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Credit Discrimination: 9.2.1 Loan Servicing

The official interpretations of Regulation B give “administration of accounts” as an example of the types of dealings between creditor and applicant that are covered by the Equal Credit Opportunity Act’s (ECOA) general prohibition against discrimination.1 Thus, a creditor cannot discriminate on a prohibited basis with respect to ease of payment, willingness to restructure or postpone payments, providing information about account balances, or denying a loan modification.2 Under the Fair Housing A

Credit Discrimination: 9.2.3 Changes in Account Status

The ECOA’s general rule against discrimination applies not only to the initial granting of credit but to any changes in an account, such as raising the credit limit, changing credit terms, renewing the account, or terminating credit.

Credit Discrimination: 9.2.4 Treatment upon Default

When a consumer is delinquent on an account, a creditor can take various steps to collect the amount due or enforce the credit agreement. Such actions are related to the credit transaction and, under the ECOA, creditors may not treat debtors differently post-default on a prohibited basis.

Credit Discrimination: 9.3 Collection Against Non-Obligated Spouse Under Necessaries, Family Expense Laws

Many states still have laws on the books dating from the early nineteenth century, when it was widely held that a married woman could not contract in her own name.46 The courts developed a fiction that the wife was acting as her husband’s agent. The husband was presumed to have authorized his wife’s purchases, unless the creditor was otherwise notified. Essentially, common law placed a unilateral obligation on the husband to support his wife financially.

Credit Discrimination: 9.4.1.1 Introduction

Regulation B establishes procedures that creditors must follow when they furnish information about certain accounts to credit reporting agencies.55 These procedures are designed to ensure that each spouse may build a credit history on the basis of accounts which they both use or for which both are contractually liable even if only one spouse is listed as the primary obligor.

Credit Discrimination: 9.4.1.2 Scope and Exemptions

Creditors are not required to furnish credit information on its accounts; these requirements apply only to creditors that choose to furnish credit information to credit bureaus or to other creditors.56 The requirements do not apply to incidental consumer credit57 or to securities credit.58

Credit Discrimination: 9.4.1.3 Creditors Must Furnish Information About Joint Account Holders and Authorized User-Spouses

The spousal credit reporting provisions require a creditor that furnishes credit information to a reporting agency to designate any new account to reflect the participation of both spouses if the applicant’s spouse is permitted to use the account or is contractually liable on the account.63 Spouses who are permitted to use an account but who have not agreed to be liable for the debt are called “authorized users.”64

Credit Discrimination: 9.4.1.4 Interaction with the Fair Credit Reporting Act

The spousal reporting requirements of Regulation B apply only to accounts held or used by spouses. Nevertheless, the official interpretations permit creditors to designate all joint or authorized user accounts to reflect the participation of both parties even if the parties are not married to each other.77 The extension of this option to authorized users who are not married has presented problems for consumers when the account holder becomes delinquent or goes into default.

Credit Discrimination: 9.4.1.5 “Piggybacking”

The credit scoring algorithms developed by Fair Isaac91 currently factor into the calculation of a credit score, the information about authorized users that creditors submit pursuant to Regulation B. If the account has a positive payment history, it will raise the score of the authorized user.

Credit Discrimination: 9.4.2 Other Credit Reporting Issues

When a consumer exercises their rights in good faith under the Consumer Credit Protection Act (CCPA), creditors may not discriminate in reporting that consumer’s credit information to other creditors or to reporting agencies.96 For example, a creditor may not report a debt as “charged-off,”97 or give it a similar adverse characterization, when in fact the account was paid or canceled as part of a settlement or judgment in a suit brought by the consumer under CCPA.

Credit Discrimination: 9.5.1 Rules Limiting Creditor Actions

A creditor may not require reapplication for an open-end account, change the terms of an open-end account, or terminate an open-end account merely because account holders reach a certain age, retire, or change their name or marital status.101 The creditor may take such actions only if there is evidence of the account holder’s inability or unwillingness to repay.

Credit Discrimination: 9.5.2.1 Rules Apply Only to Open-End Accounts

The rules limiting creditor actions in closing or altering existing accounts apply only to open-end accounts. Open-end credit is defined in Regulation B as “credit extended under a plan under which a creditor may permit an applicant to make purchases or obtain loans from time to time,”106 as opposed to a one-time closed-end transaction such as a car loan.

