Equal Credit Opportunity Act - Regulation B

Adverse Action Exceptions

(i) A change in the terms of an account expressly agreed to by an applicant; (ii) Any action or forbearance relating to an account taken in connection with inactivity, default, or delinquency as to that account; (iii) A refusal or failure to authorize an account transaction at point of sale or loan, except when the refusal is a termination 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, or when the refusal is a denial of an application for an increase in the amount of credit available under the account; (iv) A refusal to extend credit because applicable law prohibits the creditor from extending the credit requested; or (v) A refusal to extend credit because the creditor does not offer the type of credit or credit plan requested. (3) An action that falls within the definition of both paragraphs (c)(1) and (c)(2) of this section is governed by paragraph (c)(2) of this section.

Adverse Action - Exception

- Change in terms expressly agreed to by the applicant/borrower - Inactivity; default or delinquency status You don't offer the type of credit requested

To comply with Reg B the creditors must do?

- Refrain from discriminating in all aspects of the credit process - Accept applications from all applicants for credit - Evaluate applications fairly and consistently - Notify applicants of decisions made regarding their applications - Report credit history if the bank is reporting credit information - Retain records of credit applications - Collect information about an applicant's race and other personal characteristics in applications for certain dwelling-related loans - Provide applicants with copies of appraisal reports used in connection with credit transactions secured by a first lien on a dwelling

Collecting monitoring information

Regulation B also permits lenders to collect monitoring formation on applicants for covered loans as defined by the Home Mortgage Disclosure Act; closed-end mortgage loans and open-end lines of credit that meet the definition of covered loans.

Applicant (ECOA)

Under ECOA, any person who requests or has received an extension of credit from a creditor, including anyone who may be contractually liable but not including a guarantor or endorser.

Inquiry vs. Application ECOA

Under Regulation B, a customer inquiry is deemed an application if the banker has enough information to make a determination about creditworthiness.

What is illegal discrimination?

When a creditor blatantly and overtly treats applicants less favorably than other applicants on a prohibited basis.

Permanent residency and immigration status

may inquire about the permanent residency and immigration status of an applicant or any other person in connection with a credit transaction.

What bank employees are subject ro Reg B/

Prepare marketing materials Answer customer loan inquiries in person or on the telephone Accept loan applications Process loan applications Make credit decisions Service loan accounts

Signature of Spouse or other person

Qualified applicant - a creditor shall not require the signature of a spouse or other person, other than a joint applicant, on any application that qualifies under meets creditor's standards for the amount and terms of the credit requested. *A creditor shall not deem the submission of a joint financial statement or other evidence of jointly held assets as an application for joint credit.

Reg B Appraisal Notice Requirement

- notify the applicant, in writing, of the right to receive a copy of the appraisal or valuation. the Bureau) has created disclosure language which will satisfy both the TILA requirements and the ECOA requirements of this notice (Model Form C-9). Consistent with TILA/RESPA timing requirements for early disclosures, the disclosure of an applicant's right to receive the appraisal must be mailed or delivered, no later than the third business day after receiving an application. Effective October 2015, the appraisal notice is included on the Loan Estimate required under the TILA/RESPA Integrated Disclosure (TRID) rule, so for loans where the creditor provides the Loan Estimate, the appraisal notice need not be sent separately. If the application is for credit which will not be secured by a first lien, but the creditor later determines that the credit will be secured by a first lien, the creditor must provide the disclosure no later than the third business day after determining it is applicable. A creditor is prohibited from charging a fee to the applicant for a copy of the appraisal or valuation. The creditor may charge for the actual cost of the creation of the appraisal or valuation, but, not for the copy of such document, which is required to be provided under the rule.

Reg B Record Maintenance and Retention

1. Comsumer credit applications - 25 months from submission 2. Copies or originals of the following information must be kept: •Applications •Adverse Action Notices, if applicable •Any written statement alleging a violation of the ECOA •Information for monitoring purposes 3. Business credit app revenue under $1MM - keep no longer than 12 months. more than $1 million must be kept for 60 days unless the applicant requests specific reasons for the action taken. In that case the documents must be kept for 12 months. 4. Existing accounts - keep any written information concerning that adverse action. You must also keep any written statements submitted by the account holder regarding an alleged violation of ECOA. Information for existing accounts must be kept for 25 months from the date of notification of the adverse action.

