In July of 2020, the CFPB issued a Request for Informatino on the Equal Credit Opportunity Act and Regulation B which is seeking comments and information to identify opportunities to prevent credit discrimination, encourage responsible innovation, promote fair, equitable, and nondiscriminatory access to credit, address potential regulatory uncertainty, and develop viable solutions to regulatory compliance challenges under the Equal Credit Opportunity Act (ECOA) and Regulation B. Comments are due 60 days after publication in the Federal Register.
Specifically, the CFPB is seeking feedback to the following questions:
Disparate Impact: Regulation B provides that ECOA may prohibit creditor practices that have a disparate impact—Regulation B specifically states that “Congress intended an ‘effects test’ concept . . . to be applicable to a creditor’s determination of creditworthiness.”15 The official interpretation to Regulation B states that ECOA/Regulation B “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.”16 The official interpretation also provides an example of how to evaluate a creditor practice for disparate impact. 17 Should the Bureau provide additional clarity regarding its approach to disparate impact analysis under ECOA and/or Regulation B? If so, in what way(s)?
Limited English Proficiency: The Bureau seeks to foster greater access to credit markets,
including to consumers who face obstacles because they are Limited English Proficient (LEP). The Bureau did some work on the challenges LEP consumers encounter in 2016 and 2017.18 In its continued outreach on these topics, the Bureau has heard from a variety of stakeholders that institutions want to serve LEP consumers but face regulatory uncertainties and perceived fair lending risks in serving LEP consumers because the language spoken by a consumer may correlate with prohibited bases under ECOA, including national origin. Some financial institutions may decide against providing any LEP products or services due to these regulatory uncertainties, while others may vary how and when they offer products and services in non-English languages. The Bureau seeks to understand the challenges specific to serving LEP consumers and to find ways to encourage creditors to increase assistance to LEP consumers. Should the Bureau provide additional clarity under ECOA and/or Regulation B to further encourage creditors to provide assistance, products, and services in languages other than English to consumers with limited English proficiency? If so, in what way(s)?
. Special Purpose Credit Programs: The Special Purpose Credit Program (SPCP)
provisions of ECOA/Regulation B provide targeted means by which creditors, under certain circumstances, can meet “special social needs” and “benefit economically disadvantaged groups.”19 The official interpretation to Regulation B states that “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.”20 ECOA and Regulation B also allow for special purpose credit offered under “[a]ny credit assistance program offered by a not-forprofit organization, as defined under section 501(c) of the Internal Revenue Code of 1954, as amended, for the benefit of its members or for the benefit of an economically disadvantaged class of persons.”21 Through stakeholder engagement and its supervisory activity, the Bureau has learned that stakeholders are interested in additional guidance on SPCPs that may be helpful to them in developing SPCPs while ensuring regulatory compliance. In its Summer 2016 Supervisory Highlights, the Bureau set forth observations regarding credit decisions made pursuant to the terms of programs that for-profit institutions have described as SPCPs. 22 Should the Bureau address any potential regulatory uncertainty and facilitate the use of SPCPs? If so, in what way(s)? For example, should the Bureau clarify any of the SPCP provisions in Regulation B?
Affirmative Advertising to Disadvantaged Groups: The official interpretation to
Regulation B states that “[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.”23 The Bureau understands from its stakeholder engagement that creditors are interested in additional guidance that may be helpful to them in developing such marketing campaigns while ensuring regulatory compliance. Should the Bureau provide clarity under ECOA and/or Regulation B to further encourage creditors to use such affirmative advertising to reach traditionally disadvantaged consumers and communities? If so, in what way(s)?
Small Business Lending: As the Bureau noted in its May 2017 white paper on small
business lending, small businesses play a key role in fostering community development and fueling economic growth both nationally and in their local communities.24 Women-owned and minority-owned small businesses play a particularly important role in supporting their local communities.25 Access to credit is a crucial component of the success of these businesses. ECOA and Regulation B protect business owners from discrimination because of race, color, national origin, sex, and other protected characteristics.26 In light of the Bureau’s authority under ECOA/Regulation B, in what way(s) might it support efforts to meet the credit needs of small businesses, particularly those that are minority-owned and women-owned?
