Appendix C to Part 1002 - Sample Notification Forms
12:8.0.2.1.3.2.1.1.4 : Appendix C
Appendix C to Part 1002 - Sample Notification Forms
1. This Appendix contains ten sample notification forms. Forms
C-1 through C-4 are intended for use in notifying an applicant that
adverse action has been taken on an application or account under §§
1002.9(a)(1) and (2)(i) of this part. Form C-5 is a notice of
disclosure of the right to request specific reasons for adverse
action under §§ 1002.9(a)(1) and (2)(ii). Form C-6 is designed for
use in notifying an applicant, under § 1002.9(c)(2), that an
application is incomplete. Forms C-7 and C-8 are intended for use
in connection with applications for business credit under §
1002.9(a)(3). Form C-9 is designed for use in notifying an
applicant of the right to receive a copy of appraisals under §
1002.14. Form C-10 is designed for use in notifying an applicant
for nonmortgage credit that the creditor is requesting applicant
characteristic information.
2. Form C-1 contains the Fair Credit Reporting Act disclosure as
required by sections 615(a) and (b) of that act. Forms C-2 through
C-5 contain only the section 615(a) disclosure (that a creditor
obtained information from a consumer reporting agency that was
considered in the credit decision). A creditor must provide the
section 615(a) disclosure when adverse action is taken against a
consumer based on information from a consumer reporting agency. A
creditor must provide the section 615(b) disclosure when adverse
action is taken based on information from an outside source other
than a consumer reporting agency. In addition, a creditor must
provide the section 615(b) disclosure if the creditor obtained
information from an affiliate other than information in a consumer
report or other than information concerning the affiliate's own
transactions or experiences with the consumer. Creditors may comply
with the disclosure requirements for adverse action based on
information in a consumer report obtained from an affiliate by
providing either the section 615(a) or section 615(b) disclosure.
Optional language in Forms C-1 through C-5 may be used to direct
the consumer to the entity that provided the credit score for any
questions about the credit score, along with the entity's contact
information. Creditors may use or not use this additional language
without losing the safe harbor, since the language is optional.
3. The sample forms are illustrative and may not be appropriate
for all creditors. They were designed to include some of the
factors that creditors most commonly consider. If a creditor
chooses to use the checklist of reasons provided in one of the
sample forms in this appendix and if reasons commonly used by the
creditor are not provided on the form, the creditor should modify
the checklist by substituting or adding other reasons. For example,
if “inadequate down payment” or “no deposit relationship with us”
are common reasons for taking adverse action on an application, the
creditor ought to add or substitute such reasons for those
presently contained on the sample forms.
4. If the reasons listed on the forms are not the factors
actually used, a creditor will not satisfy the notice requirement
by simply checking the closest identifiable factor listed. For
example, some creditors consider only references from banks or
other depository institutions and disregard finance company
references altogether; their statement of reasons should disclose
“insufficient bank references,” not “insufficient credit
references.” Similarly, a creditor that considers bank references
and other credit references as distinct factors should treat the
two factors separately and disclose them as appropriate. The
creditor should either add such other factors to the form or check
“other” and include the appropriate explanation. The creditor need
not, however, describe how or why a factor adversely affected the
application. For example, the notice may say “length of residence”
rather than “too short a period of residence.”
5. A creditor may design its own notification forms or use all
or a portion of the forms contained in this Appendix. Proper use of
Forms C-1 through C-4 will satisfy the requirement of §
1002.9(a)(2)(i). Proper use of Forms C-5 and C-6 constitutes full
compliance with §§ 1002.9(a)(2)(ii) and 1002.9(c)(2), respectively.
Proper use of Forms C-7 and C-8 will satisfy the requirements of §§
1002.9(a)(2)(i) and (ii), respectively, for applications for
business credit. Proper use of Form C-9 will satisfy the
requirements of § 1002.14 of this part. Proper use of Form C-10
will satisfy the requirements of § 1002.5(b)(1).
Form C-1 - Sample Notice of Action Taken and Statement of Reasons
Statement of Credit Denial, Termination or Change Date: Applicant's
Name: Applicant's Address: Description of Account, Transaction, or
Requested Credit: Description of Action Taken: Part I - Principal
Reason(s) for Credit Denial, Termination, or Other Action Taken
Concerning Credit
This section must be completed in all instances.
__Credit application incomplete __Insufficient number of credit
references provided __Unacceptable type of credit references
provided __Unable to verify credit references __Temporary or
irregular employment __Unable to verify employment __Length of
employment __Income insufficient for amount of credit requested
__Excessive obligations in relation to income __Unable to verify
income __Length of residence __Temporary residence __Unable to
verify residence __No credit file __Limited credit experience
__Poor credit performance with us __Delinquent past or present
credit obligations with others __Collection action or judgment
__Garnishment or attachment __Foreclosure or repossession
__Bankruptcy __Number of recent inquiries on credit bureau report
__Value or type of collateral not sufficient __Other, specify: ___
Part II - Disclosure of Use of Information Obtained From an Outside
Source
This section should be completed if the credit decision was
based in whole or in part on information that has been obtained
from an outside source.
__Our credit decision was based in whole or in part on information
obtained in a report from the consumer reporting agency listed
below. You have a right under the Fair Credit Reporting Act to know
the information contained in your credit file at the consumer
reporting agency. The reporting agency played no part in our
decision and is unable to supply specific reasons why we have
denied credit to you. You also have a right to a free copy of your
report from the reporting agency, if you request it no later than
60 days after you receive this notice. In addition, if you find
that any information contained in the report you receive is
inaccurate or incomplete, you have the right to dispute the matter
with the reporting agency. Name: Address: [Toll-free] Telephone
number:
[We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score
is a number that reflects the information in your consumer report.
Your credit score can change, depending on how the information in
your consumer report changes.
Your credit score: Date:
Scores range from a low of ____ to a high of ____.
Key factors that adversely affected your credit score:
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you
should contact [entity that provided the credit score] at:
Address: [[Toll-free] Telephone number: ____] __Our credit decision
was based in whole or in part on information obtained from an
affiliate or from an outside source other than a consumer reporting
agency. Under the Fair Credit Reporting Act, you have the right to
make a written request, no later than 60 days after you receive
this notice, for disclosure of the nature of this information.
If you have any questions regarding this notice, you should
contact:
Creditor's name: Creditor's address: Creditor's telephone number:
Notice: 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 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 appropriate agency listed in
appendix A).
Form C-2 - Sample Notice of Action Taken and Statement of Reasons
Date
Dear Applicant: Thank you for your recent application. Your
request for [a loan/a credit card/an increase in your credit limit]
was carefully considered, and we regret that we are unable to
approve your application at this time, for the following
reason(s):
Your Income:
__is below our minimum requirement. __is insufficient to sustain
payments on the amount of credit requested. __could not be
verified.
Your Employment:
__is not of sufficient length to qualify. __could not be verified.
Your Credit History:
__of making payments on time was not satisfactory. __could not be
verified.
Your Application:
__lacks a sufficient number of credit references. __lacks
acceptable types of credit references. __reveals that current
obligations are excessive in relation to income. Other:
The consumer reporting agency contacted that provided
information that influenced our decision in whole or in part was
[name, address and [toll-free] telephone number of the reporting
agency]. The reporting agency played no part in our decision and is
unable to supply specific reasons why we have denied credit to you.
You have a right under the Fair Credit Reporting Act to know the
information contained in your credit file at the consumer reporting
agency. You also have a right to a free copy of your report from
the reporting agency, if you request it no later than 60 days after
you receive this notice. In addition, if you find that any
information contained in the report you receive is inaccurate or
incomplete, you have the right to dispute the matter with the
reporting agency. Any questions regarding such information should
be directed to [consumer reporting agency]. If you have any
questions regarding this letter, you should contact us at
[creditor's name, address and telephone number].
[We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score
is a number that reflects the information in your consumer report.
Your credit score can change, depending on how the information in
your consumer report changes.
Your credit score: Date:
Scores range from a low of ____ to a high of ____.
Key factors that adversely affected your credit score:
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you
should contact [entity that provided the credit score] at:
Address: [[Toll-free] Telephone number: ____]
Notice: 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 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 appropriate agency listed in
appendix A).
Form C-3 - Sample Notice of Action Taken and Statement of Reasons
(Credit Scoring) Date
Dear Applicant: Thank you for your recent application for _____.
We regret that we are unable to approve your request.
[Reasons for Denial of Credit]
Your application was processed by a [credit scoring] system that
assigns a numerical value to the various items of information we
consider in evaluating an application. These numerical values are
based upon the results of analyses of repayment histories of large
numbers of customers.
The information you provided in your application did not score a
sufficient number of points for approval of the application. The
reasons you did not score well compared with other applicants
were:
• Insufficient bank references • Type of occupation • Insufficient
credit experience • Number of recent inquiries on credit bureau
report
[Your Right to Get Your Consumer Report]
In evaluating your application the consumer reporting agency
listed below provided us with information that in whole or in part
influenced our decision. The consumer reporting agency played no
part in our decision and is unable to supply specific reasons why
we have denied credit to you. You have a right under the Fair
Credit Reporting Act to know the information contained in your
credit file at the consumer reporting agency. It can be obtained by
contacting: [Name, address, and [toll-free] telephone number of the
consumer reporting agency]. You also have a right to a free copy of
your report from the reporting agency, if you request it no later
than 60 days after you receive this notice. In addition, if you
find that any information contained in the report you receive is
inaccurate or incomplete, you have the right to dispute the matter
with the reporting agency.
[Information about Your Credit Score]
[Information about Your Credit Score]
We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score
is a number that reflects the information in your consumer report.
Your credit score can change, depending on how the information in
your consumer report changes.
Your credit score: Date:
Scores range from a low of ____ to a high of ____.
Key factors that adversely affected your credit score:
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you
should contact [entity that provided the credit score] at:
Address: [Toll-free] Telephone number: ____]
If you have any questions regarding this letter, you should
contact us at
Creditor's Name: Address: Telephone:
Sincerely,
Notice: 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 (with certain limited exceptions); 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 appropriate
agency listed in appendix A).
Form C-4 - Sample Notice of Action Taken, Statement of Reasons and
Counteroffer Date
Dear Applicant: Thank you for your application for _____. We are
unable to offer you credit on the terms that you requested for the
following reason(s):_____
We can, however, offer you credit on the following terms:
_____
If this offer is acceptable to you, please notify us within
[amount of time] at the following address: _____.
Our credit decision on your application was based in whole or in
part on information obtained in a report from [name, address and
[toll-free] telephone number of the consumer reporting agency]. You
have a right under the Fair Credit Reporting Act to know the
information contained in your credit file at the consumer reporting
agency. The reporting agency played no part in our decision and is
unable to supply specific reasons why we have denied credit to you.
You also have a right to a free copy of your report from the
reporting agency, if you request it no later than 60 days after you
receive this notice. In addition, if you find that any information
contained in the report you receive is inaccurate or incomplete,
you have the right to dispute the matter with the reporting
agency.
[We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score
is a number that reflects the information in your consumer report.
Your credit score can change, depending on how the information in
your consumer report changes.
Your credit score: Date:
Scores range from a low of ____ to a high of ____.
Key factors that adversely affected your credit score:
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you
should contact [entity that provided the credit score] at:
Address:
[Toll-free] Telephone number:____]
You should know that the Federal Equal Credit Opportunity Act
prohibits creditors, such as ourselves, from discriminating against
credit applicants on the basis of their race, color, religion,
national origin, sex, marital status, age (provided the applicant
has the capacity to enter into a binding contract), because they
receive income from a public assistance program, or because they
may have exercised their rights under the Consumer Credit
Protection Act. If you believe there has been discrimination in
handling your application you should contact the [name and address
of the appropriate Federal enforcement agency listed in appendix
A].
Sincerely,
Form C-5 - Sample Disclosure of Right To Request Specific Reasons
for Credit Denial Date
Dear Applicant: Thank you for applying to us for _____.
After carefully reviewing your application, we are sorry to
advise you that we cannot [open an account for you/grant a loan to
you/increase your credit limit] at this time. If you would like a
statement of specific reasons why your application was denied,
please contact [our credit service manager] shown below within 60
days of the date of this letter. We will provide you with the
statement of reasons within 30 days after receiving your
request.
Creditor's name Address Telephone number
If we obtained information from a consumer reporting agency as
part of our consideration of your application, its name, address,
and [toll-free] telephone number is shown below. The reporting
agency played no part in our decision and is unable to supply
specific reasons why we have denied credit to you. [You have a
right under the Fair Credit Reporting Act to know the information
contained in your credit file at the consumer reporting agency.]
You have a right to a free copy of your report from the reporting
agency, if you request it no later than 60 days after you receive
this notice. In addition, if you find that any information
contained in the report you received is inaccurate or incomplete,
you have the right to dispute the matter with the reporting agency.
You can find out about the information contained in your file (if
one was used) by contacting:
Consumer reporting agency's name Address [Toll-free] Telephone
number
[We also obtained your credit score from the consumer reporting
agency and used it in making our credit decision. Your credit score
is a number that reflects the information in your consumer report.
Your credit score can change, depending on how the information in
your consumer report changes.
Your credit score: Date:
Scores range from a low of ____ to a high of ____.
Key factors that adversely affected your credit score:
[Number of recent inquiries on consumer report, as a key factor]
[If you have any questions regarding your credit score, you
should contact [entity that provided the credit score] at:
Address: [Toll-free] Telephone number: ____]
Sincerely,
Notice: 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 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 appropriate agency listed in
appendix A).