Reg B Appraisal Rule

1. Lender MUST notify applicant within THREE (3) Business Days of receiving the application of the right to receive a free copy of the appraisals and valuations. Note: No government/publicly available docs or manufactured home invoices or valuations developed from previous loans 2. Provide applicants with FREE copy of all written appraisals promptly after receiving them - not later than 3 business days PRIOR to closing - delivery means in applicant's hands (not just mailed) - required whether or not the loan closes

Adverse Action - Commercial when its required OVER $1MM

1. Notice can be written or verbal 2. May tell applicant of the right to request statement of reasons of denial at the time application is taken, rather than putting it in the notice, but the disclosure must be in written form

Required contents of Reg B Adverse Action Notice

1. Statement of Action taken (Accept, Denied) 2. Reason for denial of credit (Bad credit, limited information) 3. Consumer reporting agency (statement agency had no part in decision) (name, address and phone #) 4. Information from other credit sources (Name and address of each information source used to make decision) 5. Equal Credit Opportunity Act (Paragraph)

Notification of completed application (ECOA)

30 days

Taking adverse action on existing account

30 days

notification of adverse action on an incomplete application

30 days

Notifying loan decisions

A bank must notify an applicant of action taken on the applicant's request for credit, whether favorable or adverse, within thirty days after receiving a completed application. The bank can approve the loan, decline the loan, or make a counteroffer to the credit applicant.

Evaluating applicants fairly: Determining creditworthiness (ECOA)

A creditor may consider any information in evaluating applicants, so long as the use of the information does not have the intent or the effect of discriminating against an applicant on a prohibited basis. Generally, a creditor may not consider any of the prohibited bases, including age (providing the applicant is old enough, under state law, to enter into a binding contract) and the receipt of public assistance.

Creditor (ECOA)

A person who regularly extends or arranges for the extension of credit, or who offers to extend or arrange for the extension of such credit. - The credit is payable by agreement in more than four installments and - the payment of a finance charge is or may be required, whether in connection with loans, sale of property or services, or otherwise.

Adverse action (Coverage)

A refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the creditor makes a counteroffer (to grant credit in a different amount or on other terms) and the applicant uses or expressly accepts the credit offered; (ii) 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; or (ii) 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; or (iii) A refusal to increase the amount of credit available to an applicant who has made an application for an increase.

Reg B 3 day Appraisal Waiver

An applicant may waive the timing requirement. The creditor must get the applicant's affirmative oral or written waiver at least three business days prior to consummation or account opening. If an applicant provides a waiver, but no consummation or account opening occurs, a copy of the appraisal or valuation must be provided no later than 30 days after the creditor determines the transaction will not be consummated, or the account will not be opened.

Contractually liable (ECOA)

An express obligation to repay all debts arising on an account.

Oral application - ECOA

An oral application is a request for credit made orally either in person or by telephone. In addition, any conversation between a creditor and an individual in which the creditor expresses an opinion of the individual's creditworthiness is considered an oral application.

Dwelling (ECOA)

Any building, structure, or portion of one that is occupied, designed for occupancy, or intended for occupancy by one or more families. contains 1 to 4 units, whether or not it is attached to real property. This includes, but is not limited to, condos or coops, mobile homes, and other manufactured homes. - does not apply to loans secured solely by motor vehicles, boats, motor homes, recreational vehicles, and other vehicles.

Adverse Action - What is it?

Any denial, C1 form issued within 30 days of completed application receipt. A refusal to grant credit. Most any decision the applicant/borrower will not like Refusal to increase credit limit

Reg B Appraisal 3 day Requirement

Applicants can waive the 3 day requirement provided a copy of ALL Written Appraisals and valuations are provided AT or PRIOR TO closing. App must request a Waiver

Adverse Action - Commercial when its required under $1MM

Business with annual gross revenues of less than $1 million require: 1. Notice (verbal or written) must be given in a "reasonable time" after adverse action is taken 2. Written statement of denial reasons required ONLY if applicant makes a written request for information within 60 days after notice

Specific rules concerning use of information - Cannot

Cannot take into account the following when determining credit worthiness: Age, Childbearing, income derived from annuity, pension, or other retirement benefit; a creditor may consider the amount and probable continuance of any income in evaluating an applicant's creditworthiness; credit history, immigration status unless it reflects the ability to not pay, Race, color, religion, national origin, sex, marital status

What types of loans are covered for Reg B and Reg C (HMDA) requirements?

