[Federal Register Volume 90, Number 217 (Thursday, November 13, 2025)]
[Proposed Rules]
[Pages 50901-50923]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-19864]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 90, No. 217 / Thursday, November 13, 2025 /
Proposed Rules
[[Page 50901]]
CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1002
[Docket No. CFPB-2025-0039]
RIN 3170-AB54
Equal Credit Opportunity Act (Regulation B)
AGENCY: Consumer Financial Protection Bureau.
ACTION: Proposed rule; request for public comment.
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SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) is
issuing a proposed rule for public comment that amends provisions
related to disparate impact, discouragement of applicants or
prospective applicants, and special purpose credit programs under
Regulation B, the regulation implementing the Equal Credit Opportunity
Act (ECOA or Act). The amendments would facilitate compliance with ECOA
by clarifying the obligations imposed by the statute.
DATES: Comments must be received on or before December 15, 2025.
ADDRESSES: You may submit comments, identified by Docket No. CFPB-2025-
0039 or RIN 3170-AB54, by any of the following methods:
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments. A brief summary of
this document will be available at https://www.regulations.gov/docket/CFPB-2025-0039.
Email: [email protected]. Include Docket No. CFPB-
2025-0039 or RIN 3170-AB54 in the subject line of the message.
Mail/Hand Delivery/Courier: Comment Intake--2025 NPRM
ECOA, c/o Legal Division Docket Manager, Consumer Financial Protection
Bureau, 1700 G Street NW, Washington, DC 20552.
Instructions: The CFPB encourages the early submission of comments.
All submissions should include the agency name and docket number or
Regulatory Information Number (RIN) for this rulemaking. Because paper
mail is subject to delay, commenters are encouraged to submit comments
electronically. In general, all comments received will be posted
without change to https://www.regulations.gov.
All submissions, including attachments and other supporting
materials, will become part of the public record and subject to public
disclosure. Proprietary information or sensitive personal information,
such as account numbers or Social Security numbers, or names of other
individuals, should not be included. Submissions will not be edited to
remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: Dave Gettler, Paralegal Specialist,
Office of Regulations, at 202-435-7700 or https://reginquiries.consumerfinance.gov/. If you require this document in an
alternative electronic format, please contact
[email protected].
SUPPLEMENTARY INFORMATION:
I. Summary
Pursuant to its authority under ECOA, 15 U.S.C. 1691b(a), and the
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank
Act), 12 U.S.C. 5512(b), the Bureau is proposing to amend provisions in
Regulation B, 12 CFR part 1002, pertaining to: whether disparate impact
is cognizable under the Act; under what circumstances a creditor may be
deemed to be discouraging an applicant or prospective applicant; and
under what conditions may a creditor offer special purpose credit
programs.
In 2020, the Bureau issued a Request for Information on ECOA and
Regulation B (RFI).\1\ The RFI solicited information about disparate
impact, prospective applicants, and special purpose credit programs,
among other topics. The Bureau reviewed the comments submitted in
response to the RFI and obtained other information in the course of
carrying out its statutory responsibilities.
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\1\ 85 FR 46600 (Aug. 3, 2020).
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In order to carry out the purposes of ECOA, the Bureau proposes
changes to Regulation B to provide that ECOA does not authorize
disparate-impact liability (effects test), further define
discouragement, and add prohibitions and restrictions for special
purpose credit programs.
II. Background
A. Introduction
Congress enacted ECOA in 1974 (1974 Act) ``to insure that various
financial institutions and other firms engaged in the extensions of
credit exercise their responsibility to make credit available with
fairness, impartiality, and without discrimination on the basis of sex
or marital status.'' To that end, section 701(a) of ECOA made it
``unlawful for any creditor to discriminate against any applicant on
the basis of sex or marital status with respect to any aspect of a
credit transaction.'' The Board of Governors of the Federal Reserve
System (Board) promulgated regulations implementing ECOA. In 1976,
Congress reenacted ECOA in its entirety, amending ECOA to add
additional categories of prohibited discrimination (1976 Act). Since
1976, ECOA 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]''
(prohibited basis).\2\ The Board, which at the time had exclusive
rulemaking authority under ECOA, promulgated regulations, after notice-
and-comment, to implement the 1976 Act.
