l o f a n a p p l i c a t i o n * * *” ( E m p h a s is a d d e d ). T h e p ro v is io n a d o p te d s u b s titu te s “ i s ” f o r t h e w o r d s “ is c a u s e d b y ” a n d “ r e s u l t s i n .” T h i s c h a n g e is i n t e n d e d t o m a k e c l e a r t h a t w h e n a n a c c o u n t is te r m in a te d , fo r e x a m p le , t h is c o n s ti t u t e s a d v e r s e a c t i o n , a n d n o t ic e o f a d v e r s e a c t i o n is r e q u i r e d a s t o t h a t t e r m i n a t i o n w i t h i n 30 d a y s . H o w e v e r, t h e c r e d i t o r is n o t r e q u i r e d t o n o t i f y a c u s to m e r w hose a c c o u n t h a s b e en te rm i n a te d e a c h tim e t h e c u s to m e r s u b s e q u e n t l y t r i e s t o u s e t h e a c c o u n t a n d is t u r n e d d o w n a t p o i n t o f s a l e o r lo a n . (2 ) W h il e t h e m a j o r i t y o f p o i n t o f s a le o r l o a n d e n ia l s w ill o c c u r in t h e c o n te x t o f a n o p e n e n d c re d it a r ra n g e m e n t , t h e r e m a y a ls o b e s o m e c lo s e d e n d c r e d i t p l a n s in v o lv in g u n d e r - t h e lim it p o in t o f s a le o r lo a n tu rn d o w n s . To m ake c le a r th a t th e new § 2 0 2 .2 (c )(2 )(iii) is n o t l im i te d t o o p e n e n d c r e d i t, t h e w o r d s “ t h e u s e o f a n a c c o u n t ” in t h e p h r a s e “ * • • a r e f u s a l o r fa ilu re to a u th o r iz e t h e u se o f a n a c c o u n t” h a v e b e e n c h a n g e d to re a d “a n a c c o u n t tr a n s a c tio n .” (3 ) T h e n e w s u b s e c t io n ( c )(3 ) e s t a b l is h e s t h a t t h e e x c l u s i o n s s e t f o r t h in s u b s e c t io n (c )(2 ), d e f in i n g w h a t d o e s n o t c o n s t i t u t e a d v e r s e a c t i o n , w ill t a k e p r e c e d e n c e o v e r t h e p r o v is io n s o f s u b s e c ti o n (c )(1 ) in t h e e v e n t a n a c t i o n h a s c h a ra c te ris tic s o f b o th su b se c t io n s . T h e a m e n d m e n t s u p e r s e d e s O f f ic ia l S t a f f I n t e r p r e t a t i o n E C -0 0 0 8 , w h i c h is r e s c in d e d . T ex t of A m endm ent P u r s u a n t to th e a u th o r ity g ra n te d u n d e r s e c ti o n 703 o f t h e E q u a l C r e d it O p p o r t u n i t y A c t (15 U .S .C . 1 6 9 1 (b )), t h e B o a r d a m e n d s 12 C F R 2 0 2 .2 (c ) a s fo llo w s: §202.2 Definitions and rules of construc tion. • • • • • (c ) A dverse a ction. (1 ) F o r t h e p u r p o se o f n o tific a tio n o f a c tio n ta k e n , s t a t e m e n t o f r e a s o n s f o r d e n ia l, a n d re c o rd r e te n tio n , th e te rm m ea n s: (1) A r e f u s a l t o g r a n t c r e d i t in s u b s ta n tia lly th e a m o u n t o r o n s u b s ta n t i a l l y t h e t e r m s r e q u e s t e d in a n a p p l i c a t i o n u n l e s s t h e c r e d i t o r o f f e r s to g r a n t c re d it o th e r t h a n in s u b s ta n tia l ly t h e a m o u n t o r o n s u b s t a n t i a l l y t h e te rm s re q u e s te d b y th e a p p lic a n t a n d t h e a p p l i c a n t u s e s o r e x p r e s s l y a c c e p ts th e c re d it o ffe re d : o r * • • • * (2 ) T h e t e r m d o e s n o t in c lu d e : • • • * * (iii) A r e f u s a l o r f a i l u r e t o a u t h o r i z e a n a c c o u n t tra n s a c tio n a t a p o in t of s a le o r lo a n , e x c e p t w h e n t h e r e f u s a l is a te rm in a tio n or an u n fa v o ra b le c h a n g e in t h e t e r m s o f a n a c c o u n t t h a t d o e s n o t a f f e c t a ll o r a s u b s t a n t i a l p o r t i o n o f a c la s s if i c a t io n o f t h e c r e d i t o r ’s a c c o u n t s o r w h e n t h e r e f u s a l is a d e n ia l o f a n a p p l i c a t i o n t o in c r e a s e th e a m o u n t o f c re d it a v a ila b le u n d e r t h e a c c o u n t; o r • • • * * (3 ) A n a c t i o n t h a t f a ll s w i t h i n t h e d e f i n i t i o n o f b o t h p a r a g r a p h s (c )(1 ) a n d ( c )(2 ) o f t h i s s e c ti o n s h a l l b e g o v e r n e d b y t h e p r o v is io n s o f p a r a g r a p h (c )(2 ) o f t h i s s e c tio n . 0 0 0 0 0 B y o rd e r of th e B o a rd of G o v e rn o rs, e f f e c ti v e M a r c h 13, 1978. T heodore E . A l l is o n , Secretary o f the Board. [FR Doc. 78-7727 Filed 3-22-78: 8:45 am] FEDERAL REGISTER, V O L 43, NO. 57— THURSDAY, MARCH 23, 1978
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