Closed-end mortgage loans if it submitted HMDA data concerning closed-end mortgage loans for any of the preceding five calendar years Open-end lines of credit if it submitted HMDA data concerning open-end lines of credit for any of the five preceding five calendar years Covered loans if it submitted HMDA data for any of the preceding five years, but is not currently subject to HMDA reporting requirements Covered loan threshold (closed-end or open-end line of credit) was exceeded in the first of the two-year threshold period (provided in Regulation C) may collect monitoring information in the second year Covered loans in which the creditor collects monitoring information on an applicant and first co-applicant may also collect the information on a second co-applicant

What is disparate impact?

Disparate impact occurs when a practice that the lender applies uniformly to all applicants has a discriminatory effect on a prohibited basis and does not have a sufficient business justification. Unlike overt discrimination, such as denying loans to women or certain racial groups, disparate impact involves the application of a policy or requirement that is neutral on its face, but that has the result of treating persons less favorably on a prohibitive basis without a legitimate business justification or implementation of a practice with less discriminatory impact.

What is disparate treatment?

Disparate treatment occurs when a lender treats similarly situated applicants differently on one of the prohibited bases (for example, offering less favorable terms based on a person's race.

615(a) or 615(b) disclosures

ECOA adverse action notice must include the FCRA 615(a) or (b) disclsoure. a. states that the creditor obtained information from a consumer reporting agency and took action based on that information. b. action is taken based on info 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.

What loans are covered by ECOA - Reg B?

ECOA covers all types of credit, including consumer and business credit, such as loans used to purchase a car or start a small business.

What are prohibited bases?

ECOA provides that credit cannot be denied on a prohibited basis. Prohibited bases include race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract), the fact that all or part of the applicant's income derives from a public assistance program, or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act.

What credit processes are covered? ECOA

ECOA provisions affect a bank's procedures for all aspects of the credit transaction process. Note that there are special rules and exemptions from the regulation for credit transactions involving public utilities, securities, incidental credit, and government credit programs.

Credit transaction (ECOA)

Every aspect of the dealings between an applicant for credit and a creditor regarding an application for credit or an extension of existing credit.

Reg B - Withdrawn, denied, or incomplete applications

If the application for credit is withdrawn, denied, or incomplete, the creditor must still provide a copy of the Notice and any completed appraisal or valuation. It is important to ensure that your loan system is set up to generate the Notice even if the Loan Estimate is never provided. Copies of valuations may be provided to the applicant in electronic form, subject to compliance with the consumer consent and other applicable provisions of the E-Sign Act.

ECOA Record keeping

In general, a bank must preserve all written or recorded information connected with an application for twenty-five months (twelve months for business credit) after the date on which the bank informed the applicant of action taken on an application or of incompleteness of an application.

Joint intent

Joint applicants must have evidence of joint intent. Evidence must be gathered at application, not later (i.e. 2 parties signing the note would NOT evidence joint intent for joint credit)

the rules you must keep in mind in order to comply with ECOA and Regulation B.

Making credit available Taking loan applications (from every applicant) Evaluating applicants fairly Notify loan decisions

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.

Reg B Appraisal Rules Overview

Regulation B requires creditors to provide applicants free copies of all appraisals and other written valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling, and requires creditors to notify applicants in writing that copies of appraisals will be provided to them promptly. These requirements apply even if the loan is denied or the applicant does not request copies. The appraisal rule applies to any application for open-end or closed-end credit secured by a first lien on a dwelling. A dwelling means any residential structure, which Business credit, including investment properties, are subject to the requirements of the new rule, as there is no exemption for credit securing property which is not owner-occupied.

Consumer Credit Protection Act

The Consumer Credit Protection Act covering consumer (and some commercial) credit. The Equal Credit Opportunity Act is Title VII of the act.

FCRA Disclosure in Adverse Action Notice

The adverse action notice must include the Fair Credit Reporting Act disclosure. 1. disclosure states that the creditor obtained information from a CRA and took action based on that information. 2. adverse action is taken based on information from an outside source other than a CRA. 3. disclosure required 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.