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\2\ 15 U.S.C. 1691(a).
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In 2011, the Dodd-Frank Act transferred responsibility for ECOA
from the Board to the Bureau.\3\ It granted primary authority to the
Bureau to supervise and enforce compliance with ECOA and Regulation B
for entities within the Bureau's jurisdiction and to issue regulations
and guidance to implement and interpret ECOA.\4\ The
[[Page 50902]]
Bureau's Regulation B substantially duplicates the Board's Regulation B
making only certain non-substantive, technical, formatting, and
stylistic changes.\5\
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\3\ Public Law 111-203, 124 Stat. 1376 (2010).
\4\ Dodd-Frank Act section 1029 generally excludes from this
transfer of authority, subject to certain exceptions, any rulemaking
authority over a motor vehicle dealer that is predominantly engaged
in the sale and servicing of motor vehicles, the leasing and
servicing of motor vehicles, or both.
\5\ 76 FR 79442 (Dec. 21, 2011).
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In 2020, the Bureau published an RFI seeking comments and
information to identify opportunities to prevent credit discrimination,
encourage responsible innovation, promote fair, equitable, and
nondiscriminatory access to credit, address potential regulatory
uncertainty, and develop viable solutions to regulatory compliance
challenges under ECOA and Regulation B.\6\ The RFI requested
information related to disparate impact, prospective applicants, and
special purpose credit programs (SPCPs), among other issues. In
response to the RFI, the Bureau received and reviewed over 35 comment
letters. In addition, the Bureau has obtained pertinent information in
the course of carrying out its supervisory and enforcement
responsibilities.
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\6\ 85 FR 46600 (Aug. 3, 2020).
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In 2025, the President issued several Executive Orders relevant to
the Bureau's administration of ECOA. Executive Order 14173, entitled
``Ending Illegal Discrimination and Restoring Merit-Based
Opportunity,'' states in part that ``[t]he Federal Government is
charged with enforcing our civil-rights laws. The purpose of this order
is to ensure that it does so by ending illegal preferences and
discrimination.'' \7\ Executive Order 14281, entitled ``Restoring
Equality of Opportunity and Meritocracy,'' states in part that ``[i]t
is the policy of the United States to eliminate the use of disparate-
impact liability in all contexts to the maximum degree possible to
avoid violating the Constitution, Federal civil rights laws, and basic
American ideals.'' \8\
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\7\ 90 FR 8633 (Jan. 31, 2025).
\8\ 90 FR 17537 (Apr. 28, 2025).
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Consistent with these actions, the Bureau proposes this rule to (i)
provide that ECOA does not authorize disparate impact claims; (ii)
amend the prohibition on discouraging applicants or prospective
applicants to clarify that it prohibits statements of intent to
discriminate in violation of ECOA and is not triggered merely by
negative consumer impressions, and to clarify that encouraging
statements by creditors directed at one group of consumers is not
prohibited discouragement as to applicants or prospective applicants
who were not the intended recipients of the statements; and (iii) amend
the standards for SPCPs offered or participated in by for-profit
organizations to include new standards and related restrictions. The
proposed rule is discussed further below. The Bureau seeks comments on
the entire proposal.
B. Disparate Impact
In Griggs v. Duke Power Co.\9\ and subsequent cases, the Supreme
Court held that certain provisions in antidiscrimination statutes may
authorize disparate-impact claims. Under a disparate-impact claim, a
plaintiff may challenge as unlawful discrimination facially neutral
policies that have a disproportionate effect along prohibited basis
lines. The Supreme Court has noted that ``[i]n contrast to a disparate-
treatment case, . . . a plaintiff bringing a disparate-impact claim
challenges practices that have a disproportionately adverse effect on
minorities and are otherwise unjustified by a legitimate rationale.''