Credit Discrimination: 9.5.2.2 Rules Protect Only Applicants Who Are Contractually Liable

The rules limiting creditor actions in closing or altering existing accounts protect “applicants”108 who are “contractually liable.”109 Under Regulation B, a person who is contractually liable for a debt is expressly obligated to repay all debts on an account, pursuant to an agreement.110 Thus, a man who signed an agreement jointly with his wife may have protections against a reapplication requirement upon divorce or the death of his wife, while a

Credit Discrimination: 9.5.3 Status of Account During Reapplication

If a creditor requires a customer to reapply for an existing account, the applicant must be allowed full access to the account under existing terms while the reapplication is pending. The creditor may, however, specify a reasonable time period within which the account holder must submit the required information.112

Credit Discrimination: 9.5.4 When Creditor Can Request Updated Information from Account Holders

Creditors are not prohibited from periodically reevaluating the financial status of account holders to determine their ability to repay. For instance, creditors may ask account holders for regular income reports. They may also obtain credit reports on account holders for the purpose of reviewing the account.113 If such a report indicates that an account holder has retired and, as a result has a reduced income, the creditor could use this report as evidence of inability to repay and terminate the account.

Credit Discrimination: 2.1 Introduction

Credit discrimination statutes apply broadly to a wide range of credit-related activities. In addition, the statutes cover a wide range of credit actors, including lenders, brokers, assignees, and even secondary market purchasers.

This chapter deals specifically with who is covered and what types of actions are covered. Subsequent chapters address the various stages of the credit process at which discrimination might occur and when this discrimination might be illegal. As requirements are different under the different statutes, each statute is treated separately in this chapter.

Credit Discrimination: 2.2.2.1.1 General

The ECOA generally only applies to credit transactions.2 For ECOA purposes, the definition of credit is quite broad. Credit is the right granted by a creditor to:

Credit Discrimination: 2.2.2.1.2 Is “debt” required to meet the ECOA definition of credit?

All three elements of the ECOA definition of credit require deferment of payment. However, the third category—the right granted by a creditor to “purchase property or services and defer payment”—is distinguishable from the first two in that it does not refer specifically to debt. Some courts have held that this distinction means the existence of debt is not a prerequisite to an ECOA credit transaction.15

Credit Discrimination: 2.2.2.2.1 Overview

There are four primary types of consumer leases: (1) leases involving residences (such as apartments and manufactured home park space); (2) automobile and other durable-goods leases covered by the federal Consumer Leasing Act;22 (3) credit sales disguised as leases; and (4) rent-to-own leases (terminable at will subject to forfeiture of any built-up equity) of electronic entertainment equipment, appliances, furniture, and other consumer items.

Credit Discrimination: 2.2.2.2.2 Disguised credit sales

If a lease is really a disguised credit sale, it should certainly fall within the ECOA’s definition of credit. Statutes utilize various standards to determine if a transaction is a disguised credit sale. Under the Truth in Lending Act, a lease is “credit” if the customer contracts to pay a sum substantially equivalent to, or in excess of, the value of the property or services involved and will become the owner at no extra cost, or for a nominal consideration, upon full compliance with the lease’s terms.23

Credit Discrimination: 2.2.2.2.3 Personal property leases covered by the Consumer Leasing Act

The leading case, Brothers v. First Leasing,25 a Ninth Circuit opinion, holds that the ECOA applies to personal-property leases covered by the Consumer Leasing Act (CLA). While the decision details numerous reasons for this result, there are two major grounds for the holding. First, in the lease at issue (and most other leases covered by the CLA), the consumer is obligated to make a total payment over the lease term and payment is deferred through monthly installment payments.

Credit Discrimination: 2.2.2.2.4 Residential leases

The Brothers v. First Leasing holding is explicitly limited to personal property leases covered by the Consumer Leasing Act (CLA). Apartment leases, leases of manufactured home park space, and other real-estate-related leases are not covered by the CLA and thus do not fall under the precise Brothers court’s holding. Moreover, the Brothers reasoning concerning the CLA and ECOA being part of the same statute is inapplicable to residential leases.