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Credit Discrimination: 5.3.2.3 Other Guidance

An examination procedures guide from the Federal Financial Institutions Examination Council (FFIEC) describes the following scenarios as potential indicators of disparate treatment in marketing:44

Credit Discrimination: 5.3.3.1 Steering

Even if an applicant from a protected group can get past the marketing discrimination and through the creditor’s door, pre-application discrimination may still take place in the creditor’s office. One means of discouraging applicants on a prohibited basis is a practice called “steering.” Steering occurs when a loan officer refers prospective applicants away from one type of product or market (for example, a prime product) to another (for example, a subprime product).86

Credit Discrimination: 5.4.1 General

The next stage of the credit transaction involves the procedures for application for credit.107 In general, under the Equal Credit Opportunity Act (ECOA), there can be no differences in the application procedures if those differences are on a prohibited basis.108 The Fair Housing Act’s (FHA) general rule against discrimination also prohibits such discrimination in housing financing.

Credit Discrimination: 5.4.2.2 The Home Mortgage Exception

Applications must be in writing when credit is used to purchase or refinance the applicant’s principal residence and when the residence is taken as security for the loan.112 This requirement assists federal supervisory agencies in their enforcement of the ECOA and the FHA.113

Credit Discrimination: 5.4.3 Providing Disparate Levels of Assistance in the Application Process

Discrimination in the application process may involve allegations that a lender requested more—or different—types of information from or about protected class applicants, or provided disparate levels of assistance. The challenged conduct must be shown to be the result of disparate treatment or disparate impact.117 Most credit discrimination appears to occur in the context of applicants who are marginally qualified.

Credit Discrimination: 5.5.1.1 Introduction

There are a number of special Equal Credit Opportunity Act (ECOA) requirements and prohibitions concerning requests for information, especially information relevant to the prohibited bases. These requirements specify that various types of information may not be requested or may be requested only in certain situations.

Credit Discrimination: 5.5.1.2 ECOA Restricts Creditor from “Requesting” Information About an “Applicant”

An important aspect of the general rule regarding prohibited requests for information is the definition of the term “applicant” because the prohibitions cover only those information requests made about “applicants.”139 Regulation B defines an applicant as including “any person who requests or who has received an extension of credit” and “any person who is or may become contractually liable regarding an extension of credit.”140 Regulation B defines “contractually liable” as being expressly ob

Credit Discrimination: 5.5.1.4 Should Regulation B Permit or Require Creditors to Request Information About Prohibited Bases?

In 1999, the Federal Reserve Board (FRB) proposed removing the prohibition on seeking information about an applicant’s race, color, religion, national origin, and sex for non-mortgage credit products.159 This change was made in response to comments from the Department of Justice (DOJ) and other federal financial enforcement agencies that the enhanced ability to obtain data on race and ethnicity would aid fair lending enforcement, particularly with respect to small business lending.160

Credit Discrimination: 5.5.2.2.2 Courtesy titles

The applicant may be asked, but not required, to designate a courtesy title for the account (Ms., Miss, Mrs., or Mr.),187 and the application form must “appropriately” indicate that selection of such a designation is optional.188 All other terms used on the application must be gender-neutral.189

Credit Discrimination: 5.5.2.2.3 Birth control, childbearing, or childrearing

A creditor may not request any information about the applicant’s birth control practices, intention or capacity to bear children, or intention to rear children.190 A creditor, however, may request information about the applicant’s present dependents (such as the number of dependents and their ages) and related financial obligations for these present dependents, as long as this information is not solely requested from a group protected by the statute.191 For example, a creditor would violate

Credit Discrimination: 5.5.2.3.2 Types of marital status information which may be requested

In situations in which creditors may request an applicant’s marital status, creditors may categorize the applicant only as unmarried (which includes single, divorced, and widowed persons), married, or separated.206 These terms are to be defined by applicable state law.207 The creditor may explain that the category “unmarried” includes single, divorced, and widowed persons but is not required to do so.208

Credit Discrimination: 5.5.2.5 Public Assistance Status

With the exceptions of home mortgages and special purpose credit programs,226 a creditor is likely to be limited in the information it may seek about an applicant’s public assistance status. Whether a creditor may ask about the applicant’s public assistance status depends on what kind of credit evaluation system it uses. If the creditor utilizes a credit scoring system, it may not consider—and therefore presumably may not ask about—public assistance status.227

Credit Discrimination: 5.5.3.1 The Home Mortgage Monitoring Requirements

The major exception to the Equal Credit Opportunity Act’s (ECOA) prohibitions on prohibited inquiries is in the area of home mortgages. Both Regulation B and the Home Mortgage Disclosure Act (HMDA)231 require lenders to collect certain information regarding the residential real estate-related loans that they make.