COMMENT CALL: The CFPB is proposing to amend Reg. B (which implements the federal Equal Credit Opportunity Act or ECOA), making two changes of importance to credit unions:
Disparate impact discrimination
The first change would eliminate the concept of “disparate impact” discrimination from Reg. B.
“Disparate impact” refers to a practice in which a creditor applies a lending policy or practice uniformly to all credit applicants, without any intent to discriminate; however, that policy or practice disproportionately excludes or burdens certain applicants based on a protected classification – in effect, causing discrimination.
In September, the NCUA removed all references to disparate impact liability from its Fair Lending Guide and other reference materials, in response to a recent Executive Order. This Compliance Courier has details.
The CFPB’s proposal says that the ECOA does not allow liability claims based on a disparate impact theory, only intentional discrimination. So, the Bureau is proposing to remove the long‑standing “effects test” language from Reg. B and its commentary, upon which disparate impact liability is based.
The change would not necessarily eliminate the risk of a disparate impact discrimination claim. As one law firm wrote, “Although disparate-impact claims may be removed from Regulation B, it is still possible that a court might interpret the intent of ECOA as covering disparate impact. As such, lenders still face some risk in the event their facially neutral lending policies or practices have a disparate impact on protected classes, although those compliance and litigation risks are greatly diminished by this proposed rule change.”
The “discouragement” standard
The second proposed change deals with a Reg B provision that bars lenders from making oral or written statements to credit applicants (or prospective applicants) that would discourage a reasonable person from applying for credit because of age, race, national origin, or another prohibited basis.
The proposal would narrow these concepts in several ways:
- The CFPB’s current staff commentary explains that when Reg. B refers to “oral or written statements,” that includes other kinds of “acts or practices.” The proposal would limit “statements” to mean only spoken or written words or visual images (including advertising visuals), as opposed to broader “acts or practices” such as branch placement or advertisement targeting.
- Liability would attach only to statements “directed at” intended recipients and only where a creditor knows or should know the statement would cause a reasonable person to believe the creditor would deny, or offer worse terms for, a credit application because of a prohibited basis.
- The change would clarify that a lender may send encouraging messages directed at one audience without it being treated as discouraging to other people who were not the messages’ intended recipients.
- The change would also add examples to the Reg. B commentary, to illustrate statements that a creditor could make (such as support for local law enforcement, neighborhood due‑diligence advice, or supporting financial literacy), to distinguish controversial speech from statements that would be prohibited as discriminatory.
Special purpose credit programs
The proposal would also change rules related to “special purpose credit programs” (SPCPs) offered by for-profit organizations. Separate Reg. B rules address SPCPs offered by not-for-profit organizations, and the CFPB is not proposing to revise them. As the NCUA pointed out in a recent Letter to Credit Unions, credit unions are only subject to the SPCP rules for not-for-profit organizations. As a result, this part of the new CFPB proposal should not affect credit unions.
Make your voice heard
How do you feel about these proposed changes? Should The League support them? Oppose them? Offer alternatives? The League would like to hear your thoughts before we comment on this proposal. Please share your feedback with Paul Guttormsson by Dec. 8, so that our comment letter, which is due Dec. 15, can reflect your views. (We won’t identify your credit union in our letter, of course.)
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