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Credit Discrimination: 5.5.3.4 Special Purpose Credit Programs

Regulation B creates special rules for special purpose credit programs, which are programs that address the credit needs of economically disadvantaged groups.265 If participants in such a program are required to possess one or more common characteristics (such as race, national origin, or sex), a creditor may request information regarding those common characteristics.266 For example, if an energy conservation program is created to assist older consumers, the creditor may ask the applicant’s

Credit Discrimination: 5.5.3.5 Self-Test Exception

As part of the revisions to Regulation B in March 2003, a new exception was created permitting a creditor to request information about an applicant’s race, color, religion, national origin, and sex for the purpose of conducting a self-test under section 1002.15.270

Credit Discrimination: 5.6.1 General

The general rule against discrimination prevents a creditor from seeking a spouse or other person to co-sign or guarantee a loan on a prohibited basis.283 Thus, creditors may not ask husbands to co-sign loans while not requiring wives to do so or require only applicants on public assistance to provide co-signers.

Credit Discrimination: 5.6.2 Individual Credit When No Joint Property Is Involved

A creditor may not require the signature of a spouse or any other additional person on a credit instrument if the applicant has requested an individual account, no jointly held or community property is involved, and the applicant individually meets the creditor’s standards for creditworthiness for the amount and terms of credit requested.295 For example, a creditor may not automatically require that applications by married women for individual credit be signed by their husbands or that unmarried women applicants obtain co-signers for loans,

Credit Discrimination: 5.6.3 Reliance on Jointly Owned Property to Establish Creditworthiness

If an applicant requests individual unsecured credit and relies on jointly owned property to establish creditworthiness, the creditor may require the signature of a spouse or other person on an instrument necessary to make the property available to the creditor in case of death or default.309 For example, if a house is held in tenancy by the entirety under state law and cannot be transferred by only one spouse, the creditor may request the wife’s signature if the husband applies for credit and relies on the house to establish creditworthine

Credit Discrimination: 5.6.4 Reliance on Community Property to Establish Creditworthiness

If a married applicant requests individual unsecured credit in a community property state or relies on property located in such a state, the creditor may request the spouse’s signature on instruments necessary to make community property available in case of death or default.319 Similarly, in a community property state, if an applicant for individual credit relies on the future earnings or income of another person, the creditor may require the signature of that individual320 (the official int

Credit Discrimination: 5.6.6 When Do Applicants Voluntarily Enter into a Joint Account?

When a joint, rather than an individual, application for credit is made, the creditor clearly has the right to ask for the signature of both persons involved.330 However, in order for an account to be truly joint and thus avoid ECOA co-signer limitations, the co-signer must have voluntarily entered into the loan. The official interpretations state that a joint applicant “refers to someone who applies contemporaneously with the applicant for shared or joint credit.

Credit Discrimination: 5.6.7 Authorized Users

Credit card and other credit accounts often provide the individual borrower the opportunity to designate another individual as an authorized user. The latter may use the account but is not liable for payment of debts accrued to the account.

Credit Discrimination: 5.6.8 Signature of Guarantor’s Spouse

The rules limiting a creditor’s ability to require the signature of an applicant’s spouse apply as well to a creditor’s attempt to obtain the signature not only of a guarantor but also a guarantor’s spouse.348 For example, if a creditor requires one parent’s signature on a credit application in addition to the applicant’s, it may not require that the father sign in addition to the mother.

Credit Discrimination: 5.8.1 Discriminatory Practices

In addition to the Equal Credit Opportunity Act’s (ECOA) co-signature rules, a creditor may not discriminate on a prohibited basis as to the type of protection it demands on a loan, including collateral or security. For example, a creditor cannot require that married women alone put up a home as collateral on a small loan when other applicants need not do so.

Credit Discrimination: 5.8.2 Injury Caused by Such Discrimination

Merely requiring extra security may not seem injurious to a consumer, but such discrimination can often cause the consumer financial damage even if the loan never goes into default, and these damages should be recoverable under the ECOA. If a consumer must put up personal property as collateral, the creditor may require the consumer to purchase property insurance on that collateral. Using a home as security may require various closing costs.

Credit Discrimination: Introduction

1. Official status. Section 706(e) of the Equal Credit Opportunity Act protects a creditor from civil liability for any act done or omitted in good faith in conformity with an interpretation issued by a duly authorized official of the Bureau. This commentary is the means by which the Bureau of Consumer Financial Protection issues official interpretations of Regulation B. Good-faith compliance with this commentary affords a creditor protection under section 706(e) of the Act.

Credit Discrimination: 1(a) Authority and scope.

1. Scope. The Equal Credit Opportunity Act and Regulation B apply to all credit—commercial as well as personal—without regard to the nature or type of the credit or the creditor, except for an entity excluded from coverage of this part (but not the Act) by section 1029 of the Consumer Financial Protection Act of 2010 (12 U.S.C. 5519). If a transaction provides for the deferral of the payment of a debt, it is credit covered by Regulation B even though it may not be a credit transaction covered by Regulation Z (Truth in Lending) (12 CFR Part 1026).

Credit Discrimination: 2(c) Adverse action.

Paragraph 2(c)(1)(i).

1. Application for credit. If the applicant applied in accordance with the creditor’s procedures, a refusal to refinance or extend the term of a business or other loan is adverse action.

Paragraph 2(c)(1)(ii).

Credit Discrimination: 2(e) Applicant.

1. Request to assume loan. If a mortgagor sells or transfers the mortgaged property and the buyer makes an application to the creditor to assume the mortgage loan, the mortgagee must treat the buyer as an applicant unless its policy is not to permit assumptions.

Credit Discrimination: 2(f) Application.

1. General. A creditor has the latitude under the regulation to establish its own application process and to decide the type and amount of information it will require from credit applicants.

Credit Discrimination: 2(g) Business credit.

1. Definition. The test for deciding whether a transaction qualifies as business credit is one of primary purpose. For example, an open-end credit account used for both personal and business purposes is not business credit unless the primary purpose of the account is business-related. A creditor may rely on an applicant’s statement of the purpose for the credit requested.

Credit Discrimination: 2(j) Credit.

1. General. Regulation B covers a wider range of credit transactions than Regulation Z (Truth in Lending). Under Regulation B, a transaction is credit if there is a right to defer payment of a debt—regardless of whether the credit is for personal or commercial purposes, the number of installments required for repayment, or whether the transaction is subject to a finance charge.

Credit Discrimination: 2(l) Creditor.

1. Assignees. The term creditor includes all persons participating in the credit decision. This may include an assignee or a potential purchaser of the obligation who influences the credit decision by indicating whether or not it will purchase the obligation if the transaction is consummated.

Credit Discrimination: 2(p) Empirically derived and other credit scoring systems.

1. Purpose of definition. The definition under §§ 1002.2(p)(1)(i) through (iv) sets the criteria that a credit system must meet in order to use age as a predictive factor. Credit systems that do not meet these criteria are judgmental systems and may consider age only for the purpose of determining a “pertinent element of creditworthiness.” (Both types of systems may favor an elderly applicant. See § 1002.6(b)(2).)