On November 13, the CFPB issued a sweeping proposed rule to overhaul Regulation B, arguably the most far-reaching ECOA rewrite in the agency’s history. The proposal would eliminate disparate-impact liability under ECOA, sharply narrow the scope of discouragement to focus on explicit statements directed at applicants, and prohibit or heavily restrict the use of protected-class criteria in Special Purpose Credit Programs offered by for-profit organizations.
The proposal follows recent federal directives addressing preference-based programs and cites developments in statutory interpretation that emphasize text based approaches. The Bureau stated that the rulemaking is intended to update Regulation B’s framework and clarify the scope of ECOA’s protections.
The proposal would make several key revisions to Regulation B, including:
- Eliminating disparate impact concepts from Regulation B. The proposal would remove existing effects based language from the regulation and commentary and state that ECOA supports only intentional discrimination allegations, including the use of facially neutral criteria as proxies for prohibited characteristics.
- Narrowing the definition of discouragement. Currently, Regulation B prohibits lenders from making oral or written statements to applicants or prospective applicants that would discourage a reasonable person from applying for credit. The proposal would narrow these statements to spoken or written words or visual images, as opposed to broader “acts or practices” language which would incorporate practices such as branch placement or advertisement targeting
- Explicit Statements to Intended Recipients. Under the proposed rules, liability attaches 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 on, a credit application because of a prohibited basis. Importantly, targeted advertising is protected – messages directed at a discrete audience would not be treated as discouraging to individuals who are not the intended recipients of those communications.
- Restricting SPCPs offered by for profit organizations. ECOA states that a creditor does not engage in discrimination by establishing a “special purpose credit program offered by a profit-making organization to meet special social needs which meets standards prescribed” by the Bureau. Under the proposed rule, a for‑profit organization offering an SPCP would be prohibited from using race, color, national origin, or sex as eligibility criteria. Moreover, any SPCP that still uses otherwise prohibited‑basis criteria (such as religion, marital status, age, or public‑assistance income), the SPCP would face heavy restrictions, including stringent documentation and evidence requirements.
Putting It Into Practice: Notably, the CFPB is proposing the SPCP restrictions independently of the broader Regulation E proposal. Accordingly, even if the proposed Regulation E changes are not finalized or become challenged (which is likely), the restrictions and documentation requirements would still apply to SPCPs offered by for-profit organizations. Institutions should begin assessing how these potential changes intersect with existing fair lending controls and be prepared to recalibrate programs as the rulemaking process moves forward