The Consumer Financial Protection Bureau will issue a final rule on Wednesday to remove disparate impact from 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. President Trump last year issued an executive order directing federal agencies to “deprioritize enforcement” of statutes and regulations that include disparate-impact liability. The CFPB proposed a new rule to do that and make other changes to ECOA enforcement, with the final rule unchanged from the proposal, according to a notice in the Federal Register.
The final rule revises the prohibition on discouragement cases where the lender knows or should know that its statements would discourage a prospective applicant. It also clarifies that encouraging statements in marketing made to one group are not discouraging to other groups who were not included in the marketing effort.
As for special-purpose credit programs, the bureau will prohibit for-profit lenders from using race, sex or national origin as criteria for qualification. It will also place 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.
The American Bankers Association supported the changes to ECOA enforcement in a letter to the CFPB last year. “Such a framework will advance the purposes of the ECOA, encourage prudent, risk-based underwriting, and discourage arbitrary government enforcement,” it said.
