The Consumer Financial Protection Bureau is proposing to remove disparate impact from its enforcement of the Equal Credit Opportunity Act, clarify the prohibition on discouraging prospective applicants, and establish new limits on special-purpose credit programs offered by lenders.
The ECOA prohibits creditors from discriminating against applicants on the basis of race, sex and other factors. The CFPB argues that ECOA does not prohibit the use of otherwise neutral policies or practices that have an adverse effect on a member of a protected class, known as disparate impact.
President Trump in April issued an executive order directing federal agencies to “deprioritize enforcement” of statutes and regulations that include disparate-impact liability. The Office of the Comptroller of the Currency and the FDIC are among the agencies that have complied by making changes to exam procedures. In a proposed rule to be released Thursday, the CFPB is seeking to amend Regulation B to remove disparate impact, which would be a more durable change.
“The bureau has preliminarily determined that ECOA’s statutory language does not authorize disparate-impact liability and that the application of disparate impact liability in the credit context may undermine ECOA’s purposes,” the proposed rule states.
Discouragement
The CFPB is proposing to revise the prohibition on discouragement cases where the lender knows or should know that its statements would discourage a prospective applicant. According to the rule, the proposed changes eliminate “liability based solely on disparate-impact like discouragement claims.”
The proposal would also clarify that encouraging statements in marketing made to one group are not discouraging to other groups who were not included in the marketing effort.
Special-purpose credit programs
As for special-purpose credit programs, the bureau is proposing to prohibit for-profit lenders from using race, sex or national origin as criteria for qualification, and is proposing several new restrictions on the use of any common characteristics for determining eligibility.
“Among these new restrictions are additional requirements that a for-profit organization establish the fact that applicants with common characteristics that would otherwise be a prohibited basis would not receive credit under the organization’s current standards due to the common characteristic and that providing credit of the type and amount sought could not be accomplished through a program that does not use an otherwise prohibited basis as eligibility criteria,” according to the rule.