Form C-6 - Sample Notice of Incomplete Application and Request for
Additional Information Creditor's name Address Telephone number
Date
Dear Applicant: Thank you for your application for credit. The
following information is needed to make a decision on your
application: _____
We need to receive this information by _____ (date). If we do
not receive it by that date, we will regrettably be unable to give
further consideration to your credit request.
Sincerely,
Form C-7 - Sample Notice of Action Taken and Statement of Reasons
(Business Credit) Creditor's name Creditor's address Date
Dear Applicant: Thank you for applying to us for credit. We have
given your request careful consideration, and regret that we are
unable to extend credit to you at this time for the following
reasons:
(Insert appropriate reason, such as: Value or type of collateral
not sufficient; Lack of established earnings record; Slow or past
due in trade or loan payments)
Sincerely,
Notice: 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 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 appropriate agency listed in appendix
A].
Form C-8 - Sample Disclosure of Right To Request Specific Reasons
for Credit Denial Given at Time of Application (Business Credit)
Creditor's name Creditor's address
If your application for business credit is denied, you have the
right to a written statement of the specific reasons for the
denial. To obtain the statement, please contact [name, address and
telephone number of the person or office from which the statement
of reasons can be obtained] within 60 days from the date you are
notified of our decision. We will send you a written statement of
reasons for the denial within 30 days of receiving your request for
the statement.
Notice: 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 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 appropriate agency listed in appendix
A].
Form C-9 - Sample Disclosure of Right To Receive a Copy of
Appraisals
We may order an appraisal to determine the property's value and
charge you for this appraisal. We will promptly give you a copy of
any appraisal, even if your loan does not close.
You can pay for an additional appraisal for your own use at your
own cost.
[In your letter, give us the following information:]
Form C-10 - Sample Disclosure About Voluntary Data Notation
We are requesting the following information to monitor our
compliance with the Federal Equal Credit Opportunity Act, which
prohibits unlawful discrimination. You are not required to provide
this information. We will not take this information (or your
decision not to provide this information) into account in
connection with your application or credit transaction. The law
provides that a creditor may not discriminate based on this
information, or based on whether or not you choose to provide it.
[If you choose not to provide the information, we will note it by
visual observation or surname].
[76 FR 79445, Dec. 21, 2011, as amended at 78 FR 7248, Jan. 31,
2013]
Supplement I to Part 1002 - Official Interpretations
12:8.0.2.1.3.2.1.1.6 :
Supplement I to Part 1002 - Official Interpretations
Following is an official interpretation of Regulation B (12 CFR
part 1002) issued by the Bureau of Consumer Financial Protection.
References are to sections of the regulation or the Equal Credit
Opportunity Act (15 U.S.C. 1601 et seq.).
Introduction
1.Official status. Section 706(e) of the Equal Credit
Opportunity Act protects a creditor from civil liability for any
act done or omitted in good faith in conformity with an
interpretation issued by a duly authorized official of the Bureau.
This commentary is the means by which the Bureau of Consumer
Financial Protection issues official interpretations of Regulation
B. Good-faith compliance with this commentary affords a creditor
protection under section 706(e) of the Act.
2. Issuance of interpretations. Under appendix D to the
regulation, any person may request an official interpretation.
Interpretations will be issued at the discretion of designated
officials and incorporated in this commentary following publication
for comment in the Federal Register. Except in unusual
circumstances, official interpretations will be issued only by
means of this commentary.
3. Comment designations. The comments are designated with
as much specificity as possible according to the particular
regulatory provision addressed. Each comment in the commentary is
identified by a number and the regulatory section or paragraph that
it interprets. For example, comments to § 1002.2(c) are further
divided by subparagraph, such as comment 2(c)(1)(ii)-1 and comment
2(c)(2)(ii-1.
Section 1002.1 - Authority, Scope, and Purpose
1(a) Authority and scope.
1. Scope. The Equal Credit Opportunity Act and Regulation
B apply to all credit - commercial as well as personal - without
regard to the nature or type of the credit or the creditor, except
for an entity excluded from coverage of this part (but not the Act)
by section 1029 of the Consumer Financial Protection Act of 2010
(12 U.S.C. 5519). If a transaction provides for the deferral of the
payment of a debt, it is credit covered by Regulation B even though
it may not be a credit transaction covered by Regulation Z (Truth
in Lending) (12 CFR part 1026). Further, the definition of creditor
is not restricted to the party or person to whom the obligation is
initially payable, as is the case under Regulation Z. Moreover, the
Act and regulation apply to all methods of credit evaluation,
whether performed judgmentally or by use of a credit scoring
system.
2. Foreign applicability. Regulation B generally does not
apply to lending activities that occur outside the United States.
The regulation does apply to lending activities that take place
within the United States (as well as the Commonwealth of Puerto
Rico and any territory or possession of the United States), whether
or not the applicant is a citizen.
3. Bureau. The term Bureau, as used in this part,
means the Bureau of Consumer Financial Protection.
Section 1002.2 - Definitions
2(c) Adverse action.
Paragraph 2(c)(1)(i).
1. Application for credit. If the applicant applied in
accordance with the creditor's procedures, a refusal to refinance
or extend the term of a business or other loan is adverse
action.
Paragraph 2(c)(1)(ii).
1. Move from service area. If a credit card issuer
terminates the open-end account of a customer because the customer
has moved out of the card issuer's service area, the termination is
adverse action unless termination on this ground was explicitly
provided for in the credit agreement between the parties. In cases
where termination is adverse action, notification is required under
§ 1002.9.
2. Termination based on credit limit. If a creditor
terminates credit accounts that have low credit limits (for
example, under $400) but keeps open accounts with higher credit
limits, the termination is adverse action and notification is
required under § 1002.9.
Paragraph 2(c)(2)(ii).
1. Default - exercise of due-on-sale clause. If a
mortgagor sells or transfers mortgaged property without the consent
of the mortgagee, and the mortgagee exercises its contractual right
to accelerate the mortgage loan, the mortgagee may treat the
mortgagor as being in default. An adverse action notice need not be
given to the mortgagor or the transferee. (See comment 2(e)-1 for
treatment of a purchaser who requests to assume the loan.)
2. Current delinquency or default. The term adverse
action does not include a creditor's termination of an account when
the accountholder is currently in default or delinquent on that
account. Notification in accordance with § 1002.9 of the regulation
generally is required, however, if the creditor's action is based
on a past delinquency or default on the account.
Paragraph 2(c)(2)(iii).
1. Point-of-sale transactions. Denial of credit at point
of sale is not adverse action except under those circumstances
specified in the regulation. For example, denial at point of sale
is not adverse action in the following situations:
i. A credit cardholder presents an expired card or a card that
has been reported to the card issuer as lost or stolen.
ii. The amount of a transaction exceeds a cash advance or credit
limit.
iii. The circumstances (such as excessive use of a credit card
in a short period of time) suggest that fraud is involved.
iv. The authorization facilities are not functioning.
v. Billing statements have been returned to the creditor for
lack of a forwarding address.
2. Application for increase in available credit. A
refusal or failure to authorize an account transaction at the point
of sale or loan is not adverse action except when the refusal is a
denial of an application, submitted in accordance with the
creditor's procedures, for an increase in the amount of credit.
Paragraph 2(c)(2)(v).
1. Terms of credit versus type of credit offered. When an
applicant applies for credit and the creditor does not offer the
credit terms requested by the applicant (for example, the interest
rate, length of maturity, collateral, or amount of downpayment), a
denial of the application for that reason is adverse action (unless
the creditor makes a counteroffer that is accepted by the
applicant) and the applicant is entitled to notification under §
1002.9.
2(e) Applicant.
1. Request to assume loan. If a mortgagor sells or
transfers the mortgaged property and the buyer makes an application
to the creditor to assume the mortgage loan, the mortgagee must
treat the buyer as an applicant unless its policy is not to permit
assumptions.
2(f) Application.
1. General. A creditor has the latitude under the
regulation to establish its own application process and to decide
the type and amount of information it will require from credit
applicants.
2. Procedures used. The term “procedures” refers to the
actual practices followed by a creditor for making credit decisions
as well as its stated application procedures. For example, if a
creditor's stated policy is to require all applications to be in
writing on the creditor's application form, but the creditor also
makes credit decisions based on oral requests, the creditor's
procedures are to accept both oral and written applications.
3. When an inquiry or prequalification request becomes an
application. A creditor is encouraged to provide consumers with
information about loan terms. However, if in giving information to
the consumer the creditor also evaluates information about the
consumer, decides to decline the request, and communicates this to
the consumer, the creditor has treated the inquiry or
prequalification request as an application and must then comply
with the notification requirements under § 1002.9. Whether the
inquiry or prequalification request becomes an application depends
on how the creditor responds to the consumer, not on what the
consumer says or asks. (See comment 9-5 for further discussion of
prequalification requests; see comment 2(f)-5 for a discussion of
preapproval requests.)
4. Examples of inquiries that are not applications. The
following examples illustrate situations in which only an inquiry
has taken place:
i. A consumer calls to ask about loan terms and an employee
explains the creditor's basic loan terms, such as interest rates,
loan-to-value ratio, and debt-to-income ratio.
ii. A consumer calls to ask about interest rates for car loans,
and, in order to quote the appropriate rate, the loan officer asks
for the make and sales price of the car and the amount of the
downpayment, then gives the consumer the rate.
iii. A consumer asks about terms for a loan to purchase a home
and tells the loan officer her income and intended downpayment, but
the loan officer only explains the creditor's loan-to-value ratio
policy and other basic lending policies, without telling the
consumer whether she qualifies for the loan.
iv. A consumer calls to ask about terms for a loan to purchase
vacant land and states his income and the sales price of the
property to be financed, and asks whether he qualifies for a loan;
the employee responds by describing the general lending policies,
explaining that he would need to look at all of the consumer's
qualifications before making a decision, and offering to send an
application form to the consumer.
5. Examples of an application. An application for credit
includes the following situations:
i. A person asks a financial institution to “preapprove” her for
a loan (for example, to finance a house or a vehicle she plans to
buy) and the institution reviews the request under a program in
which the institution, after a comprehensive analysis of her
creditworthiness, issues a written commitment valid for a
designated period of time to extend a loan up to a specified
amount. The written commitment may not be subject to conditions
other than conditions that require the identification of adequate
collateral, conditions that require no material change in the
applicant's financial condition or creditworthiness prior to
funding the loan, and limited conditions that are not related to
the financial condition or creditworthiness of the applicant that
the lender ordinarily attaches to a traditional application (such
as certification of a clear termite inspection for a home purchase
loan, or a maximum mileage requirement for a used car loan). But if
the creditor's program does not provide for giving written
commitments, requests for preapprovals are treated as
prequalification requests for purposes of the regulation.
ii. Under the same facts as above, the financial institution
evaluates the person's creditworthiness and determines that she
does not qualify for a preapproval.
6. Completed application - diligence requirement. The
regulation defines a completed application in terms that give a
creditor the latitude to establish its own information
requirements. Nevertheless, the creditor must act with reasonable
diligence to collect information needed to complete the
application. For example, the creditor should request information
from third parties, such as a credit report, promptly after
receiving the application. If additional information is needed from
the applicant, such as an address or a telephone number to verify
employment, the creditor should contact the applicant promptly.
(But see comment 9(a)(1)-3, which discusses the creditor's option
to deny an application on the basis of incompleteness.)2(g)
Business credit.
1. Definition. The test for deciding whether a
transaction qualifies as business credit is one of primary purpose.
For example, an open-end credit account used for both personal and
business purposes is not business credit unless the primary purpose
of the account is business-related. A creditor may rely on an
applicant's statement of the purpose for the credit requested.
2(j) Credit.
1. General. Regulation B covers a wider range of credit
transactions than Regulation Z (Truth in Lending). Under Regulation
B, a transaction is credit if there is a right to defer payment of
a debt - regardless of whether the credit is for personal or
commercial purposes, the number of installments required for
repayment, or whether the transaction is subject to a finance
charge.
2(l) Creditor.
1. Assignees. The term creditor includes all persons
participating in the credit decision. This may include an assignee
or a potential purchaser of the obligation who influences the
credit decision by indicating whether or not it will purchase the
obligation if the transaction is consummated.
2. Referrals to creditors. For certain purposes, the term
creditor includes persons such as real estate brokers, automobile
dealers, home builders, and home-improvement contractors who do not
participate in credit decisions but who only accept applications
and refer applicants to creditors, or select or offer to select
creditors to whom credit requests can be made. These persons must
comply with § 1002.4(a), the general rule prohibiting
discrimination, and with § 1002.4(b), the general rule against
discouraging applications.
2(p) Empirically derived and other credit scoring
systems.
1. Purpose of definition. The definition under §§
1002.2(p)(1)(i) through (iv) sets the criteria that a credit system
must meet in order to use age as a predictive factor. Credit
systems that do not meet these criteria are judgmental systems and
may consider age only for the purpose of determining a “pertinent
element of creditworthiness.” (Both types of systems may favor an
elderly applicant. See § 1002.6(b)(2).)
