CFPB Advisory Opinion Clarifies that ECOA Applies Throughout Credit Lifecycle

On Might 9, 2022, the Client Finance Safety Bureau (CFPB or the Bureau) issued an advisory opinion to make clear that the Equal Credit Alternative Act (ECOA) and Regulation B (Reg B) defend people and companies in opposition to discrimination in “all aspects of a credit arrangement.” In accordance with CFPB Director Rohit Chopra, the protections afforded below ECOA and Reg B don’t “vanish” after the applying course of. The opinion comes at a time when the Bureau has heightened its deal with making certain equity and racial equality in each credit score and non-credit points of shopper finance.

Related Background

ECOA, enacted in 1974 and amended in 1976, bans discrimination primarily based on race, coloration, faith, nationwide origin, intercourse, marital standing, and age. In drafting ECOA, Congress emphasised that prohibition on discrimination “applies to all credit transactions including the approval, denial, renewal, continuation, or revocation of any open-end consumer credit account.” S. Rep. 93-278, at 27. ECOA additionally requires collectors who deny or revoke credit score to offer discover to candidates. The Board of Governors of the Federal Reserve System (the Board) issued Reg B after ECOA handed. Reg B clarifies that candidates are shielded from discrimination in any facet of a credit score transaction.

The Dodd Frank Act, in flip, authorizes the Bureau to interpret ECOA and Reg B “as may be necessary or appropriate to enable the Bureau to administer and carry out the purposes and objectives of the Federal consumer financial laws, and to prevent evasions thereof.” 12 U.S.C. 5512(b)(1).

The CFPB, below the Biden administration, has elevated its supervisory and enforcement scrutiny of anti-discrimination, broadening its reach to non-credit products. The advisory opinion tracks arguments not too long ago made by the Bureau, the Federal Commerce Fee, the Federal Reserve Board of Governors, and the U.S. Division of Justice in an amicus temporary filed in a Seventh Circuit case. 

Evaluation of the Advisory Opinion

The advisory opinion clarifies that ECOA protects debtors with current credit score. Particularly, the Bureau stresses that ECOA prohibits lenders from discriminating in opposition to debtors by reducing their credit score limits or subjecting them to extra aggressive assortment practices. As a corollary, the Bureau additionally clarifies that lenders should present debtors with opposed motion notices below ECOA once they change current accounts negatively, terminate accounts, or in any other case make an unfavorable resolution in opposition to a borrower. 

Though, in observe, the CFPB has lengthy scrutinized all points of the credit score lifecycle to stop discrimination, the Might 9 advisory opinion formalizes the Bureau’s place and should intend to blunt trade efforts to construe ECOA extra narrowly and inform supervised entities of the Bureau’s compliance expectations. Lenders, to the extent they haven’t already finished so, might want to analyze their honest lending applications to find out whether or not any enhancements are warranted given the Bureau’s Might 9 advisory opinion.

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