The CFPB recently issued an Advisory Opinion on Regulation B, ECOA’s implementing regulation, with respect to special purpose credit programs. ECOA generally prohibits discrimination in credit transactions on the basis of age, race, color, religion, national origin, receipt of public assistance benefits, and exercise of rights under the Federal Consumer Credit Protection Act. However, Section 701(c) of ECOA permits the consideration of a prohibited basis such as race, national origin, or sex in connection with a special purpose credit program. The Advisory Opinion clarifies for for-profit organizations the content that they must include in a written plan that establishes and administers a special purpose credit program, as well as the types of research and data they can use to support the need for such a program.
The written plan must contain information to support the need for the program, including
- The class of persons that the program is designed to benefit, who would otherwise be denied credit, or would receive credit on less favorable terms;
- A description of the procedures and standards for extending credit pursuant to the program, and an explanation of how they will increase credit availability with respect to the identified class of persons;
- Either (i) the time period during which the program will last or (ii) when the program will be reevaluated to determine if there is a continuing need for it; and
- A description of the analysis the organization conducted to determine the need for the program, which (i) can be based on the organization’s own research or data from third-parties, and (ii) must show how such class of persons would be denied credit or receive credit on less favorable terms under the organization’s customary credit standards.
If special purpose credit programs require classes of persons to have one or more common characteristics, creditors may request and consider information regarding such characteristics to determine program eligibility. If there is no established program, a creditor may use statistical methods to estimate demographic characteristics, but cannot violate Regulation B’s prohibitions on the collection of demographic information exclusively to conduct preliminary analysis to support the need for a special purpose credit program.