2. Periodic revalidation. The regulation does not specify
how often credit scoring systems must be revalidated. The credit
scoring system must be revalidated frequently enough to ensure that
it continues to meet recognized professional statistical standards
for statistical soundness. To ensure that predictive ability is
being maintained, the creditor must periodically review the
performance of the system. This could be done, for example, by
analyzing the loan portfolio to determine the delinquency rate for
each score interval, or by analyzing population stability over time
to detect deviations of recent applications from the applicant
population used to validate the system. If this analysis indicates
that the system no longer predicts risk with statistical soundness,
the system must be adjusted as necessary to reestablish its
predictive ability. A creditor is responsible for ensuring its
system is validated and revalidated based on the creditor's own
data.
3. Pooled data scoring systems. A scoring system or the
data from which to develop such a system may be obtained from
either a single credit grantor or multiple credit grantors. The
resulting system will qualify as an empirically derived,
demonstrably and statistically sound, credit scoring system
provided the criteria set forth in paragraph (p)(1)(i) through (iv)
of this section are met. A creditor is responsible for ensuring its
system is validated and revalidated based on the creditor's own
data when it becomes available.
4. Effects test and disparate treatment. An empirically
derived, demonstrably and statistically sound, credit scoring
system may include age as a predictive factor (provided that the
age of an elderly applicant is not assigned a negative factor or
value). Besides age, no other prohibited basis may be used as a
variable. Generally, credit scoring systems treat all applicants
objectively and thus avoid problems of disparate treatment. In
cases where a credit scoring system is used in conjunction with
individual discretion, disparate treatment could conceivably occur
in the evaluation process. In addition, neutral factors used in
credit scoring systems could nonetheless be subject to challenge
under the effects test. (See comment 6(a)-2 for a discussion of the
effects test).
2(w) Open-end credit.
1. Open-end real estate mortgages. The term “open-end
credit” does not include negotiated advances under an open-end real
estate mortgage or a letter of credit.
2(z) Prohibited basis.
1. Persons associated with applicant. As used in this
part, prohibited basis refers not only to characteristics - the
race, color, religion, national origin, sex, marital status, or age
- of an applicant (or officers of an applicant in the case of a
corporation) but also to the characteristics of individuals with
whom an applicant is affiliated or with whom the applicant
associates. This means, for example, that under the general rule
stated in § 1002.4(a), a creditor may not discriminate against an
applicant because of that person's personal or business dealings
with members of a certain religion, because of the national origin
of any persons associated with the extension of credit (such as the
tenants in the apartment complex being financed), or because of the
race of other residents in the neighborhood where the property
offered as collateral is located.
2. National origin. A creditor may not refuse to grant
credit because an applicant comes from a particular country but may
take the applicant's immigration status into account. A creditor
may also take into account any applicable law, regulation, or
executive order restricting dealings with citizens (or the
government) of a particular country or imposing limitations
regarding credit extended for their use.
3. Public assistance program. Any Federal, state, or
local governmental assistance program that provides a continuing,
periodic income supplement, whether premised on entitlement or
need, is “public assistance” for purposes of the regulation. The
term includes (but is not limited to) Temporary Aid to Needy
Families, food stamps, rent and mortgage supplement or assistance
programs, social security and supplemental security income, and
unemployment compensation. Only physicians, hospitals, and others
to whom the benefits are payable need consider Medicare and
Medicaid as public assistance.
Section 1002.3 - Limited Exceptions for Certain Classes of
Transactions
1. Scope. Under this section, procedural requirements of
the regulation do not apply to certain types of credit. All classes
of transactions remain subject to § 1002.4(a), the general rule
barring discrimination on a prohibited basis, and to any other
provision not specifically excepted.
3(a) Public-utilities credit.
1. Definition. This definition applies only to credit for
the purchase of a utility service, such as electricity, gas, or
telephone service. Credit provided or offered by a public utility
for some other purpose - such as for financing the purchase of a
gas dryer, telephone equipment, or other durable goods, or for
insulation or other home improvements - is not excepted.
2. Security deposits. A utility company is a creditor
when it supplies utility service and bills the user after the
service has been provided. Thus, any credit term (such as a
requirement for a security deposit) is subject to the regulation's
bar against discrimination on a prohibited basis.
3. Telephone companies. A telephone company's credit
transactions qualify for the exceptions provided in § 1002.3(a)(2)
only if the company is regulated by a government unit or files the
charges for service, delayed payment, or any discount for prompt
payment with a government unit.
3(c) Incidental credit.
1. Examples. If a service provider (such as a hospital,
doctor, lawyer, or merchant) allows the client or customer to defer
the payment of a bill, this deferral of debt is credit for purposes
of the regulation, even though there is no finance charge and no
agreement for payment in installments. Because of the exceptions
provided by this section, however, these particular credit
extensions are excepted from compliance with certain procedural
requirements as specified in § 1002.3(c).
3(d) Government credit.
1. Credit to governments. The exception relates to credit
extended to (not by) governmental entities. For example, credit
extended to a local government is covered by this exception, but
credit extended to consumers by a Federal or state housing agency
does not qualify for special treatment under this category.
Section 1002.4 - General Rules
Paragraph 4(a).
1. Scope of rule. The general rule stated in § 1002.4(a)
covers all dealings, without exception, between an applicant and a
creditor, whether or not addressed by other provisions of the
regulation. Other provisions of the regulation identify specific
practices that the Bureau has decided are impermissible because
they could result in credit discrimination on a basis prohibited by
the Act. The general rule covers, for example, application
procedures, criteria used to evaluate creditworthiness,
administration of accounts, and treatment of delinquent or slow
accounts. Thus, whether or not specifically prohibited elsewhere in
the regulation, a credit practice that treats applicants
differently on a prohibited basis violates the law because it
violates the general rule. Disparate treatment on a prohibited
basis is illegal whether or not it results from a conscious intent
to discriminate.
2. Examples.
i. Disparate treatment would exist, for example, in the
following situations:
A. A creditor provides information only on “subprime” and
similar products to minority applicants who request information
about the creditor's mortgage products, but provides information on
a wider variety of mortgage products to similarly situated
nonminority applicants.
B. A creditor provides more comprehensive information to men
than to similarly situated women.
C. A creditor requires a minority applicant to provide greater
documentation to obtain a loan than a similarly situated
nonminority applicant.
D. A creditor waives or relaxes credit standards for a
nonminority applicant but not for a similarly situated minority
applicant.
ii. Treating applicants differently on a prohibited basis is
unlawful if the creditor lacks a legitimate nondiscriminatory
reason for its action, or if the asserted reason is found to be a
pretext for discrimination.
Paragraph 4(b).
1. Prospective applicants. Generally, the regulation's
protections apply only to persons who have requested or received an
extension of credit. In keeping with the purpose of the Act - to
promote the availability of credit on a nondiscriminatory basis - §
1002.4(b) covers acts or practices directed at prospective
applicants that could discourage a reasonable person, on a
prohibited basis, from applying for credit. Practices prohibited by
this section include:
i. A statement that the applicant should not bother to apply,
after the applicant states that he is retired.
ii. The use of words, symbols, models or other forms of
communication in advertising that express, imply, or suggest a
discriminatory preference or a policy of exclusion in violation of
the Act.
iii. The use of interview scripts that discourage applications
on a prohibited basis.
2. Affirmative advertising. A creditor may affirmatively
solicit or encourage members of traditionally disadvantaged groups
to apply for credit, especially groups that might not normally seek
credit from that creditor.
Paragraph 4(c).
1. Requirement for written applications. Model
application forms are provided in appendix B to the regulation,
although use of a printed form is not required. A creditor will
satisfy the requirement by writing down the information that it
normally considers in making a credit decision. The creditor may
complete an application on behalf of an applicant and need not
require the applicant to sign the application.
2. Telephone applications. A creditor that accepts
applications by telephone for dwelling-related credit covered by §
1002.13 can meet the requirement for written applications by
writing down pertinent information that is provided by the
applicant.
3. Computerized entry. Information entered directly into
and retained by a computerized system qualifies as a written
application under this paragraph. (See the commentary to §
1002.13(b), Applications through electronic media and
Applications through video.)
Paragraph 4(d).
1. Clear and conspicuous. This standard requires that
disclosures be presented in a reasonably understandable format in a
way that does not obscure the required information. No minimum type
size is mandated, but the disclosures must be legible, whether
typewritten, handwritten, or printed by computer.
2. Form of disclosures. Whether the disclosures required
to be on or with an application must be in electronic form depends
upon the following:
i. If an applicant accesses a credit application electronically
(other than as described under ii below), such as online at a home
computer, the creditor must provide the disclosures in electronic
form (such as with the application form on its Web site) in order
to meet the requirement to provide disclosures in a timely manner
on or with the application. If the creditor instead mailed paper
disclosures to the applicant, this requirement would not be
met.
ii. In contrast, if an applicant is physically present in the
creditor's office, and accesses a credit application
electronically, such as via a terminal or kiosk (or if the
applicant uses a terminal or kiosk located on the premises of an
affiliate or third party that has arranged with the creditor to
provide applications to consumers), the creditor may provide
disclosures in either electronic or paper form, provided the
creditor complies with the timing, delivery, and retainability
requirements of the regulation.
Section 1002.5 - Rules Concerning Requests for Information
5(a) General rules.
Paragraph 5(a)(1).
1. Requests for information. This section governs the
types of information that a creditor may gather. Section1002.6
governs how information may be used.
Paragraph 5(a)(2).
1. Local laws. Information that a creditor is allowed to
collect pursuant to a “state” statute or regulation includes
information required by a local statute, regulation, or
ordinance.
2. Information required by Regulation C. Regulation C, 12
CFR part 1003, generally requires creditors covered by the Home
Mortgage Disclosure Act (HMDA) to collect and report information
about the race, ethnicity, and sex of applicants for certain
dwelling-secured loans, including some types of loans not covered
by § 1002.13.
3. Collecting information on behalf of creditors. Persons
such as loan brokers and correspondents do not violate the ECOA or
Regulation B if they collect information that they are otherwise
prohibited from collecting, where the purpose of collecting the
information is to provide it to a creditor that is subject to the
Home Mortgage Disclosure Act or another Federal or state statute or
regulation requiring data collection.
Paragraph 5(a)(4).
1. Other permissible collection of information.
Information regarding ethnicity, race, and sex that is not required
to be collected pursuant to Regulation C, 12 CFR part 1003, may
nevertheless be collected under the circumstances set forth in §
1002.5(a)(4) without violating § 1002.5(b). The information must be
retained pursuant to the requirements of § 1002.12.
5(d) Other limitations on information requests.
Paragraph 5(d)(1).
1. Indirect disclosure of prohibited information. The
fact that certain credit-related information may indirectly
disclose marital status does not bar a creditor from seeking such
information. For example, the creditor may ask about:
i. The applicant's obligation to pay alimony, child support, or
separate maintenance income.
ii. The source of income to be used as the basis for repaying
the credit requested, which could disclose that it is the income of
a spouse.
iii. Whether any obligation disclosed by the applicant has a
co-obligor, which could disclose that the co-obligor is a spouse or
former spouse.
iv. The ownership of assets, which could disclose the interest
of a spouse.
Paragraph 5(d)(2).
1. Disclosure about income. The sample application forms
in appendix B to the regulation illustrate how a creditor may
inform an applicant of the right not to disclose alimony, child
support, or separate maintenance income.
2. General inquiry about source of income. Since a
general inquiry about the source of income may lead an applicant to
disclose alimony, child support, or separate maintenance income, a
creditor making such an inquiry on an application form should
preface the request with the disclosure required by this
paragraph.
3. Specific inquiry about sources of income. A creditor
need not give the disclosure if the inquiry about income is
specific and worded in a way that is unlikely to lead the applicant
to disclose the fact that income is derived from alimony, child
support, or separate maintenance payments. For example, an
application form that asks about specific types of income such as
salary, wages, or investment income need not include the
disclosure.
Section 1002.6 - Rules Concerning Evaluation of Applications
6(a) General rule concerning use of information.
1. General. When evaluating an application for credit, a
creditor generally may consider any information obtained. However,
a creditor may not consider in its evaluation of creditworthiness
any information that it is barred by § 1002.5 from obtaining or
from using for any purpose other than to conduct a self-test under
§ 1002.15.
2. Effects test. The effects test is a judicial doctrine
that was developed in a series of employment cases decided by the
U.S. Supreme Court under title VII of the Civil Rights Act of 1964
(42 U.S.C. 2000e et seq.,) and the burdens of proof for such
employment cases were codified by Congress in the Civil Rights Act
of 1991 (42 U.S.C. 2000e-2). Congressional intent that this
doctrine apply to the credit area is documented in the Senate
Report that accompanied H.R. 6516, No. 94-589, pp. 4-5; and in the
House Report that accompanied H.R. 6516, No. 94-210, p.5. The Act
and regulation may prohibit a creditor practice that is
discriminatory in effect because it has a disproportionately
negative impact on a prohibited basis, even though the creditor has
no intent to discriminate and the practice appears neutral on its
face, unless the creditor practice meets a legitimate business need
that cannot reasonably be achieved as well by means that are less
disparate in their impact. For example, requiring that applicants
have income in excess of a certain amount to qualify for an
overdraft line of credit could mean that women and minority
applicants will be rejected at a higher rate than men and
nonminority applicants. If there is a demonstrable relationship
between the income requirement and creditworthiness for the level
of credit involved, however, use of the income standard would
likely be permissible.
6(b) Specific rules concerning use of information.
Paragraph 6(b)(1).
1. Prohibited basis - special purpose credit. In a
special purpose credit program, a creditor may consider a
prohibited basis to determine whether the applicant possesses a
characteristic needed for eligibility. (See § 1002.8.)
