Equal Credit Opportunity Act: Regulation B

Background

The Equal Credit Opportunity Act (ECOA) of 1974,

which is implemented by the Board’s Regulation B,

applies to all creditors. The statute requires financial

institutions and other firms engaged in the

extension of credit to ‘‘make credit equally available

to all creditworthy customers without regard to sex

or marital status.’’ Moreover, the statute makes it

unlawful for ‘‘any creditor to discriminate against

any applicant with respect to any aspect of a credit

transaction (1) on the basis of race, color, religion,

national origin, sex or marital status, or age

(provided the applicant has the capacity to contract);

(2) because all or part of the applicant’s

income derives from any public assistance program;

or (3) because the applicant has in good

faith exercised any right under the Consumer

Credit Protection Act.’’ In keeping with the broad

reach of the prohibition, the regulation covers

creditor activities before, during, and after the

extension of credit.

Under the ECOA, the Federal Reserve Board is

responsible for drafting and interpreting the implementing

regulation. Enforcement responsibility , however,

rests with a creditor’s functional regulator or,

for any category not so assigned, with the Federal

Trade Commission. A synopsis of some of the more

important points of Regulation B follows.

Prohibited Practices

Regulation B contains two basic and comprehensive

prohibitions against discriminatory lending

practices (section 202.4):

• A creditor shall not discriminate against an

applicant on a prohibited basis regarding any

aspect of a credit transaction.

• A creditor shall not make any oral or written

statement, in advertising or otherwise, to applicants

or prospective applicants that would

discourage, on a prohibited basis, a reasonable

person from making or pursuing an application.

Note that the regulation is concerned not only with

the treatment of persons who have initiated the

application process, but also with lender behavior

before the application is even taken. Lending

officers and employees must be careful to take no

action that would, on a prohibited basis, discourage

anyone from applying for a loan. For example,

a bank may not advertise its credit services and

practices in ways that would tend to encourage

some types of borrowers and discourage others on

a prohibited basis. In addition, a bank may not use

prescreening tactics likely to discourage potential

applicants on a prohibited basis. Instructions to

loan officers or brokers to use scripts, rate quotes,

or other means to discourage minority applicants

from applying for credit are also prohibited.

The prohibition against discouraging applicants

applies to in-person oral and telephone inquiries as

well as to written applications. Lending officers

must refrain from requesting prohibited information

in conversations with applicants during the preinterview

phase (that is, before the application is

taken) as well as when taking the written application.

T o prevent discrimination in the credit-granting

process, the regulation imposes a delicate balance

between the creditor’s need to know as much as

possible about a prospective borrower and the

borrower’s right not to disclose information irrelevant

to the credit transaction. T o this end, the

regulation prescribes rules for taking, evaluating,

and acting on applications as well as rules for

furnishing and maintaining credit information.

Rules for Taking Applications—

Section 202.5

Regulation B prohibits creditors from requesting

and collecting specific personal information about

an applicant that has no bearing on the applicant’s

ability or willingness to repay the credit requested

and could be used to discriminate against the

applicant.