Not Valuations

The following are documents that are NOT valuations: - Internal documents that restate the est value of the dwelling contained in an appraisal or written valuation being provided to the applicant Governmental agency statements of appraised value that is publicly available Publicly available lists of valuations (such as published sales prices or mortgage amounts, tax assessments, and retail price ranges) Manufacturers' invoices for manufactured homes Reports reflecting property inspections that do not provide an estimate or opinion of the value of the property and are not used to develop an estimate or opinion of the value of the property Appraisal reviews that do not include the appraiser's estimate of the property's value or opinion of value

Adverse action statement of reasons (1)

The statement of reasons for adverse action must be specific and indicate the principal reason(s) for the adverse action. Statements that the adverse action was based on the creditor's internal standards or policies, or that the applicant, joint applicant, or similar party's credit score failed to qualify are insufficient.

Timing of Action notice

Timing of notice - receipt of completed application and the creditor has 30 days

Reg B Appraisal Clerical Errors

To avoid interrupting transactions at the last minute, when a clerical correction is made in an appraisal or other written valuation that the creditor has already given the applicant, a creditor can have the applicant waive the right to receive the revision three business days before consummation or account opening. The waiver can be oral or written as long as it meets the following five criteria: 1.The revisions must be solely to correct clerical errors in that appraisal or other written valuation 2.The revisions must have no impact on the estimated value 3.The revisions must have no impact on the calculation or methodology used to derive the estimate 4.The applicant receives the revised appraisal or other written valuation at or prior to consummation or account opening 5.The applicant must have already received the valuation that is being corrected either promptly upon completion or three business days before consummation or account opening, whichever is earlier

Discriminate (ECOA)

To treat a credit applicant less favorably than other applicants who have similar characteristics (in other respects) or are in similar circumstances.

Prohibited and Permissible Requests

When a loan application is made, you generally may gather any information about the applicant that is considered pertinent to a credit decision. With few exceptions, however, ECOA prohibits you from requesting certain types of information on applications. Generally, applicants cannot be asked questions relating to the following areas: Marital status Alimony* Sex Spouse or former spouse Child support* Childbearing practices Separate maintenance income* Race, color, religion, or national origin *(Unless the applicant wishes to rely on this income to qualify for the loan.)

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

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.

Credit history - Prohibited basis

You may consider credit history if it is standard to do so for all similarly qualified applicants for similar types and amounts of credit. If you do so, you must consider all accounts the applicant and spouse are permitted to use, or for which both are contractually liable. If the applicant requests, you must consider any information that indicates that the credit history does not accurately reflect the applicant's creditworthiness, as well as, any account of a spouse or ex-spouse that demonstrates the applicant's creditworthiness.

State property laws - prohibited basis

You may consider state property laws in the process of evaluating an application.

Immigration status - prohibited basis

You may consider the applicant's immigration status, including whether the applicant is a permanent resident of the United States.

Age - Prohibited basis

You may consider whether an applicant is old enough to legally enter into a contract. You may also consider age if it relates to another element of allowable creditworthiness. For example, you may consider how much time an applicant has until retirement to determine if there will be sufficient income for repayment. Reg B also allows a lender to give preferable treatment, such as better terms or rates, to individuals over the age of 62.

Income - Prohibited basis

You may not exclude income of an applicant or spouse that is derived from part-time employment or is an annuity, pension, or other retirement benefit. In addition, you may not exclude any income received from alimony, child support, and separate maintenance payments, but you may consider the amount and probable continuance of all such income.

Childbearing - Prohibited basis

You may not make assumptions or use statistics to predict the likelihood that any group of persons will bear or rear children or that, as a result of having children they will suffer diminished or interrupted income.

Telephone listing - prohibited basis

You may not take into account whether there is a telephone listing in the applicant's name. You may take into account, however, whether there is a telephone in the applicant's residence.

Marital status - prohibited basis

You may not treat married applicants differently based on joint status

Information about a spouse or former spouse - general rule

a creditor may not request any information concerning the spouse or former spouse of an applicant.

Separate maintenance income

alimony or child support.

Valuations

any estimate of the value of a dwelling developed in connection with an application for credit. A report prepared by an appraiser including the appraiser's estimate or opinion of the property's value A doc by the creditor that assigns value to the property 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 A report generated by use of an automated valuation model to estimate the property's value A broker price opinion prepared by a real estate broker, agent, or sales person to estimate the property's value

Discrimination

creditor shall not discriminate against an applicant on a prohibited basis regarding any aspect of a credit transaction.