\10\
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\9\ 401 U.S. 424 (1971).
\10\ Texas Dep't of Hous. & Cmty. Affairs v. The Inclusive
Cmtys. Project, Inc., 576 U.S. 519, 524 (2015).
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In Griggs, the Supreme Court held that disparate impact claims are
cognizable under section 703(a)(2) of Title VII of the Civil Rights Act
of 1964, which prohibits discrimination in employment practices. In
Smith v. City of Jackson,\11\ a plurality of the Supreme Court held
that the Age Discrimination in Employment Act (ADEA) authorizes
disparate-impact claims. Most recently, in Texas Department of Housing
& Community Affairs v. The Inclusive Communities Project, Inc.,\12\ the
Supreme Court held that disparate-impact claims are cognizable under
the Fair Housing Act (FHA). However, the Supreme Court has not held
that disparate-impact claims are necessarily available under all
antidiscrimination statutes. Instead, the Court has reviewed each
statutory provision, when challenged, to determine whether it
authorizes disparate-impact claims, whether disparate-impact claims are
consonant with the intended operation of the statute, and in particular
whether the statutory provisions have ``effects-based'' language that
indicates that Congress intended for the statutory provision to permit
disparate-impact claims.
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\11\ 544 U.S. 228 (2005) (plurality op.).
\12\ 576 U.S. 519 (2015).
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The Supreme Court has not determined whether a disparate-impact
claim is permitted under ECOA. As noted above, section 701(a) of ECOA,
as enacted in 1974, made it ``unlawful for any creditor to discriminate
against any applicant on the basis of sex or marital status with
respect to any aspect of a credit transaction.'' In the 1976 Act, ECOA
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].''
\13\
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\13\ 15 U.S.C. 1691(a).
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The text of ECOA does not state that disparate-impact claims are
cognizable under ECOA, nor does it contain effects-based language of
the type that has been found in other statutes to invoke disparate-
impact liability. However, in promulgating Regulation B, the Board
relied on legislative history to support authorizing disparate-impact
liability. For example, the Senate Report accompanying the 1976 Act
stated:
In determining the existence of discrimination on these grounds,
as well as on the other grounds discussed below, courts or agencies
are free to look at the effects of a creditor's practices as well as
the creditor's motives or conduct in individual transactions. Thus
judicial constructions of anti-discrimination legislation in the
employment field, in cases such as Griggs . . . and Albemarle Paper
Company v. Moody, are intended to serve as guides in the application
of this Act, especially with respect to the allocations of burdens
of proof.\14\
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\14\ S. Rep. No. 94-589, at 4-5 (1976).
A House Report similarly provides evidence that ECOA authorizes
disparate-impact claims.\15\
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\15\ H. Rep. No. 94-210, at 5 (1975).
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The Board's regulations to implement the 1976 Act explicitly and
solely relied on this legislative history to conclude that Congress
intended for ECOA to permit an ``effects test concept,'' i.e.,
disparate-impact proof of liability.\16\ Although there have been minor
amendments to the relevant language in Regulation B since 1977,
Regulation B has continued to point to the legislative history of ECOA
to support the
[[Page 50903]]
conclusion that disparate-impact claims are cognizable under ECOA.\17\
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\16\ 42 FR 1242, 1255 n.7 (Jan. 6, 1977) (``The legislative
history of the Act indicates that the Congress intended an ``effects
test'' concept, as outlined in the employment field by the Supreme
Court in the cases of Griggs, 401 U.S. 424, and Albemarle Paper Co.,
422 U.S. 405, to be applicable to a creditor's determination of
creditworthiness.''). This footnote was later moved to the text of
Sec. 1002.6 when the Bureau republished Regulation B after
responsibility for the rule was transferred from the Board to the
Bureau. See 76 FR 79442 (Dec. 21, 2011).
