CFPB Issues Advisory Opinion on ECOA and Reg B
Two weeks ago, the Consumer Financial Protection Bureau (CFPB or bureau) issued an advisory opinion to clarify the Equal Credit Opportunity Act (ECOA) and its implementing regulation (Regulation B) prohibit discrimination against members during the life of a loan, not just during the application process. In the press release, the bureau explained that it will continue to use advisory opinions to provide guidance and clarity for its regulations. The purpose of advisory opinions is to ensure financial institutions, including credit unions, understand the obligations and requirements of CFPB regulations when they are unclear.
This opinion regarding the scope of ECOA and Reg B does not present a huge change in the industry’s understanding of these fair lending laws. In fact, the NAFCU compliance team often reminds credit unions that the prohibition on discrimination applies through the life of a loan, not just origination. This means that lenders may not discriminate while servicing loans, offering modifications, or collecting on delinquent loans.
In the advisory opinion, the bureau discusses a few definitions found in Reg B that can help to clarify its scope:
Applicant. In Reg B, this term includes any person “who has received an extension of credit from a creditor, and includes any person who is or may become contractually liable regarding an extension of credit.” The bureau explains this addition to the definition of “applicant” makes clear the intent to extend protections to those who have received credit, not just those currently applying for credit. This definition of applicant also supports the prohibition against discrimination “regarding any aspect of a credit transaction” as stated in section 1002.4. In short, because Reg B applies to “any aspect” of the transaction, it would also apply to any member who has a credit account or transaction at the credit union.
Adverse Action. This includes “[a] termination of an account or an unfavorable change in the terms of an account that does not affect all or substantially all of a class of the creditor's accounts.” The inclusion of termination or an unfavorable change to an account as examples of adverse action provides protection to members who already have an open credit account that could be subject to change.
Credit Transaction. This definition adds helpful information and examples of the scope of Reg B: “every aspect of an applicant's dealings with a creditor regarding an application for credit or an existing extension of credit (including, but not limited to, information requirements; investigation procedures; standards of creditworthiness; terms of credit; furnishing of credit information; revocation, alteration, or termination of credit; and collection procedures).” The CFPB notes in the advisory opinion, “ the expansive language of this provision shows an intent to sweep broadly, beyond just the initial process of requesting credit, to bar discrimination in all parts of a credit arrangement.”
The bureau goes on to discuss the purpose of ECOA and Reg B, which is to protect all members from discrimination regarding access and use of credit. This purpose would not fully be met if the regulation only applied during the application stage, as creditors would be able to grant loans, and then subsequently terminate or change the terms of those loans in a discriminatory manner. The bureau explains the scope of ECOA and Reg B was always meant to cover application stage, every other aspect of and lending relationship, and collection of a loan.