Paragraph 6(b)(2).
1. Favoring the elderly. Any system of evaluating
creditworthiness may favor a credit applicant who is age 62 or
older. A credit program that offers more favorable credit terms to
applicants age 62 or older is also permissible; a program that
offers more favorable credit terms to applicants at an age lower
than 62 is permissible only if it meets the special-purpose credit
requirements of § 1002.8.
2. Consideration of age in a credit scoring system. Age
may be taken directly into account in a credit scoring system that
is “demonstrably and statistically sound,” as defined in §
1002.2(p), with one limitation: Applicants age 62 years or older
must be treated at least as favorably as applicants who are under
age 62. If age is scored by assigning points to an applicant's age
category, elderly applicants must receive the same or a greater
number of points as the most favored class of nonelderly
applicants.
i. Age-split scorecards. Some credit systems segment the
population and use different scorecards based on the age of an
applicant. In such a system, one card may cover a narrow age range
(for example, applicants in their twenties or younger) who are
evaluated under attributes predictive for that age group. A second
card may cover all other applicants, who are evaluated under the
attributes predictive for that broader class. When a system uses a
card covering a wide age range that encompasses elderly applicants,
the credit scoring system is not deemed to score age. Thus, the
system does not raise the issue of assigning a negative factor or
value to the age of elderly applicants. But if a system segments
the population by age into multiple scorecards, and includes
elderly applicants in a narrower age range, the credit scoring
system does score age. To comply with the Act and regulation in
such a case, the creditor must ensure that the system does not
assign a negative factor or value to the age of elderly applicants
as a class.
3. Consideration of age in a judgmental system. In a
judgmental system, defined in § 1002.2(t), a creditor may not
decide whether to extend credit or set the terms and conditions of
credit based on age or information related exclusively to age. Age
or age-related information may be considered only in evaluating
other “pertinent elements of creditworthiness” that are drawn from
the particular facts and circumstances concerning the applicant.
For example, a creditor may not reject an application or terminate
an account because the applicant is 60 years old. But a creditor
that uses a judgmental system may relate the applicant's age to
other information about the applicant that the creditor considers
in evaluating creditworthiness. As the following examples
illustrate, the evaluation must be made in an individualized,
case-by-case manner:
i. A creditor may consider the applicant's occupation and length
of time to retirement to ascertain whether the applicant's income
(including retirement income) will support the extension of credit
to its maturity.
ii. A creditor may consider the adequacy of any security offered
when the term of the credit extension exceeds the life expectancy
of the applicant and the cost of realizing on the collateral could
exceed the applicant's equity. An elderly applicant might not
qualify for a 5 percent down, 30-year mortgage loan but might
qualify with a larger downpayment or a shorter loan maturity.
iii. A creditor may consider the applicant's age to assess the
significance of length of employment (a young applicant may have
just entered the job market) or length of time at an address (an
elderly applicant may recently have retired and moved from a
long-term residence).
4. Consideration of age in a reverse mortgage. A reverse
mortgage is a home-secured loan in which the borrower receives
payments from the creditor, and does not become obligated to repay
these amounts (other than in the case of default) until the
borrower dies, moves permanently from the home, or transfers title
to the home, or upon a specified maturity date. Disbursements to
the borrower under a reverse mortgage typically are determined by
considering the value of the borrower's home, the current interest
rate, and the borrower's life expectancy. A reverse mortgage
program that requires borrowers to be age 62 or older is
permissible under § 1002.6(b)(2)(iv). In addition, under §
1002.6(b)(2)(iii), a creditor may consider a borrower's age to
evaluate a pertinent element of creditworthiness, such as the
amount of the credit or monthly payments that the borrower will
receive, or the estimated repayment date.
5. Consideration of age in a combined system. A creditor
using a credit scoring system that qualifies as “empirically
derived” under § 1002.2(p) may consider other factors (such as a
credit report or the applicant's cash flow) on a judgmental basis.
Doing so will not negate the classification of the credit scoring
component of the combined system as “demonstrably and statistically
sound.” While age could be used in the credit scoring portion,
however, in the judgmental portion age may not be considered
directly. It may be used only for the purpose of determining a
“pertinent element of creditworthiness.” (See comment
6(b)(2)-3.)
6. Consideration of public assistance. When considering
income derived from a public assistance program, a creditor may
take into account, for example:
i. The length of time an applicant will likely remain eligible
to receive such income.
ii. Whether the applicant will continue to qualify for benefits
based on the status of the applicant's dependents (as in the case
of Temporary Aid to Needy Families, or social security payments to
a minor).
iii. Whether the creditor can attach or garnish the income to
assure payment of the debt in the event of default.
Paragraph 6(b)(5).
1. Consideration of an individual applicant. A creditor
must evaluate income derived from part-time employment, alimony,
child support, separate maintenance payments, retirement benefits,
or public assistance on an individual basis, not on the basis of
aggregate statistics; and must assess its reliability or
unreliability by analyzing the applicant's actual circumstances,
not by analyzing statistical measures derived from a group.
2. Payments consistently made. In determining the
likelihood of consistent payments of alimony, child support, or
separate maintenance, a creditor may consider factors such as
whether payments are received pursuant to a written agreement or
court decree; the length of time that the payments have been
received; whether the payments are regularly received by the
applicant; the availability of court or other procedures to compel
payment; and the creditworthiness of the payor, including the
credit history of the payor when it is available to the
creditor.
3. Consideration of income.
i. A creditor need not consider income at all in evaluating
creditworthiness. If a creditor does consider income, there are
several acceptable methods, whether in a credit scoring or a
judgmental system:
A. A creditor may score or take into account the total sum of
all income stated by the applicant without taking steps to evaluate
the income for reliability.
B. A creditor may evaluate each component of the applicant's
income, and then score or take into account income determined to be
reliable separately from other income; or the creditor may
disregard that portion of income that is not reliable when it
aggregates reliable income.
C. A creditor that does not evaluate all income components for
reliability must treat as reliable any component of protected
income that is not evaluated.
ii. In considering the separate components of an applicant's
income, the creditor may not automatically discount or exclude from
consideration any protected income. Any discounting or exclusion
must be based on the applicant's actual circumstances.
4. Part-time employment, sources of income. A creditor
may score or take into account the fact that an applicant has more
than one source of earned income - a full-time and a part-time job
or two part-time jobs. A creditor may also score or treat earned
income from a secondary source differently than earned income from
a primary source. The creditor may not, however, score or otherwise
take into account the number of sources for income such as
retirement income, social security, supplemental security income,
and alimony. Nor may the creditor treat negatively the fact that an
applicant's only earned income is derived from, for example, a
part-time job.
Paragraph 6(b)(6).
1. Types of credit references. A creditor may restrict
the types of credit history and credit references that it will
consider, provided that the restrictions are applied to all credit
applicants without regard to sex, marital status, or any other
prohibited basis. On the applicant's request, however, a creditor
must consider credit information not reported through a credit
bureau when the information relates to the same types of credit
references and history that the creditor would consider if reported
through a credit bureau.
Paragraph 6(b)(7).
1. National origin - immigration status. The applicant's
immigration status and ties to the community (such as employment
and continued residence in the area) could have a bearing on a
creditor's ability to obtain repayment. Accordingly, the creditor
may consider immigration status and differentiate, for example,
between a noncitizen who is a long-time resident with permanent
resident status and a noncitizen who is temporarily in this country
on a student visa.
2. National origin - citizenship. A denial of credit on
the ground that an applicant is not a United States citizen is not
per se discrimination based on national origin.
Paragraph 6(b)(8).
1. Prohibited basis - marital status. A creditor may
consider the marital status of an applicant or joint applicant for
the purpose of ascertaining the creditor's rights and remedies
applicable to the particular extension of credit. For example, in a
secured transaction involving real property, a creditor could take
into account whether state law gives the applicant's spouse an
interest in the property being offered as collateral.
Section 1002.7 - Rules Concerning Extensions of Credit
7(a) Individual accounts.
1. Open-end credit - authorized user. A creditor may not
require a creditworthy applicant seeking an individual credit
account to provide additional signatures. But the creditor may
condition the designation of an authorized user by the account
holder on the authorized user's becoming contractually liable for
the account, as long as the creditor does not differentiate on any
prohibited basis in imposing this requirement.
2. Open-end credit - choice of authorized user. A
creditor that permits an account holder to designate an authorized
user may not restrict this designation on a prohibited basis. For
example, if the creditor allows the designation of spouses as
authorized users, the creditor may not refuse to accept a
non-spouse as an authorized user.
3. Overdraft authority on transaction accounts. If a
transaction account (such as a checking account or NOW account)
includes an overdraft line of credit, the creditor may require that
all persons authorized to draw on the transaction account assume
liability for any overdraft.
7(b) Designation of name.
1. Single name on account. A creditor may require that
joint applicants on an account designate a single name for purposes
of administering the account and that a single name be embossed on
any credit cards issued on the account. But the creditor may not
require that the name be the husband's name. (See § 1002.10 for
rules governing the furnishing of credit history on accounts held
by spouses.)
7(c) Action concerning existing open-end accounts.
Paragraph 7(c)(1).
1. Termination coincidental with marital status change.
When an account holder's marital status changes, a creditor
generally may not terminate the account unless it has evidence that
the account holder is now unable or unwilling to repay. But the
creditor may terminate an account on which both spouses are jointly
liable, even if the action coincides with a change in marital
status, when one or both spouses:
i. Repudiate responsibility for future charges on the joint
account.
ii. Request separate accounts in their own names.
iii. Request that the joint account be closed.
2. Updating information. A creditor may periodically
request updated information from applicants but may not use events
related to a prohibited basis - such as an applicant's retirement
or reaching a particular age, or a change in name or marital status
- to trigger such a request.
Paragraph 7(c)(2).
1. Procedure pending reapplication. A creditor may
require a reapplication from an account holder, even when there is
no evidence of unwillingness or inability to repay, if (1) the
credit was based on the qualifications of a person who is no longer
available to support the credit and (2) the creditor has
information indicating that the account holder's income may be
insufficient to support the credit. While a reapplication is
pending, the creditor must allow the account holder full access to
the account under the existing contract terms. The creditor may
specify a reasonable time period within which the account holder
must submit the required information.
7(d) Signature of spouse or other person.
1. Qualified applicant. The signature rules ensure that
qualified applicants are able to obtain credit in their own names.
Thus, when an applicant requests individual credit, a creditor
generally may not require the signature of another person unless
the creditor has first determined that the applicant alone does not
qualify for the credit requested.
2. Unqualified applicant. When an applicant requests
individual credit but does not meet a creditor's standards, the
creditor may require a cosigner, guarantor, endorser, or similar
party - but cannot require that it be the spouse. (See commentary
to §§ 1002.7(d)(5) and (6).)
Paragraph 7(d)(1).
1. Signature of another person. It is impermissible for a
creditor to require an applicant who is individually creditworthy
to provide a cosigner - even if the creditor applies the
requirement without regard to sex, marital status, or any other
prohibited basis. (But see comment 7(d)(6)-1 concerning guarantors
of closely held corporations.)
2. Joint applicant. The term “joint applicant” refers to
someone who applies contemporaneously with the applicant for shared
or joint credit. It does not refer to someone whose signature is
required by the creditor as a condition for granting the credit
requested.
3. Evidence of joint application. A person's intent to be
a joint applicant must be evidenced at the time of application.
Signatures on a promissory note may not be used to show intent to
apply for joint credit. On the other hand, signatures or initials
on a credit application affirming applicants' intent to apply for
joint credit may be used to establish intent to apply for joint
credit. (See appendix B.) The method used to establish intent must
be distinct from the means used by individuals to affirm the
accuracy of information. For example, signatures on a joint
financial statement affirming the veracity of information are not
sufficient to establish intent to apply for joint credit.
Paragraph 7(d)(2).
1. Jointly owned property. If an applicant requests
unsecured credit, does not own sufficient separate property, and
relies on joint property to establish creditworthiness, the
creditor must value the applicant's interest in the jointly owned
property. A creditor may not request that a nonapplicant joint
owner sign any instrument as a condition of the credit extension
unless the applicant's interest does not support the amount and
terms of the credit sought.
i. Valuation of applicant's interest. In determining the
value of an applicant's interest in jointly owned property, a
creditor may consider factors such as the form of ownership and the
property's susceptibility to attachment, execution, severance, or
partition; the value of the applicant's interest after such action;
and the cost associated with the action. This determination must be
based on the existing form of ownership, and not on the possibility
of a subsequent change. For example, in determining whether a
married applicant's interest in jointly owned property is
sufficient to satisfy the creditor's standards of creditworthiness
for individual credit, a creditor may not consider that the
applicant's separate property could be transferred into tenancy by
the entirety after consummation. Similarly, a creditor may not
consider the possibility that the couple may divorce. Accordingly,
a creditor may not require the signature of the non-applicant
spouse in these or similar circumstances.
ii. Other options to support credit. If the applicant's
interest in jointly owned property does not support the amount and
terms of credit sought, the creditor may offer the applicant other
options to qualify for the extension of credit. For example:
A. Providing a co-signer or other party (§ 1002.7(d)(5));
B. Requesting that the credit be granted on a secured basis (§
1002.7(d)(4)); or
C. Providing the signature of the joint owner on an instrument
that ensures access to the property in the event of the applicant's
death or default, but does not impose personal liability unless
necessary under state law (such as a limited guarantee). A creditor
may not routinely require, however, that a joint owner sign an
instrument (such as a quitclaim deed) that would result in the
forfeiture of the joint owner's interest in the property.
