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Credit Discrimination: 11.9.2.1.1.2 When the statute begins to run

In some circumstances, there may be some question as to the actual violation date. The date will vary depending on what the violation involves—application procedures, notice of adverse action, post-default collection procedures, and so forth. The violation date may be before or significantly after the application and loan dates. For example, if the violation occurs when a loan is renewed, the two-year period starts from that renewal date, not the date of the original loan.558

Credit Discrimination: 11.9.2.1.1.3 Extending the time period—continuing violation doctrine

Broadly speaking, the continuing violation doctrine allows plaintiffs to recover for incidents outside of the statutory time limit if at least one instance of the alleged practice occurred within the period and the earlier acts are part of a continuing pattern of discrimination.571 Lingering effects of the past discrimination are not sufficient.572 Nor does a refusal to grant a loan modification or communicate with a borrower serve to extend the limitations period on a claim of reverse redlining

Credit Discrimination: 11.9.2.1.2 Federal Civil Rights Acts claims

The limitations period for the federal Civil Rights Acts are somewhat complicated. The limitations period for a cause of action that could be brought under provisions of the Acts that existed prior to the 1991 amendments is determined by state law, so the period may be longer or shorter than the Fair Housing Act (FHA) and the Equal Credit Opportunity Act’s (ECOA) limitations periods.

Credit Discrimination: 11.9.2.1.3 State law claims

State credit discrimination acts often have short limitations periods, typically one year but sometimes two or three years.621 Just as commonly, the statute will not specify a limitations period. In these circumstances, states take varying approaches toward selecting an appropriate limitations period, some using the limitations period for statutory actions, some using those for tort actions, or some using those for specialty actions. These other limitations periods may be as short as one year but may be as long as four years or more.

Credit Discrimination: 11.9.3 Business Justification Defense

In most credit discrimination cases, the creditor will offer a purportedly legitimate business justification for its actions. Whether a business justification may be raised as a defense depends on the type of action being brought. For example, a business justification is not a defense to a creditor’s violation of a specific ECOA requirement, such as failing to send notice of an adverse action or seeking information not permitted to be inquired about.

Credit Discrimination: 11.9.4.1 Good Faith Compliance

The ECOA states that a creditor is not liable for any act done or omitted “in good faith in conformity” with Regulation B or with the official interpretations, even if the regulation or official interpretations are amended or determined to be invalid.635 The conduct must not only conform to the regulation but must have been in good faith conformity. Regulation B defines good faith as actions based on “honesty in fact” in the conduct or transaction.636

Credit Discrimination: 11.9.4.4 Special Defenses by FDIC and RTC

When a governmental agency such as the Federal Deposit Insurance Corporation (FDIC) or the Resolution Trust Corporation (RTC) takes over a bank, the ECOA still applies to the bank’s pre-takeover transactions. An ECOA violation is normally apparent on the face of the bank’s records—for example, requirement of a spouse’s signature when the credit application shows the applicant is creditworthy.

Credit Discrimination: 11.9.5 Special Defenses to Fair Housing Act and Civil Rights Acts Claims

The Fair Housing Act (FHA) and the federal Civil Rights Acts do not provide for any special defenses. The FHA regulations provide a defense when an entity purchases loans. Such an entity may consider factors justified by business necessity, such as considerations employed in normal and prudent transactions.654 As noted earlier, business justification is an issue in any disparate treatment or disparate impact case as well.655

Credit Discrimination: 10.1 Introduction

Previous chapters have focused on the ways in which the Equal Credit Opportunity Act (ECOA) and other federal credit discrimination statutes may be used to challenge discriminatory creditor behavior. The ECOA and its implementing Regulation B apply more broadly. Creditors may violate the ECOA and Regulation B not only by engaging in discriminatory actions but also by violating any of a number of procedural requirements intended to ensure compliance.

Credit Discrimination: 10.2 Overview of ECOA Notice Requirements

Creditor notification requirements vary depending on the situation7 and this chapter treats each of these different situations separately: (1) applications approved by the creditor; (2) applications in which the creditor makes a counteroffer as to the terms or amount of credit; (3) adverse actions on applications or on existing accounts; (4) incomplete applications; (5) withdrawn applications; and (6) notices of right to review appraisal reports.

Credit Discrimination: 10.3 Notification Requirement for Approved Applications

A creditor must notify an applicant of its decision to approve an application within thirty days after receiving a completed application.9 This notification may be either express or by implication. For example, implicit notification is given when the applicant receives a credit card, money, property, or other requested services.10

Credit Discrimination: 10.4.1 Overview

Sometimes the creditor’s response to a completed application will be to offer to extend credit, but on substantially different terms or in substantially different amounts than those requested by the applicant. Regulation B requires that a creditor notify an applicant of any counteroffer to the credit requested within thirty days after receiving a completed application.11

Credit Discrimination: 10.4.2 Is a Counteroffer an Adverse Action?

The ECOA defines “adverse action” as “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.”14 This definition clearly covers the typical counteroffer situation in which the loan the consumer receives at closing is substantially different than the loan requested.

Credit Discrimination: 10.4.4 Written Application Requirement

Another ECOA regulation requires that all home mortgage or refinancing applications must be in writing, as distinct from all other credit applications, which may be made orally.47 Creditor violation of this written application requirement should entitle a consumer to relief.48

Credit Discrimination: 10.5.1 Adverse Actions Involving New Credit Accounts

An adverse action is defined as any 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.”54 Adverse action occurs whether or not the creditor complies with the requirement to provide notice of adverse action.55

Credit Discrimination: 10.5.2 Adverse Actions Involving Existing Accounts

The issue of when a creditor has taken an adverse action concerning an existing account is somewhat more complex. Termination of an account or an unfavorable change in the terms of an account that does not affect all or a substantial portion of a class of the creditor’s accounts is an adverse action.70 An example of this type of adverse action is the automatic termination of the paid-up account of a recently divorced woman when no other paid-up accounts are terminated.

Credit Discrimination: 10.5.3 Adverse Actions Involving Counteroffers

The Equal Credit Opportunity Act (ECOA) defines “adverse action” as “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.”96 Regulation B defines “adverse action” as 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 expressl

Credit Discrimination: 10.5.4.2.2 Reasons must be accurate

The reasons disclosed must relate to and accurately describe those factors actually reviewed, considered, or scored.125 Moreover, no factor that was a principal reason for the adverse decision may be excluded, even if the relationship of that factor to creditworthiness may not be clear to the applicant.126