Credit Discrimination

Question 1

ECOA

Answer 1

1. Prohibits discrimination under several listed bases
2. Variety of prophylactic measures designed to prevent discrimination beforehand and to allow protected groups to recognize when discrimination is occurring
3. Passed in 1974, broadened in 1976 to current list
   a. Initially only protected against discrimination the basis of sex and marital status
4. Congress transferred power to CFPB in 2007 as a result of the financial crisis

Question 2

Scope of ECOA

Answer 2

ix. § 1691(a) Scope of Prohibition: it shall be unlawful for any creditor to discriminate at any stage against any applicant, with respect to any aspect of a credit transaction
1. (a)(1): on the basis of race, color, religion, national origin, sex or marital status, or age;
a. Race: unfavorably bc race or any characteristic of race
b. Color: only on skin pigmentation
c. National origin: ethnicity is included here (aka last names)
2. (a)(2): because all or part of the applicant’s income derives from any public assistance program; OR
3. (a)(3): because the applicant has in good faith exercised any right under this chapter
4. Exception: can take in capacity of contract (i.e., can disc against minors)

Question 3

§ 1691(d) Reason for adverse action; procedure applicable; “adverse action” defined

Answer 3

1. (1) Notice: requires a creditor who has taken adverse action to send a notice to the credit applicant within 30 days after receipt of a completed application for credit.
   a. Failure to do so is an ECOA violation even in the absence of discrimination
2. (2): Each applicant against whom adverse action is taken shall be entitled to a statement of reasons for such action from the creditor. A creditor satisfies this obligation by –
   a. (A) providing statements of reasons in writing as a matter of course to applicants against whom adverse action is taken; OR
   b. (B) giving written notification of adverse action which (i) discloses the applicant’s right to a statement of reasons within 30 days after receipt by creditor of a request made within 60 days after such notification, and (ii) the ID of the person or office from which statement may be obtained
   i. Statement can be given orally if written notification advises applicant of his right to have the statement of reasons confirmed in writing on written request

Question 4

what is the purpose of the adverse action notice

Answer 4

i. Educate the consumer
ii. Goals of consumer protection
iii. Notices provide clues for consumers to determine if the creditors actions were discriminatory
iv. If creditor discloses, less likely to discriminate in the first place

Question 5

3. § 1691(d)(6) Adverse Action: a denial or revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the terms requested.

Answer 5

b. Apply for credit card, been denied, or a creditor unilaterally changes the interest rate based on credit history, etc.
c. Note: ECOA definition of adverse action references those particular actions that can result in an adverse action in the context of debtor-creditor relationship

Question 6

what is regulation B

Answer 6

xii. Regulation B implements ECOA regulations
i. Unlike other statutes, there is no limitation for consumer credit, meaning commercial credit isn’t excluded (for business or agricultural purposes)
ii. Purchases on credit card, medical bills, or even a local store where you run up a tab

Question 7

c. § 1002.2(l) Creditor:

Answer 7

includes persons such as real estate brokers, car dealers, home builders, and home-improvement contracts who don’t 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

i. Person who regularly participates in a credit decision
1. Vs. TILA
a. TILA definition of regularly applies
b. If someone is a creditor under TILA, they are likely a creditor under ECOA, but not the reverse
ii. Where the only role a person plays is accepting and referring applications for credit, or selecting creditors to whom applications will be made, the person meets the definition of creditor, but only for purposes of the prohibitions against discrimination and discouragement

Question 8

is there a private right of action under ECOA?

Answer 8

yes!

Question 9

who has authority to enforce ECOA

Answer 9

5. Authority
   a. Enforcement: Banking regulators, CFPB, and FTC
   i. FTC can’t enforce against banks, only CFPB can
   b. Rulemaking: transferred from the FRB to the CFPB

Question 10

ECOA violations, intent requirement?

Answer 10

xiii. Discriminatory intent
1. Not required to show specific intent to discriminate to find a violation
2. It is especially appropriate in ECOA violations b/c discrimination in credit transactions is more likely to be unintentional, rather than the intentional
3. A creditor’s conduct in an individual transaction may be considered to determine the existence of credit discrimination, quite apart from intent

Question 11

iv. 1002.6(a) Rules Concerning Evaluation of Applicants

Answer 11

in general, a creditor may consider any info obtained, so long as the info isn’t used to discriminate against an applicant on a prohibited basis

1. Creditors are permitted to use whatever factors they want, as long as the factors listed don’t have a disparate impact
2. Can even include arbitrary factors like favorite pizza topping or first or last number of SS