2. Need for signature - reasonable belief. A creditor's
reasonable belief as to what instruments need to be signed by a
person other than the applicant should be supported by a thorough
review of pertinent statutory and decisional law or an opinion of
the state attorney general.
Paragraph 7(d)(3).
1. Residency. In assessing the creditworthiness of a
person who applies for credit in a community property state, a
creditor may assume that the applicant is a resident of the state
unless the applicant indicates otherwise.
Paragraph 7(d)(4).
1. Creation of enforceable lien. Some state laws require
that both spouses join in executing any instrument by which real
property is encumbered. If an applicant offers such property as
security for credit, a creditor may require the applicant's spouse
to sign the instruments necessary to create a valid security
interest in the property. The creditor may not require the spouse
to sign the note evidencing the credit obligation if signing only
the mortgage or other security agreement is sufficient to make the
property available to satisfy the debt in the event of default.
However, if under state law both spouses must sign the note to
create an enforceable lien, the creditor may require the
signatures.
2. Need for signature - reasonable belief. Generally, a
signature to make the secured property available will only be
needed on a security agreement. A creditor's reasonable belief
that, to ensure access to the property, the spouse's signature is
needed on an instrument that imposes personal liability should be
supported by a thorough review of pertinent statutory and
decisional law or an opinion of the state attorney general.
3. Integrated instruments. When a creditor uses an
integrated instrument that combines the note and the security
agreement, the spouse cannot be asked to sign the integrated
instrument if the signature is only needed to grant a security
interest. But the spouse could be asked to sign an integrated
instrument that makes clear - for example, by a legend placed next
to the spouse's signature - that the spouse's signature is only to
grant a security interest and that signing the instrument does not
impose personal liability.
Paragraph 7(d)(5).
1. Qualifications of additional parties. In establishing
guidelines for eligibility of guarantors, cosigners, or similar
additional parties, a creditor may restrict the applicant's choice
of additional parties but may not discriminate on the basis of sex,
marital status, or any other prohibited basis. For example, the
creditor could require that the additional party live in the
creditor's market area.
2. Reliance on income of another person - individual
credit. An applicant who requests individual credit relying on
the income of another person (including a spouse in a non-community
property state) may be required to provide the signature of the
other person to make the income available to pay the debt. In
community property states, the signature of a spouse may be
required if the applicant relies on the spouse's separate income.
If the applicant relies on the spouse's future earnings that as a
matter of state law cannot be characterized as community property
until earned, the creditor may require the spouse's signature, but
need not do so - even if it is the creditor's practice to require
the signature when an applicant relies on the future earnings of a
person other than a spouse. (See § 1002.6(c) on consideration of
state property laws.)
3. Renewals. If the borrower's creditworthiness is
reevaluated when a credit obligation is renewed, the creditor must
determine whether an additional party is still warranted and, if
not warranted, release the additional party.
Paragraph 7(d)(6).
1. Guarantees. A guarantee on an extension of credit is
part of a credit transaction and therefore subject to the
regulation. A creditor may require the personal guarantee of the
partners, directors, or officers of a business, and the
shareholders of a closely held corporation, even if the business or
corporation is creditworthy. The requirement must be based on the
guarantor's relationship with the business or corporation, however,
and not on a prohibited basis. For example, a creditor may not
require guarantees only for women-owned or minority-owned
businesses. Similarly, a creditor may not require guarantees only
of the married officers of a business or the married shareholders
of a closely held corporation.
2. Spousal guarantees. The rules in § 1002.7(d) bar a
creditor from requiring the signature of a guarantor's spouse just
as they bar the creditor from requiring the signature of an
applicant's spouse. For example, although a creditor may require
all officers of a closely held corporation to personally guarantee
a corporate loan, the creditor may not automatically require that
spouses of married officers also sign the guarantee. If an
evaluation of the financial circumstances of an officer indicates
that an additional signature is necessary, however, the creditor
may require the signature of another person in appropriate
circumstances in accordance with § 1002.7(d)(2).
7(e) Insurance.
1. Differences in terms. Differences in the availability,
rates, and other terms on which credit-related casualty insurance
or credit life, health, accident, or disability insurance is
offered or provided to an applicant does not violate Regulation
B.
2. Insurance information. A creditor may obtain
information about an applicant's age, sex, or marital status for
insurance purposes. The information may only be used for
determining eligibility and premium rates for insurance, however,
and not in making the credit decision.
Section 1002.8 - Special Purpose Credit Programs
8(a) Standards for programs.
1. Determining qualified programs. The Bureau does not
determine whether individual programs qualify for special purpose
credit status, or whether a particular program benefits an
“economically disadvantaged class of persons.” The agency or
creditor administering or offering the loan program must make these
decisions regarding the status of its program.
2. Compliance with a program authorized by Federal or state
law. A creditor does not violate Regulation B when it complies
in good faith with a regulation promulgated by a government agency
implementing a special purpose credit program under § 1002.8(a)(1).
It is the agency's responsibility to promulgate a regulation that
is consistent with Federal and state law.
3. Expressly authorized. Credit programs authorized by
Federal or state law include programs offered pursuant to Federal,
state, or local statute, regulation or ordinance, or pursuant to
judicial or administrative order.
4. Creditor liability. A refusal to grant credit to an
applicant is not a violation of the Act or regulation if the
applicant does not meet the eligibility requirements under a
special purpose credit program.
5. Determining need. In designing a special purpose
credit program under § 1002.8(a), a for-profit organization must
determine that the program will benefit a class of people who would
otherwise be denied credit or would receive it on less favorable
terms. This determination can be based on a broad analysis using
the organization's own research or data from outside sources,
including governmental reports and studies. For example, a creditor
might design new products to reach consumers who would not meet, or
have not met, its traditional standards of creditworthiness due to
such factors as credit inexperience or the use of credit sources
that may not report to consumer reporting agencies. Or, a bank
could review Home Mortgage Disclosure Act data along with
demographic data for its assessment area and conclude that there is
a need for a special purpose credit program for low-income minority
borrowers.
6. Elements of the program. The written plan must contain
information that supports the need for the particular program. The
plan also must either state a specific period of time for which the
program will last, or contain a statement regarding when the
program will be reevaluated to determine if there is a continuing
need for it.
8(b) Rules in other sections.
1. Applicability of rules. A creditor that rejects an
application because the applicant does not meet the eligibility
requirements (common characteristic or financial need, for example)
must nevertheless notify the applicant of action taken as required
by § 1002.9.
8(c) Special rule concerning requests and use of
information.
1. Request of prohibited basis information. This section
permits a creditor to request and consider certain information that
would otherwise be prohibited by §§ 1002.5 and 1002.6 to determine
an applicant's eligibility for a particular program.
2. Examples. Examples of programs under which the
creditor can ask for and consider information about a prohibited
basis are:
i. Energy conservation programs to assist the elderly, for which
the creditor must consider the applicant's age.
ii. Programs under a Minority Enterprise Small Business
Investment Corporation, for which a creditor must consider the
applicant's minority status.
8(d) Special rule in the case of financial need.
1. Request of prohibited basis information. This section
permits a creditor to request and consider certain information that
would otherwise be prohibited by §§ 1002.5 and 1002.6, and to
require signatures that would otherwise be prohibited by §
1002.7(d).
2. Examples. Examples of programs in which financial need
is a criterion are:
i. Subsidized housing programs for low-to moderate-income
households, for which a creditor may have to consider the
applicant's receipt of alimony or child support, the spouse's or
parents' income, etc.
ii. Student loan programs based on the family's financial need,
for which a creditor may have to consider the spouse's or parents'
financial resources.
3. Student loans. In a guaranteed student loan program, a
creditor may obtain the signature of a parent as a guarantor when
required by Federal or state law or agency regulation, or when the
student does not meet the creditor's standards of creditworthiness.
(See §§ 1002.7(d)(1) and (5).) The creditor may not require an
additional signature when a student has a work or credit history
that satisfies the creditor's standards.
Section 1002.9 - Notifications
1. Use of the term adverse action. The regulation does
not require that a creditor use the term adverse action in
communicating to an applicant that a request for an extension of
credit has not been approved. In notifying an applicant of adverse
action as defined by § 1002.2(c)(1), a creditor may use any words
or phrases that describe the action taken on the application.
2. Expressly withdrawn applications. When an applicant
expressly withdraws a credit application, the creditor is not
required to comply with the notification requirements under §
1002.9. (The creditor must comply, however, with the record
retention requirements of the regulation. See § 1002.12(b)(3).)
3. When notification occurs. Notification occurs when a
creditor delivers or mails a notice to the applicant's last known
address or, in the case of an oral notification, when the creditor
communicates the credit decision to the applicant.
4. Location of notice. The notifications required under §
1002.9 may appear on either or both sides of a form or letter.
5. Prequalification requests. Whether a creditor must
provide a notice of action taken for a prequalification request
depends on the creditor's response to the request, as discussed in
comment 2(f)-3. For instance, a creditor may treat the request as
an inquiry if the creditor evaluates specific information about the
consumer and tells the consumer the loan amount, rate, and other
terms of credit the consumer could qualify for under various loan
programs, explaining the process the consumer must follow to submit
a mortgage application and the information the creditor will
analyze in reaching a credit decision. On the other hand, a
creditor has treated a request as an application, and is subject to
the adverse action notice requirements of § 1002.9 if, after
evaluating information, the creditor decides that it will not
approve the request and communicates that decision to the consumer.
For example, if the creditor tells the consumer that it would not
approve an application for a mortgage because of a bankruptcy in
the consumer's record, the creditor has denied an application for
credit.
9(a) Notification of action taken, ECOA notice, and statement
of specific reasons.
Paragraph 9(a)(1).
1. Timing of notice - when an application is complete.
Once a creditor has obtained all the information it normally
considers in making a credit decision, the application is complete
and the creditor has 30 days in which to notify the applicant of
the credit decision. (See also comment 2(f)-6.)
2. Notification of approval. Notification of approval may
be express or by implication. For example, the creditor will
satisfy the notification requirement when it gives the applicant
the credit card, money, property, or services requested.
3. Incomplete application - denial for incompleteness.
When an application is incomplete regarding information that the
applicant can provide and the creditor lacks sufficient data for a
credit decision, the creditor may deny the application giving as
the reason for denial that the application is incomplete. The
creditor has the option, alternatively, of providing a notice of
incompleteness under § 1002.9(c).
4. Incomplete application - denial for reasons other than
incompleteness. When an application is missing information but
provides sufficient data for a credit decision, the creditor may
evaluate the application, make its credit decision, and notify the
applicant accordingly. If credit is denied, the applicant must be
given the specific reasons for the credit denial (or notice of the
right to receive the reasons); in this instance missing information
or “incomplete application” cannot be given as the reason for the
denial.
5. Length of counteroffer. Section 1002.9(a)(1)(iv) does
not require a creditor to hold a counteroffer open for 90 days or
any other particular length of time.
6. Counteroffer combined with adverse action notice. A
creditor that gives the applicant a combined counteroffer and
adverse action notice that complies with § 1002.9(a)(2) need not
send a second adverse action notice if the applicant does not
accept the counteroffer. A sample of a combined notice is contained
in form C-4 of appendix C to the regulation.
7. Denial of a telephone application. When an application
is made by telephone and adverse action is taken, the creditor must
request the applicant's name and address in order to provide
written notification under this section. If the applicant declines
to provide that information, then the creditor has no further
notification responsibility.
Paragraph 9(a)(3).
1. Coverage. In determining which rules in this paragraph
apply to a given business credit application, a creditor may rely
on the applicant's assertion about the revenue size of the
business. (Applications to start a business are governed by the
rules in § 1002.9(a)(3)(i).) If an applicant applies for credit as
a sole proprietor, the revenues of the sole proprietorship will
determine which rules govern the application. However, if an
applicant applies for business credit as an individual, the rules
in § 1002.9(a)(3)(i) apply unless the application is for trade or
similar credit.
2. Trade credit. The term trade credit generally is
limited to a financing arrangement that involves a buyer and a
seller - such as a supplier who finances the sale of equipment,
supplies, or inventory; it does not apply to an extension of credit
by a bank or other financial institution for the financing of such
items.
3. Factoring. Factoring refers to a purchase of accounts
receivable, and thus is not subject to the Act or regulation. If
there is a credit extension incident to the factoring arrangement,
the notification rules in § 1002.9(a)(3)(ii) apply, as do other
relevant sections of the Act and regulation.
4. Manner of compliance. In complying with the notice
provisions of the Act and regulation, creditors offering business
credit may follow the rules governing consumer credit. Similarly,
creditors may elect to treat all business credit the same
(irrespective of revenue size) by providing notice in accordance
with § 1002.9(a)(3)(i).
5. Timing of notification. A creditor subject to §
1002.9(a)(3)(ii)(A) is required to notify a business credit
applicant, orally or in writing, of action taken on an application
within a reasonable time of receiving a completed application.
Notice provided in accordance with the timing requirements of §
1002.9(a)(1) is deemed reasonable in all instances.
9(b) Form of ECOA notice and statement of specific
reasons.
Paragraph 9(b)(1).
1. Substantially similar notice. The ECOA notice sent
with a notification of a credit denial or other adverse action will
comply with the regulation if it is “substantially similar” to the
notice contained in § 1002.9(b)(1). For example, a creditor may add
a reference to the fact that the ECOA permits age to be considered
in certain credit scoring systems, or add a reference to a similar
state statute or regulation and to a state enforcement agency.