Sexual Orientation and Gender Identity Discrimination: On June 15, 2020, in Bostock
v. Clayton County, the Supreme Court ruled that the prohibition against sex discrimination in Title VII of the Civil Rights Act of 1964 (Title VII) encompasses sexual orientation discrimination and gender identity discrimination.27 The majority opinion in Bostock interpreted Title VII and did not address ECOA. Should the Supreme Court’s decision in Bostock affect how the Bureau interprets ECOA’s prohibition of discrimination on the basis of sex? If so, in what way(s)?
Scope of Federal Preemption of State Law: Regulation B alters, affects, or preempts only those state laws that are inconsistent with ECOA and/or Regulation B and then only to the extent of the inconsistency.28 A state law is not inconsistent with ECOA or Regulation B if it is more protective of an applicant.29 A creditor, state, or other interested party may request that the Bureau determine whether a state law is inconsistent with the requirements of ECOA and/or Regulation B. 30 What are examples of potential conflicts or intersections between state laws, state regulations, and ECOA and/or Regulation B, and should the Bureau address such potential conflicts or intersections? For example, should the Bureau provide further guidance to assist creditors evaluating whether state law is preempted to the extent it is inconsistent with the requirements of ECOA and/or Regulation B?
Public Assistance Income: ECOA makes it “unlawful for any creditor to discriminate
against any applicant, with respect to any aspect of a credit transaction . . . because all or part of the applicant’s income derives from any public assistance program.”31 ECOA provides that making an inquiry whether the applicant’s income derives from any public assistance program does not constitute discrimination “if such inquiry is for the purpose of determining the amount and probable continuance of income levels [among other things].”32 The official interpretation to Regulation B further provides that “[i]n 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.”33 The Bureau previously issued guidance (through a May 2015 bulletin on the Section 8 Housing Choice Voucher Homeownership Program34 and a November 2014 bulletin on Social Security Disability Income Verification35) to help creditors comply with these and other regulatory provisions. The Bureau understands that stakeholders continue to have questions about these provisions under ECOA and/or Regulation B. Should the Bureau provide additional clarity under ECOA and/or Regulation B regarding when all or part of the applicant’s income derives from any public assistance program? If so, in what way(s)? For example, should it provide guidance on how to address situations where creditors seek to ascertain the continuance of public assistance benefits in underwriting decisions?
Artificial Intelligence and Machine Learning: As the Bureau noted in its annual fair
lending report to Congress dated April 30, 202036 and a blog post dated July 7, 2020,37 financial institutions are starting to deploy artificial intelligence (AI) and machine learning (ML) across a range of functions. For example, they are used as virtual assistants that can fulfill customer requests, in models to detect fraud or other potential illegal activity, as compliance monitoring tools, and in credit underwriting. Should the Bureau provide more regulatory clarity under ECOA and/or Regulation B to help facilitate innovation in a way that increases access to credit for consumers and communities in the context of AI/ML without unlawful discrimination? If so, in what way(s)? Another important issue is how lenders using complex AI/ML models satisfy ECOA’s adverse action notice requirements. ECOA requires creditors to provide consumers with the principal reason(s) for a denial of credit or other adverse action.38 These notice provisions serve important anti-discrimination, educational, and accuracy purposes. There may be questions about how institutions can comply with these requirements if the reasons driving an AI/ML decision are based on complex interrelationships.39 Should the Bureau modify requirements or guidance concerning notifications of action taken, including adverse action notices, under ECOA and/or Regulation B to better empower consumers to make more informed financial decisions and/or to provide additional clarity when credit underwriting decisions are based in part on models that use AI/ML? If so, in what way(s)?
ECOA Adverse Action Notices: Under ECOA and Regulation B, a statement of reasons
for adverse action must be specific and indicate the principal reason(s) for the adverse action.40 The Bureau understands from direct engagement and its supervisory work that stakeholders continue to have questions about this requirement. Should the Bureau provide any additional guidance under ECOA and/or Regulation B related to when adverse action has been taken by a creditor, requiring a notification that includes a statement of specific reasons for the adverse action? If so, in what way(s)?
Information on how to submit comments can be found in the Request for Comment.
The CFPB’s Request for Comment can be found here.
