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Credit Discrimination: 2.2.2.2.5 Rent-to-own and other terminable leases

Rent-to-own transactions (such as those involving televisions, electronic equipment, and appliances) are structured so that the consumer can terminate the lease at any time. Termination of the lease results in the forfeiting of any built-up equity from past lease payments, but the consumer owes no other early termination penalty. Typically, payments are made weekly or monthly, and the consumer has the option to keep the property after a stipulated number of payments.

Credit Discrimination: 2.2.2.3 Utility Service

There is no question that utility service involves credit for the purposes of the Equal Credit Opportunity Act (ECOA). The official interpretation states that a utility company is a creditor when it supplies utility service and bills the user after the service has been provided.47 Virtually all utility service is provided in this manner. Service is received, a monthly bill is sent, and some time after that payment is expected.

Credit Discrimination: 2.2.2.4 Check-Cashing and ATM Cards

Denial of an automated teller machine (ATM) card that merely accesses a savings account, without providing any accompanying overdraft privileges, has been found not to involve the right to defer payment of a debt and therefore not to involve “credit.”49 Another court also found a store’s check-cashing service to be a customer accommodation rather than an extension of credit.50 Accepting payment by check, rather than cash, does not involve credit.51

Credit Discrimination: 2.2.2.5 “Pay as You Go” Is Not Credit

For credit to be involved, there must be a deferral of payment of money owed. Thus, a court has found no credit involved when a home improvement contract’s schedule of payments substantially coincided with completion of the work, and there was no right given by the creditor to defer payment of the obligation.52 Similarly, when payment is made immediately upon the service being provided, there is no extension of credit.53

Credit Discrimination: 2.2.2.6 Medical Treatment

Medical care is another area in which denial of credit is almost equivalent to denial of service. Although some routine services may be offered only on a cash basis, more typically medical care involves deferred payment, to which the ECOA applies.

Credit Discrimination: 2.2.4.1 Definition of Applicant

Only applicants are protected under most ECOA provisions.67 The statute defines an “applicant” as “any person who applies to a creditor directly for an extension, renewal, or continuation of credit or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.”68

Credit Discrimination: 2.2.4.2 Guarantors, Sureties, and Similar Parties

Regulation B states that guarantors, sureties, endorsers, and similar parties are applicants “for purposes of § 1002.7(d) [dealing with spouses’ signatures].”80 One interpretation of this phrase is that guarantors and similar parties are not otherwise applicants.81 In fact, until 1985, Regulation B explicitly excluded guarantors, sureties, and similar parties from the definition of applicant.82

Credit Discrimination: 2.2.4.4 Applicant Need Not Be Seeking New Credit

Applicants are not just persons attempting to open a new account. The statutory definition includes a person applying for an “extension, renewal or continuation of credit” and someone who “applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.”109 The regulations clarify that the term also includes any person who has requested or received an extension of credit.110

Credit Discrimination: 2.2.5.2 “Regularly” Extends, Renews, or Continues Credit

The ECOA applies to any person that “regularly” extends, renews, or continues credit.117 Regulation B interprets this definition to require participation in a credit decision, including setting the terms of credit.118 Contentious issues in this category generally involve entities such as automobile dealers arguing that they only arrange credit for consumers and do not participate in credit decisions.119

Credit Discrimination: 2.2.5.3 Arrangers of Credit

The ECOA’s definition of creditor includes persons who regularly arrange for the extension, renewal, or continuation of credit.123 Arrangers include entities that may not provide credit but whose discrimination may prevent applicants from receiving credit.

Credit Discrimination: 2.2.5.4 Participants in the Credit Decision, Including Assignees

The Regulation B definition of creditor includes any person who in the ordinary course of business regularly participates in a credit decision, including setting the terms of the credit.146 The ECOA statute also specifically includes in the definition of creditor any assignee of an original creditor who participates in the decision to extend, renew, or continue credit.147 Regulation B further clarifies that this category includes persons such as a creditor’s assignee, transferee, or sub

Credit Discrimination: 2.2.5.6 The Government As Creditor

Transactions in which credit is extended by a government or a governmental subdivision, agency, or instrumentality are subject to the provisions of the ECOA and Regulation B,170 except that no action can be brought against a governmental creditor for the recovery of punitive damages.171 However, if a government agency is operating a special purpose credit program, it is exempted from provisions of the ECOA and Regulation B that relate specifically to the program’s special purpose.

Credit Discrimination: 2.2.6.1 General

Regulation B creates partial exemptions from Equal Credit Opportunity Act (ECOA) coverage for five classes of credit: public utility credit, incidental consumer credit, business credit, securities credit, and credit extended to the government. It is important to realize that these are partial exemptions applicable to procedural ECOA requirements and that these partially exempt creditors must still comply with all other ECOA requirements.

Credit Discrimination: 2.2.6.4 Business Credit

The ECOA applies to business credit.209 Partial exemptions had been granted to credit extended primarily for business and commercial purposes,210 but the Women’s Business Ownership Act of 1988211 amended the ECOA to limit the Federal Reserve Board’s (FRB) ability to make such exemptions.

Credit Discrimination: 2.2.6.5 Securities Credit

A partial exemption from Regulation B is provided for extensions of credit subject to regulation by the Securities Exchange Act of 1934 or offered by a broker or dealer under that Act.216 The following specific provisions of Regulation B are not applicable to securities credit transactions:217

Credit Discrimination: 2.2.6.6 Credit Extended to the Government

Regulation B has exempted from ECOA procedural requirements transactions in which credit is extended to governments or governmental subdivisions, agencies, or instrumentalities. The only provision of the ECOA and Regulation B applicable to such transactions is the general rule forbidding discrimination against credit applicants on a prohibited basis.221

Credit Discrimination: 2.3.1 Overview

Three different provisions of the Fair Housing Act (FHA) may apply to credit discrimination. The first FHA provision covering credit discrimination (42 U.S.C. § 3605) applies to “residential real estate-related transactions.” A second FHA provision (42 U.S.C. § 3604) covering credit discrimination applies to the sale, rental, or advertising of dwellings. The third relevant provision (42 U.S.C.