Paragraph 9(b)(2).
1. Number of specific reasons. A creditor must disclose
the principal reasons for denying an application or taking other
adverse action. The regulation does not mandate that a specific
number of reasons be disclosed, but disclosure of more than four
reasons is not likely to be helpful to the applicant.
2. Source of specific reasons. The specific reasons
disclosed under §§ 1002.9(a)(2) and (b)(2) must relate to and
accurately describe the factors actually considered or scored by a
creditor.
3. Description of reasons. A creditor need not describe
how or why a factor adversely affected an applicant. For example,
the notice may say “length of residence” rather than “too short a
period of residence.”
4. Credit scoring system. If a creditor bases the denial
or other adverse action on a credit scoring system, the reasons
disclosed must relate only to those factors actually scored in the
system. Moreover, no factor that was a principal reason for adverse
action may be excluded from disclosure. The creditor must disclose
the actual reasons for denial (for example, “age of automobile”)
even if the relationship of that factor to predicting
creditworthiness may not be clear to the applicant.
5. Credit scoring - method for selecting reasons.
The regulation does not require that any one method be used for
selecting reasons for a credit denial or other adverse action that
is based on a credit scoring system. Various methods will meet the
requirements of the regulation. One method is to identify the
factors for which the applicant's score fell furthest below the
average score for each of those factors achieved by applicants
whose total score was at or slightly above the minimum passing
score. Another method is to identify the factors for which the
applicant's score fell furthest below the average score for each of
those factors achieved by all applicants. These average scores
could be calculated during the development or use of the system.
Any other method that produces results substantially similar to
either of these methods is also acceptable under the
regulation.
6. Judgmental system. If a creditor uses a judgmental
system, the reasons for the denial or other adverse action must
relate to those factors in the applicant's record actually reviewed
by the person making the decision.
7. Combined credit scoring and judgmental system. If a
creditor denies an application based on a credit evaluation system
that employs both credit scoring and judgmental components, the
reasons for the denial must come from the component of the system
that the applicant failed. For example, if a creditor initially
credit scores an application and denies the credit request as a
result of that scoring, the reasons disclosed to the applicant must
relate to the factors scored in the system. If the application
passes the credit scoring stage but the creditor then denies the
credit request based on a judgmental assessment of the applicant's
record, the reasons disclosed must relate to the factors reviewed
judgmentally, even if the factors were also considered in the
credit scoring component. If the application is not approved or
denied as a result of the credit scoring, but falls into a gray
band, and the creditor performs a judgmental assessment and denies
the credit after that assessment, the reasons disclosed must come
from both components of the system. The same result applies where a
judgmental assessment is the first component of the combined
system. As provided in comment 9(b)(2)-1, disclosure of more than a
combined total of four reasons is not likely to be helpful to the
applicant.
8. Automatic denial. Some credit decision methods contain
features that call for automatic denial because of one or more
negative factors in the applicant's record (such as the applicant's
previous bad credit history with that creditor, the applicant's
declaration of bankruptcy, or the fact that the applicant is a
minor). When a creditor denies the credit request because of an
automatic-denial factor, the creditor must disclose that specific
factor.
9. Combined ECOA-FCRA disclosures. The ECOA requires
disclosure of the principal reasons for denying or taking other
adverse action on an application for an extension of credit. The
Fair Credit Reporting Act (FCRA) requires a creditor to disclose
when it has based its decision in whole or in part on information
from a source other than the applicant or its own files. Disclosing
that a credit report was obtained and used in the denial of the
application, as the FCRA requires, does not satisfy the ECOA
requirement to disclose specific reasons. For example, if the
applicant's credit history reveals delinquent credit obligations
and the application is denied for that reason, to satisfy §
1002.9(b)(2) the creditor must disclose that the application was
denied because of the applicant's delinquent credit obligations.
The FCRA also requires a creditor to disclose, as applicable, a
credit score it used in taking adverse action along with related
information, including up to four key factors that adversely
affected the consumer's credit score (or up to five factors if the
number of inquiries made with respect to that consumer report is a
key factor). Disclosing the key factors that adversely affected the
consumer's credit score does not satisfy the ECOA requirement to
disclose specific reasons for denying or taking other adverse
action on an application or extension of credit. Sample forms C-1
through C-5 of appendix C of the regulation provide for both the
ECOA and FCRA disclosures. See also comment 9(b)(2)-1.
9(c) Incomplete applications.
Paragraph 9(c)(1).
1. Exception for preapprovals. The requirement to provide
a notice of incompleteness does not apply to preapprovals that
constitute applications under § 1002.2(f).
Paragraph 9(c)(2).
1. Reapplication. If information requested by a creditor
is submitted by an applicant after the expiration of the time
period designated by the creditor, the creditor may require the
applicant to make a new application.
Paragraph 9(c)(3).
1. Oral inquiries for additional information. If an
applicant fails to provide the information in response to an oral
request, a creditor must send a written notice to the applicant
within the 30-day period specified in §§ 1002.9(c)(1) and (2). If
the applicant provides the information, the creditor must take
action on the application and notify the applicant in accordance
with § 1002.9(a).
9(g) Applications submitted through a third party.
1. Third parties. The notification of adverse action may
be given by one of the creditors to whom an application was
submitted, or by a noncreditor third party. If one notification is
provided on behalf of multiple creditors, the notice must contain
the name and address of each creditor. The notice must either
disclose the applicant's right to a statement of specific reasons
within 30 days, or give the primary reasons each creditor relied
upon in taking the adverse action - clearly indicating which
reasons relate to which creditor.
2. Third party notice - enforcement agency. If a single
adverse action notice is being provided to an applicant on behalf
of several creditors and they are under the jurisdiction of
different Federal enforcement agencies, the notice need not name
each agency; disclosure of any one of them will suffice.
3. Third-party notice - liability. When a notice is to be
provided through a third party, a creditor is not liable for an act
or omission of the third party that constitutes a violation of the
regulation if the creditor accurately and in a timely manner
provided the third party with the information necessary for the
notification and maintains reasonable procedures adapted to prevent
such violations.
Section 1002.10 - Furnishing of Credit Information
1. Scope. The requirements of § 1002.10 for designating
and reporting credit information apply only to consumer credit
transactions. Moreover, they apply only to creditors that opt to
furnish credit information to credit bureaus or to other creditors;
there is no requirement that a creditor furnish credit information
on its accounts.
2. Reporting on all accounts. The requirements of §
1002.10 apply only to accounts held or used by spouses. However, a
creditor has the option to designate all joint accounts (or all
accounts with an authorized user) to reflect the participation of
both parties, whether or not the accounts are held by persons
married to each other.
3. Designating accounts. In designating accounts and
reporting credit information, a creditor need not distinguish
between accounts on which the spouse is an authorized user and
accounts on which the spouse is a contractually liable party.
4. File and index systems. The regulation does not
require the creation or maintenance of separate files in the name
of each participant on a joint or user account, or require any
other particular system of recordkeeping or indexing. It requires
only that a creditor be able to report information in the name of
each spouse on accounts covered by § 1002.10. Thus, if a creditor
receives a credit inquiry about the wife, it should be able to
locate her credit file without asking the husband's name.
10(a) Designation of accounts.
1. New parties. When new parties who are spouses
undertake a legal obligation on an account, as in the case of a
mortgage loan assumption, the creditor must change the designation
on the account to reflect the new parties and must furnish
subsequent credit information on the account in the new names.
2. Request to change designation of account. A request to
change the manner in which information concerning an account is
furnished does not alter the legal liability of either spouse on
the account and does not require a creditor to change the name in
which the account is maintained.
Section 1002.11 - Relation to State Law
11(a) Inconsistent state laws.
1. Preemption determination - New York. The Bureau
recognizes state law preemption determinations made by the Board of
Governors of the Federal Reserve System prior to July 21, 2011,
until and unless the Bureau makes and publishes any contrary
determination. The Board of Governors determined that the following
provisions in the state law of New York are preempted by the
Federal law, effective November 11, 1988:
i. Article 15, section 296a(1)(b). Unlawful discriminatory
practices in relation to credit on the basis of race, creed, color,
national origin, age, sex, marital status, or disability. This
provision is preempted to the extent that it bars taking a
prohibited basis into account when establishing eligibility for
certain special-purpose credit programs.
ii. Article 15, section 296a(1)(c). Unlawful discriminatory
practice to make any record or inquiry based on race, creed, color,
national origin, age, sex, marital status, or disability. This
provision is preempted to the extent that it bars a creditor from
requesting and considering information regarding the particular
characteristics (for example, race, national origin, or sex)
required for eligibility for special-purpose credit programs.
2. Preemption determination - Ohio. The Bureau recognizes
state law preemption determinations made by the Board of Governors
of the Federal Reserve System prior to July 21, 2011, until and
unless the Bureau makes and publishes any contrary determination.
The Board of Governors determined that the following provision in
the state law of Ohio is preempted by the Federal law, effective
July 23, 1990:
i. Section 4112.021(B)(1) - Unlawful discriminatory practices in
credit transactions. This provision is preempted to the extent that
it bars asking or favorably considering the age of an elderly
applicant; prohibits the consideration of age in a credit scoring
system; permits without limitation the consideration of age in real
estate transactions; and limits the consideration of age in
special-purpose credit programs to certain government-sponsored
programs identified in the state law.
Section 1002.12 - Record Retention
12(a) Retention of prohibited information.
1. Receipt of prohibited information. Unless the creditor
specifically requested such information, a creditor does not
violate this section when it receives prohibited information from a
consumer reporting agency.
2. Use of retained information. Although a creditor may
keep in its files prohibited information as provided in §
1002.12(a), the creditor may use the information in evaluating
credit applications only if permitted to do so by § 1002.6.
12(b) Preservation of records.
1. Copies. Copies of the original record include carbon
copies, photocopies, microfilm or microfiche copies, or copies
produced by any other accurate retrieval system, such as documents
stored and reproduced by computer. A creditor that uses a
computerized or mechanized system need not keep a paper copy of a
document (for example, of an adverse action notice) if it can
regenerate all pertinent information in a timely manner for
examination or other purposes.
2. Computerized decisions. A creditor that enters
information items from a written application into a computerized or
mechanized system and makes the credit decision mechanically, based
only on the items of information entered into the system, may
comply with § 1002.12(b) by retaining the information actually
entered. It is not required to store the complete written
application, nor is it required to enter the remaining items of
information into the system. If the transaction is subject to §
1002.13 or the creditor is collecting information pursuant to §
1002.5(a)(4), however, the creditor is required to enter and retain
the data on personal characteristics in order to comply with the
requirements of that section.
Paragraph 12(b)(3).
1. Withdrawn and brokered applications. In most cases,
the 25-month retention period for applications runs from the date a
notification is sent to the applicant granting or denying the
credit requested. In certain transactions, a creditor is not
obligated to provide a notice of the action taken. (See, for
example, comment 9-2.) In such cases, the 25-month requirement runs
from the date of application, as when:
i. An application is withdrawn by the applicant.
ii. An application is submitted to more than one creditor on
behalf of the applicant, and the application is approved by one of
the other creditors.
12(b)(6) Self-tests.
1. The rule requires all written or recorded information about a
self-test to be retained for 25 months after a self-test has been
completed. For this purpose, a self-test is completed after the
creditor has obtained the results and made a determination about
what corrective action, if any, is appropriate. Creditors are
required to retain information about the scope of the self-test,
the methodology used and time period covered by the self-test, the
report or results of the self-test including any analysis or
conclusions, and any corrective action taken in response to the
self-test.
12(b)(7) Preapplication marketing information.
1. Prescreened credit solicitations. The rule requires
creditors to retain copies of prescreened credit solicitations. For
purposes of this part, a prescreened solicitation is an “offer of
credit” as described in 15 U.S.C. 1681a(1) of the Fair Credit
Reporting Act. A creditor complies with this rule if it retains a
copy of each solicitation mailing that contains different terms,
such as the amount of credit offered, annual percentage rate, or
annual fee.
2. List of criteria. A creditor must retain the list of
criteria used to select potential recipients. This includes the
criteria used by the creditor both to determine the potential
recipients of the particular solicitation and to determine who will
actually be offered credit.
3. Correspondence. A creditor may retain correspondence
relating to consumers' complaints about prescreened solicitations
in any manner that is reasonably accessible and is understandable
to examiners. There is no requirement to establish a separate
database or set of files for such correspondence, or to match
consumer complaints with specific solicitation programs.
Section 1002.13 - Information for Monitoring Purposes
13(a) Information to be requested.
1. Natural person. Section 1002.13 applies only to
applications from natural persons.
2. Principal residence. The requirements of § 1002.13
apply only if an application relates to a dwelling that is or will
be occupied by the applicant as the principal residence. A credit
application related to a vacation home or a rental unit is not
covered. In the case of a two-to four-unit dwelling, the
application is covered if the applicant intends to occupy one of
the units as a principal residence.
3. Temporary financing. An application for temporary
financing to construct a dwelling is not subject to § 1002.13. But
an application for both a temporary loan to finance construction of
a dwelling and a permanent mortgage loan to take effect upon the
completion of construction is subject to § 1002.13.
4. New principal residence. A person can have only one
principal residence at a time. However, if a person buys or builds
a new dwelling that will become that person's principal residence
within a year or upon completion of construction, the new dwelling
is considered the principal residence for purposes of §
1002.13.