Disclosure about income from alimony, child support, or separate maintenance.

creditor shall not inquire whether income stated in an application is derived from alimony, child support, or separate maintenance payments unless the creditor discloses to the applicant that such income need not be revealed if the applicant does not want the creditor to consider it in determining the applicant's creditworthiness.

Discouragement

creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application.

Provide - ECOA

delivery to the applicant. Delivery is assumed after three business days after mail or delivery to the last-known address of the applicant, or when evidence indicates the applicant actually received the copies, whichever is earlier. For electronic delivery or receipt to be documented, the creditor must comply with E-SIGN requirements.

Form of disclosures

disclosures must be in a clear and conspicuous manner and, in a form the applicant may retain.

Disclosures in electronic form

disclosures required to be given in writing may be provided to the applicant in electronic form, subject to compliance with E-Sign Act

credit scoring system

evaluates creditworthiness, based on key attributes and aspects of the transaction, and that determines, alone or in conjunction with an evaluation of additional information about the applicant, whether an applicant is deemed creditworthy.

How is an application under ECOA evaluated?

judgmental system, a credit scoring system, or some combination of the two. With a judgmental system, human judgment is used to evaluate applicants based on a bank's own credit experience as a lender and its credit policies, procedures, and practices. Credit scoring is an empirically derived numerical rating system using statistical information based on actual loan accounts and their history that is evaluated against the financial information supplied by the applicant. If the applicant's score falls below a certain level the loan is denied

Other permissible collection of information

may collect information regarding the ethnicity, race, and sex of an applicant for a closed-end mortgage loan that is an excluded transaction submits HMDA data concerning such closed-end mortgage loans and applications or if it submitted HMDA data concerning closed-end mortgage loans for any of the preceding five calendar years; Also can collect race and ethnicity for open-ended credit

Information about a spouse or former spouse - Permissible inquiries

may request any information concerning an applicant's spouse (or former spouse may be requested about the applicant if: (i- spouse will be permitted to use the account; (i- spouse will be contractually liable on the account; (i- applicant is relying on the spouse's income as a basis for repayment - applicant resides in a community property state - applicant is relying on alimony, child support, or separate maintenance payments as a basis for repayment of the credit requested. *can request info on other account

Account

means an extension of credit. When employed in relation to an account, the word use refers only to open-end credit.

Application

means an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested. The term application does not include the use of an account or line of credit to obtain an amount of credit that is within a previously established credit limit.

Open-ended credit

means credit extended under a plan in which a creditor may permit an applicant to make purchases or obtain loans from time to time directly from the creditor or indirectly by use of a credit card, check, or other device.

Prohibited basis

means race, color, religion, national origin, sex, marital status, or age (provided that the applicant has the capacity to enter into a binding contract); the fact that all or part of the applicant's income derives from any public assistance program; or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act or any state law upon which an exemption has been granted by the Bureau.

Discriminate against an applicant

means to treat an applicant less favorably than other applicants.

Completion (ECOA)

occurs when the creditor has reviewed and accepted the appraisal or other written valuation (including any required changes or corrections), or when the creditor receives the final version of the document, whichever is later.

Purpose of Reg B

promote the availability of credit to all creditworthy applicants without regard to race, color, religion, national origin, sex, marital status, or age (provided the applicant has the capacity to contract)

Limited exceptions ECOA

requires the collection of some information for monitoring purposes and allows for the collection of information when required by another regulation or, by agreement of a court, to monitor compliance with ECOA or any other statute. For example, - the Home Mortgage Disclosure Act (HMDA) provides for the collection of such information and can be substituted for the requirement under Regulation B when the institution is subject to the requirements of Regulation C. This eliminates conflict when multiple regulations apply.

Counter offer acceptance

with in 90 days

FCRA requirements in Adverse Action Notice

•A numerical credit score used in making the credit decision •The range of possible scores under the model used •Generally, up to four key factors that adversely affected the credit score of the consumer in the model used •The date on which the credit score was created •The name of the person or entity that provided the credit score The FCRA provides that if the credit score was a factor in the adverse action decision, even if it was not a significant factor, the revised notice requirement applies. The Regulation states that a creditor may not comply with the credit score notification requirement by attaching a credit score disclosure furnished by a consumer reporting agency. If a credit score is used to deny the loan, the Reg B credit score notice must be provided regardless of whether the creditor provides a statement of specific reasons for taking the adverse action or a disclosure of the applicant's right to the statement.