5. Transactions not covered. The information-collection
requirements of this section apply to applications for credit
primarily for the purchase or refinancing of a dwelling that is or
will become the applicant's principal residence. Therefore,
applications for credit secured by the applicant's principal
residence but made primarily for a purpose other than the purchase
or refinancing of the principal residence (such as loans for home
improvement and debt consolidation) are not subject to the
information-collection requirements. An application for an open-end
home equity line of credit is not subject to this section unless it
is readily apparent to the creditor when the application is taken
that the primary purpose of the line is for the purchase or
refinancing of a principal dwelling.
6. Refinancings. A refinancing occurs when an existing
obligation is satisfied and replaced by a new obligation undertaken
by the same borrower. A creditor that receives an application to
refinance an existing extension of credit made by that creditor for
the purchase of the applicant's dwelling may request the monitoring
information again but is not required to do so if it was obtained
in the earlier transaction.
7. Data collection under Regulation C. For applications
subject to § 1002.13(a)(1), a creditor that collects information
about the ethnicity, race, and sex of an applicant in compliance
with the requirements of appendix B to 12 CFR part 1003 is acting
in compliance with § 1002.13 concerning the collection of an
applicant's ethnicity, race, and sex information. See also
comment 5(a)(2)-2.
8. Application-by-application basis. For applications
subject to § 1002.13(a)(1), a creditor may choose on an
application-by-application basis whether to collect aggregate
information pursuant to § 1002.13(a)(1)(i)(A) or disaggregated
information pursuant to § 1002.13(a)(1)(i)(B) about the ethnicity
and race of the applicant.
13(b) Obtaining of information.
1. Forms for collecting data. A creditor may collect the
information specified in § 1002.13(a) either on an application form
or on a separate form referring to the application. Appendix B to
this part provides for two alternative data collection model forms
for use in complying with the requirements of § 1002.13(a)(1)(i)
and (ii) to collect information concerning an applicant's
ethnicity, race, and sex. When a creditor collects ethnicity and
race information pursuant to § 1002.13(a)(1)(i)(A), the applicant
must be offered the option to select more than one racial
designation. When a creditor collects ethnicity and race
information pursuant to § 1002.13(a)(1)(i)(B), the applicant must
be offered the option to select more than one ethnicity designation
and more than one racial designation.
2. Written applications. The regulation requires written
applications for the types of credit covered by § 1002.13. A
creditor can satisfy this requirement by recording on paper or by
means of computer the information that the applicant provides
orally and that the creditor normally considers in a credit
decision.
3. Telephone, mail applications.
i. A creditor that accepts an application by telephone or mail
must request the monitoring information.
ii. A creditor that accepts an application by mail need not make
a special request for the monitoring information if the applicant
has failed to provide it on the application form returned to the
creditor.
iii. If it is not evident on the face of an application that it
was received by mail, telephone, or via an electronic medium, the
creditor should indicate on the form or other application record
how the application was received.
4. Video and other electronic-application processes.
i. If a creditor takes an application through an electronic
medium that allows the creditor to see the applicant, the creditor
must treat the application as taken in person. The creditor must
note the monitoring information on the basis of visual observation
or surname, if the applicant chooses not to provide the
information.
ii. If an applicant applies through an electronic medium without
video capability, the creditor treats the application as if it were
received by mail.
5. Applications through loan-shopping services. When a
creditor receives an application through an unaffiliated
loan-shopping service, it does not have to request the monitoring
information for purposes of the ECOA or Regulation B. Creditors
subject to the Home Mortgage Disclosure Act should be aware,
however, that data collection may be called for under Regulation C
(12 CFR part 1003), which generally requires creditors to report,
among other things, the sex and race of an applicant on brokered
applications or applications received through a correspondent.
6. Inadvertent notation. If a creditor inadvertently
obtains the monitoring information in a dwelling-related
transaction not covered by § 1002.13, the creditor may process and
retain the application without violating the regulation.
13(c) Disclosure to applicants.
1. Procedures for providing disclosures. The disclosure
to an applicant regarding the monitoring information may be
provided in writing. Appendix B provides data collection model
forms for use in complying with § 1002.13 and that comply with §
1002.13(c). A creditor may devise its own disclosure so long as it
is substantially similar. The creditor need not orally request the
monitoring information if it is requested in writing.
13(d) Substitute monitoring program.
1. Substitute program. An enforcement agency may adopt,
under its established rulemaking or enforcement procedures, a
program requiring creditors under its jurisdiction to collect
information in addition to information required by this
section.
Section 1002.14 - Rules on Providing Appraisals and Valuations
14(a) Providing appraisals and other valuations.
1. Multiple applicants. If there is more than one
applicant, the written disclosure about written appraisals, and the
copies of appraisals and other written valuations, need only be
given to one applicant. However, these materials must be given to
the primary applicant where one is readily apparent. Similarly, if
there is more than one applicant for credit in the transaction, one
applicant may provide a waiver under § 1002.14(a)(1), but it must
be the primary applicant where one is readily apparent.
14(a)(1) In general.
1. Coverage. Section 1002.14 covers applications for
credit to be secured by a first lien on a dwelling, as that term is
defined in § 1002.14(b)(2), whether the credit is for a business
purpose (for example, a loan to start a business) or a consumer
purpose (for example, a loan to purchase a home).
2. Renewals. Section 1002.14(a)(1) applies when an
applicant requests the renewal of an existing extension of credit
and the creditor develops a new appraisal or other written
valuation. Section 1002.14(a)(1) does not apply to the extent a
creditor uses the appraisals and other written valuations that were
previously developed in connection with the prior extension of
credit to evaluate the renewal request.
3. Written. For purposes of § 1002.14, an “appraisal or
other written valuation” includes, without limitation, an appraisal
or other valuation received or developed by the creditor in paper
form (hard copy); electronically, such as CD or email; or by any
other similar media. See § 1002.14(a)(5) regarding the provision of
copies of appraisals and other written valuations to applicants via
electronic means.
4. Timing. Section 1002.14(a)(1) requires that the
creditor “provide” copies of appraisals and other written
valuations to the applicant “promptly upon completion,” or no later
than three business days before consummation (for closed-end
credit) or account opening (for open-end credit), whichever is
earlier.
i. For purposes of this timing requirement, “provide” means
“deliver.” Delivery occurs three business days after mailing or
delivering the copies to the last-known address of the applicant,
or when evidence indicates actual receipt by the applicant,
whichever is earlier. Delivery to or actual receipt by the
applicant by electronic means must comply with the E-Sign Act, as
provided for in § 1002.14(a)(5).
ii. The application and meaning of the “promptly upon
completion” standard depends upon the facts and circumstances,
including but not limited to when the creditor receives the
appraisal or other written valuation, and the extent of any review
or revision after the creditor receives it.
iii. “Completion” occurs when the last version is received by
the creditor, or when the creditor has reviewed and accepted the
appraisal or other written valuation to include any changes or
corrections required, whichever is later. See also comment
14(a)(1)-7.
iv. In a transaction that is being consummated (for closed-end
credit) or in which the account is being opened (for open-end
credit), if an appraisal or other written valuation has been
developed but is not yet complete, the deadline for providing a
copy of three business days before consummation or account opening
still applies, unless the applicant waived that deadline as
provided under § 1002.14(a)(1), in which case the copy must be
provided at or before consummation or account opening.
v. Even if the transaction will not be consummated (for
closed-end credit) or the account will not be opened (for open-end
credit), the copy must be provided “promptly upon completion” as
provided for in § 1002.14(a)(1), unless the applicant has waived
that deadline as provided under § 1002.14(a)(1), in which case as
provided for in § 1002.14(a)(1) the copy must be provided to the
applicant no later than 30 days after the creditor determines the
transaction will not be consummated or the account will not be
opened.
5. Promptly upon completion-examples. Examples in which
the “promptly upon completion” standard would be satisfied include,
but are not limited to, those in subparagraphs i, ii, and iii
below. Examples in which the “promptly upon completion” standard
would not be satisfied include, but are not limited to, those in
subparagraphs iv and v below.
i. Sending a copy of an appraisal within a week of completion
with sufficient time before consummation (or account opening for
open-end credit). On day 15 after receipt of the application,
the creditor's underwriting department reviews an appraisal and
determines it is acceptable. One week later, the creditor sends a
copy of the appraisal to the applicant. The applicant actually
receives the copy more than three business days before the date of
consummation (or account opening). The creditor has provided the
copy of the appraisal promptly upon completion.
ii. Sending a copy of a revised appraisal within a week after
completion and with sufficient time before consummation (or account
opening for open-end credit). An appraisal is being revised,
and the creditor does not receive the revised appraisal until day
45 after the application, when the creditor immediately determines
the revised appraisal is acceptable. A week later, the creditor
sends a copy of the revised appraisal to the applicant, and does
not send a copy of the initial appraisal to the applicant. The
applicant actually receives the copy of the revised appraisal three
business days before the date of consummation (or account opening).
The creditor has provided the appraisal copy promptly upon
completion.
iii. Sending a copy of an AVM report within a week after its
receipt and with sufficient time before consummation (or account
opening for open-end credit). The creditor receives an
automated valuation model (AVM) report on day 5 after receipt of
the application and treats the AVM report as complete when it is
received. On day 12 after receipt of the application, the creditor
sends the applicant a copy of the valuation. The applicant actually
receives the valuation more than three business days before the
date of consummation (or account opening). The creditor has
provided the copy of the AVM report promptly upon completion.
iv. Delay in sending an appraisal. On day 12 after
receipt of the application, the creditor's underwriting department
reviews an appraisal and determines it is acceptable. Although the
creditor has determined the appraisal is complete, the creditor
waits to provide a copy to the applicant until day 42, when the
creditor schedules the consummation (or account opening) to occur
on day 50. The creditor has not provided the copy of the appraisal
promptly upon completion.
v. Delay in sending an AVM report while waiting for
completion of a second valuation. The creditor receives an AVM
report on day 5 after application and completes its review of the
AVM report the day it is received. The creditor also has ordered an
appraisal, but the initial version of the appraisal received by the
creditor is found to be deficient and is sent for review. The
creditor waits 30 days to provide a copy of the completed AVM
report, until the appraisal is completed on day 35. The creditor
then provides the applicant with copies of the AVM report and the
revised appraisal. While the appraisal report was provided promptly
upon completion, the AVM report was not.
6. Waiver. Section 1002.14(a)(1) permits the applicant to
waive the timing requirement if the creditor provides the copies at
or before consummation or account opening, except where otherwise
prohibited by law. Except where otherwise prohibited by law, an
applicant's waiver is effective under § 1002.14(a)(1) in either of
the following two situations:
i. If, no later than three business days prior to consummation
or account opening, the applicant provides the creditor an
affirmative oral or written statement waiving the timing
requirement under this rule; or
ii. If, within three business days of consummation or account
opening, the applicant provides the creditor an affirmative oral or
written statement waiving the timing requirement under this rule
and the waiver pertains solely to the applicant's receipt of a copy
of an appraisal or other written valuation that contains only
clerical changes from a previous version of the appraisal or other
written valuation provided to the applicant three or more business
days prior to consummation or account opening. For purpose of this
second type of waiver, revisions will only be considered to be
clerical in nature if they have no impact on the estimated value,
and have no impact on the calculation or methodology used to derive
the estimate. In addition, under § 1002.14(a)(1) the applicant
still must receive the copy of the revision at or prior to
consummation or account opening.
7. Multiple versions of appraisals or valuations. For
purposes of § 1002.14(a)(1), the reference to “all” appraisals and
other written valuations does not refer to all versions of the same
appraisal or other valuation. If a creditor has received multiple
versions of an appraisal or other written valuation, the creditor
is required to provide only a copy of the latest version received.
If, however, a creditor already has provided a copy of one version
of an appraisal or other written valuation to an applicant, and the
creditor later receives a revision of that appraisal or other
written valuation, then the creditor also must provide the
applicant with a copy of the revision to comply with §
1002.14(a)(1). If a creditor receives only one version of an
appraisal or other valuation that is developed in connection with
the applicant's application, then that version must be provided to
the applicant to comply with § 1002.14(a)(1). See also
comment 14(a)(1)-4 above.
14(a)(2) Disclosure.
1. Appraisal independence requirements not affected.
Nothing in the text of the disclosure required by § 1002.14(a)(2)
should be construed to affect, modify, limit, or supersede the
operation of any legal, regulatory, or other requirements or
standards relating to independence in the conduct of appraisers or
the use of applicant-ordered appraisals by creditors.
14(a)(3) Reimbursement.
1. Photocopy, postage, or other costs. Creditors may not
charge for photocopy, postage, or other costs incurred in providing
a copy of an appraisal or other written valuation in accordance
with section 14(a)(1).
2. Reasonable fee for reimbursement. Section
1002.14(a)(3) does not prohibit a creditor from imposing a
reasonable fee to reimburse the creditor's costs of the appraisal
or other written valuation, so long as the fee is not increased to
cover the costs of providing copies of such appraisals or other
written valuations under § 1002.14(a)(1). A creditor's cost may
include an administration fee charged to the creditor by an
appraisal management company as defined in 12 U.S.C. 3350(11).
Section 1002.14(a)(3) does not, however, legally obligate the
applicant to pay such fees. Further, creditors may not impose fees
for reimbursement of the costs of an appraisal or other valuation
where otherwise prohibited by law. For instance, a creditor may not
charge a consumer a fee for the performance of a second appraisal
if the second appraisal is required under 15 U.S.C. 1639h(b)(2) and
12 CFR 1026.35(c).
14(b) Definitions.
14(b)(1) Consummation.
1. State law governs. When a contractual obligation on
the consumer's part is created is a matter to be determined under
applicable law; § 1002.14 does not make this determination. A
contractual commitment agreement, for example, that under
applicable law binds the consumer to the credit terms would be
consummation. Consummation, however, does not occur merely because
the consumer has made some financial investment in the transaction
(for example, by paying a nonrefundable fee) unless, of course,
applicable law holds otherwise.
2. Credit vs. sale. Consummation does not occur when the
consumer becomes contractually committed to a sale transaction,
unless the consumer also becomes legally obligated to accept a
particular credit arrangement.
14(b)(2) Dwelling.
1. “Motor vehicles” not covered. The requirements of §
1002.14 do not apply to “motor vehicles” as defined by 12 U.S.C.
5519(f)(1).
14(b)(3) Valuation.
1. Valuations - examples. Examples of valuations include
but are not limited to:
i. A report prepared by an appraiser (whether or not licensed or
certified) including the appraiser's estimate of the property's
value or opinion of value.
ii. A document prepared by the creditor's staff that assigns
value to the property.
iii. A report approved by a government-sponsored enterprise for
describing to the applicant the estimate of the property's value
developed pursuant to the proprietary methodology or mechanism of
the government-sponsored enterprise.
iv. A report generated by use of an automated valuation model to
estimate the property's value.
v. A broker price opinion prepared by a real estate broker,
agent, or sales person to estimate the property's value.
2. Attachments and exhibits. The term “valuation”
includes any attachments and exhibits that are an integrated part
of the valuation.
3. Other documentation. Not all documents that discuss or
restate a valuation of an applicant's property constitute a
“valuation” for purposes of § 1002.14(b)(3). Examples of documents
that discuss the valuation of the applicant's property or may
reflect its value but nonetheless are not “valuations” include but
are not limited to:
i. Internal documents that merely restate the estimated value of
the dwelling contained in an appraisal or written valuation being
provided to the applicant.
ii. Governmental agency statements of appraised value that are
publically available.
iii. Publicly-available lists of valuations (such as published
sales prices or mortgage amounts, tax assessments, and retail price
ranges).
iv. Manufacturers' invoices for manufactured homes.
v. Reports reflecting property inspections that do not provide
an estimate of the value of the property and are not used to
develop an estimate of the value of the property.
vi. Appraisal reviews that do not include the appraiser's
estimate of the property's value or opinion of value.
Section 1002.15 - Incentives for Self-Testing and Self-Correction
15(a) General rules.
15(a)(1) Voluntary self-testing and correction.
1. Activities required by any governmental authority are not
voluntary self-tests. A governmental authority includes both
administrative and judicial authorities for Federal, State, and
local governments.
15(a)(2) Corrective action required.
1. To qualify for the privilege, appropriate corrective action
is required when the results of a self-test show that it is more
likely than not that there has been a violation of the ECOA or this
part. A self-test is also privileged when it identifies no
violations.
2. In some cases, the issue of whether certain information is
privileged may arise before the self-test is complete or corrective
actions are fully under way. This would not necessarily prevent a
creditor from asserting the privilege. In situations where the
self-test is not complete, for the privilege to apply the lender
must satisfy the regulation's requirements within a reasonable
period of time. To assert the privilege where the self-test shows a
likely violation, the rule requires, at a minimum, that the
creditor establish a plan for corrective action and a method to
demonstrate progress in implementing the plan. Creditors must take
appropriate corrective action on a timely basis after the results
of the self-test are known.
3. A creditor's determination about the type of corrective
action needed, or a finding that no corrective action is required,
is not conclusive in determining whether the requirements of this
paragraph have been satisfied. If a creditor's claim of privilege
is challenged, an assessment of the need for corrective action or
the type of corrective action that is appropriate must be based on
a review of the self-testing results, which may require an in
camera inspection of the privileged documents.
15(a)(3) Other privileges.
1. A creditor may assert the privilege established under this
section in addition to asserting any other privilege that may
apply, such as the attorney-client privilege or the work-product
privilege. Self-testing data may be privileged under this section
whether or not the creditor's assertion of another privilege is
upheld.
15(b) Self-test defined.
15(b)(1) Definition.
Paragraph 15(b)(1)(i).
1. To qualify for the privilege, a self-test must be sufficient
to constitute a determination of the extent or effectiveness of the
creditor's compliance with the Act and Regulation B. Accordingly, a
self-test is only privileged if it was designed and used for that
purpose. A self-test that is designed or used to determine
compliance with other laws or regulations or for other purposes is
not privileged under this rule. For example, a self-test designed
to evaluate employee efficiency or customers' satisfaction with the
level of service provided by the creditor is not privileged even if
evidence of discrimination is uncovered incidentally. If a
self-test is designed for multiple purposes, only the portion
designed to determine compliance with the ECOA is eligible for the
privilege.
Paragraph 15(b)(1)(ii).
1. The principal attribute of self-testing is that it
constitutes a voluntary undertaking by the creditor to produce new
data or factual information that otherwise would not be available
and could not be derived from loan or application files or other
records related to credit transactions. Self-testing includes, but
is not limited to, the practice of using fictitious applicants for
credit (testers), either with or without the use of matched pairs.
A creditor may elect to test a defined segment of its business, for
example, loan applications processed by a specific branch or loan
officer, or applications made for a particular type of credit or
loan program. A creditor also may use other methods of generating
information that is not available in loan and application files,
such as surveying mortgage loan applicants. To the extent permitted
by law, creditors might also develop new methods that go beyond
traditional pre-application testing, such as hiring testers to
submit fictitious loan applications for processing.
2. The privilege does not protect a creditor's analysis
performed as part of processing or underwriting a credit
application. A creditor's evaluation or analysis of its loan files,
Home Mortgage Disclosure Act data, or similar types of records
(such as broker or loan officer compensation records) does not
produce new information about a creditor's compliance and is not a
self-test for purposes of this section. Similarly, a statistical
analysis of data derived from existing loan files is not
privileged.
15(b)(3) Types of information not privileged.
Paragraph 15(b)(3)(i).
1. The information listed in this paragraph is not privileged
and may be used to determine whether the prerequisites for the
privilege have been satisfied. Accordingly, a creditor might be
asked to identify the self-testing method, for example, whether
preapplication testers were used or data were compiled by surveying
loan applicants. Information about the scope of the self-test (such
as the types of credit transactions examined, or the geographic
area covered by the test) also is not privileged.
Paragraph 15(b)(3)(ii).
1. Property appraisal reports, minutes of loan committee
meetings or other documents reflecting the basis for a decision to
approve or deny an application, loan policies or procedures,
underwriting standards, and broker compensation records are
examples of the types of records that are not privileged. If a
creditor arranges for testers to submit loan applications for
processing, the records are not related to actual credit
transactions for purposes of this paragraph and may be privileged
self-testing records.
15(c) Appropriate corrective action.
1. The rule only addresses the corrective actions required for a
creditor to take advantage of the privilege in this section. A
creditor may be required to take other actions or provide
additional relief if a formal finding of discrimination is
made.
15(c)(1) General requirement.
1. Appropriate corrective action is required even though no
violation has been formally adjudicated or admitted by the
creditor. In determining whether it is more likely than not that a
violation occurred, a creditor must treat testers as if they are
actual applicants for credit. A creditor may not refuse to take
appropriate corrective action under this section because the
self-test used fictitious loan applicants. The fact that a tester's
agreement with the creditor waives the tester's legal right to
assert a violation does not eliminate the requirement for the
creditor to take corrective action, although no remedial relief for
the tester is required under paragraph 15(c)(3).
15(c)(2) Determining the scope of appropriate corrective
action.
1. Whether a creditor has taken or is taking corrective action
that is appropriate will be determined on a case-by-case basis.
Generally, the scope of the corrective action that is needed to
preserve the privilege is governed by the scope of the self-test.
For example, a creditor that self-tests mortgage loans and
discovers evidence of discrimination may focus its corrective
actions on mortgage loans, and is not required to expand its
testing to other types of loans.
2. In identifying the policies or practices that are a likely
cause of the violation, a creditor might identify inadequate or
improper lending policies, failure to implement established
policies, employee conduct, or other causes. The extent and scope
of a likely violation may be assessed by determining which areas of
operations are likely to be affected by those policies and
practices, for example, by determining the types of loans and
stages of the application process involved and the branches or
offices where the violations may have occurred.
3. Depending on the method and scope of the self-test and the
results of the test, appropriate corrective action may include one
or more of the following:
i. If the self-test identifies individuals whose applications
were inappropriately processed, offering to extend credit if the
application was improperly denied and compensating such persons for
out-of-pocket costs and other compensatory damages;
ii. Correcting institutional policies or procedures that may
have contributed to the likely violation, and adopting new policies
as appropriate;
iii. Identifying and then training and/or disciplining the
employees involved;
iv. Developing outreach programs, marketing strategies, or loan
products to serve more effectively segments of the lender's markets
that may have been affected by the likely discrimination; and
v. Improving audit and oversight systems to avoid a recurrence
of the likely violations.
15(c)(3) Types of relief.
Paragraph 15(c)(3)(ii).
1. The use of pre-application testers to identify policies and
practices that illegally discriminate does not require creditors to
review existing loan files for the purpose of identifying and
compensating applicants who might have been adversely affected.
2. If a self-test identifies a specific applicant who was
discriminated against on a prohibited basis, to qualify for the
privilege in this section the creditor must provide appropriate
remedial relief to that applicant; the creditor is not required to
identify other applicants who might also have been adversely
affected.
Paragraph 15(c)(3)(iii).
1. A creditor is not required to provide remedial relief to an
applicant that would not be available by law. An applicant might
also be ineligible for certain types of relief due to changed
circumstances. For example, a creditor is not required to offer
credit to a denied applicant if the applicant no longer qualifies
for the credit due to a change in financial circumstances, although
some other type of relief might be appropriate.
15(d)(1) Scope of privilege.
1. The privilege applies with respect to any examination,
investigation or proceeding by Federal, State, or local government
agencies relating to compliance with the Act or this part.
Accordingly, in a case brought under the ECOA, the privilege
established under this section preempts any inconsistent laws or
court rules to the extent they might require disclosure of
privileged self-testing data. The privilege does not apply in other
cases (such as in litigation filed solely under a State's fair
lending statute). In such cases, if a court orders a creditor to
disclose self-test results, the disclosure is not a voluntary
disclosure or waiver of the privilege for purposes of paragraph
15(d)(2); a creditor may protect the information by seeking a
protective order to limit availability and use of the self-testing
data and prevent dissemination beyond what is necessary in that
case. Paragraph 15(d)(1) precludes a party who has obtained
privileged information from using it in a case brought under the
ECOA, provided the creditor has not lost the privilege through
voluntary disclosure under paragraph 15(d)(2).
15(d)(2) Loss of privilege.
Paragraph 15(d)(2)(i).
1. A creditor's corrective action, by itself, is not considered
a voluntary disclosure of the self-test report or results. For
example, a creditor does not disclose the results of a self-test
merely by offering to extend credit to a denied applicant or by
inviting the applicant to reapply for credit. Voluntary disclosure
could occur under this paragraph, however, if the creditor
disclosed the self-test results in connection with a new offer of
credit.
2. The disclosure of self-testing results to an independent
contractor acting as an auditor or consultant for the creditor on
compliance matters does not result in loss of the privilege.
Paragraph 15(d)(2)(ii).
1. The privilege is lost if the creditor discloses privileged
information, such as the results of the self-test. The privilege is
not lost if the creditor merely reveals or refers to the existence
of the self-test.
Paragraph 15(d)(2)(iii).
1. A creditor's claim of privilege may be challenged in a court
or administrative law proceeding with appropriate jurisdiction. In
resolving the issue, the presiding officer may require the creditor
to produce privileged information about the self-test.
Paragraph 15(d)(3) Limited use of privileged
information.
1. A creditor may be required to produce privileged documents
for the purpose of determining a penalty or remedy after a
violation of the ECOA or Regulation B has been formally adjudicated
or admitted. A creditor's compliance with such a requirement does
not evidence the creditor's intent to forfeit the privilege.
Section 1002.16 - Enforcement, Penalties, and Liabilities
16(c) Failure of compliance.
1. Inadvertent errors. Inadvertent errors include, but
are not limited to, clerical mistake, calculation error, computer
malfunction, and printing error. An error of legal judgment is not
an inadvertent error under the regulation.
2. Correction of error. For inadvertent errors that occur
under §§ 1002.12 and 1002.13, this section requires that they be
corrected prospectively.
Appendix C - Sample Notification Forms
1. Form C-9. If not otherwise provided under other
applicable disclosure requirements, creditors may design their own
form, add to, or modify the model form to reflect their individual
policies and procedures. For example, a creditor may want to
add:
i. A telephone number that applicants may call to leave their
name and the address to which a copy of the appraisal or other
written valuation should be sent.
ii. A notice of the cost the applicant will be required to pay
the creditor for the appraisal or other valuation
[76 FR 79445, Dec. 21, 2011, as amended at 78 FR 7248, Jan. 31,
2013; 82 FR 45695, Oct. 2, 2017]
[76 FR 79445, Dec.
21, 2011, as amended at 82 FR 45694, Oct. 2, 2017]