\17\ See, e.g., 50 FR 48018, 48050 (Nov. 20, 1985) (adopting
official staff commentary, including comment 6(a).2, which explains
that the ``effects test'' is a ``judicial doctrine'' that Congress
intended to ``apply to the credit area'').
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Current Rule
Regulation B currently provides in Sec. 1002.6 that the
legislative history of ECOA indicates that the Congress intended an
``effects test'' concept, as outlined in the employment field by the
Supreme Court in the cases of Griggs, 401 U.S. 424, and Albemarle Paper
Co., 422 U.S. 405, to be applicable to a creditor's determination of
creditworthiness. Comment 6(a)-2 explains the ``effects test,'' cites
to the legislative history of ECOA, and provides an example. Comment
2(p)-4, which relates to the definition of ``empirically derived and
other credit scoring systems,'' refers to the ``effects test,'' noting
that neutral factors used in credit scoring systems could nonetheless
be subject to challenge under the effects test and cross-referencing
comment 6(a)-2.
Section III.A below discusses the ways in which this proposed rule
would change the current rule regarding disparate impact.
C. Discouragement
Regulation B Sec. 1002.4(b) currently provides that, ``[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.'' \18\ Current comments 4(b)-1 and (b)-2
provide additional details about conduct prohibited or permitted under
the provision.
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\18\ Regulation B Sec. 1002.2(z) defines ``prohibited basis''
as ``race, color, religion, national origin, sex, marital status, or
age (provided that the applicant has the capacity to enter into a
binding contract); the fact that all or part of the applicant's
income derives from any public assistance program; or the fact that
the applicant has in good faith exercised any right under the
Consumer Credit Protection Act or any state law upon which an
exemption has been granted by the Bureau.''
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The Board adopted a precursor to current Sec. 1002.4(b) in its
1975 final rule implementing the 1974 Act.\19\ The 1974 Act did not
specifically mention discouragement of applicants or prospective
applicants. To adopt the provision, the Board thus relied on its
authority under ECOA section 703(a)--authority that the Dodd-Frank Act
subsequently transferred to the Bureau--to make adjustments in
Regulation B that, in its judgment, were necessary or proper to
effectuate ECOA's purposes.\20\ Specifically, ECOA section 703(a)
provides that the Bureau (previously the Board) ``shall prescribe
regulations to carry out the purposes of [ECOA],'' and that such
regulations:
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\19\ 40 FR 49298 (Oct. 22, 1975).
\20\ 15 U.S.C. 1691b(a). For ease of reference, the Bureau
refers to this authority herein as ``adjustment'' authority.
[M]ay contain but are not limited to such classifications,
differentiation, or other provision, and may provide for such
adjustments and exceptions for any class of transactions, as in the
judgment of the Bureau are necessary or proper to effectuate the
purposes of [ECOA], to prevent circumvention or evasion thereof, or
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to facilitate or substantiate compliance therewith.
In its rulemaking, the Board stated that it believed that a prohibition
against discouragement was ``necessary to protect applicants against
discriminatory acts occurring before an application is initiated.''
\21\
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\21\ 40 FR 49298, 49299 (Oct. 22, 1975).
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In 1975, ECOA applied only to discrimination based on sex or
marital status, and the discouragement prohibition as initially adopted
was limited accordingly. In 1977, consistent with the 1976 Act that
expanded ECOA to prohibit discrimination based on protected
characteristics beyond sex or marital status, the Board revised the
discouragement provision to its current phrasing, prohibiting
discouragement ``on a prohibited basis.'' \22\ The Board later added
commentary providing examples of prohibited conduct.\23\ In 1991,
Congress amended ECOA to require enforcing regulatory agencies to refer
to the Department of Justice cases that the agencies believed involved
a pattern or practice of one or more creditors discouraging or denying
applications for credit in violation of ECOA section 701(a).\24\
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\22\ 42 FR 1242 (Jan. 6, 1977).
\23\ 50 FR 48018 (Nov. 20, 1985).
\24\ 15 U.S.C. 1691e(g) (emphasis added).
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In 2011, the Bureau republished Regulation B's discouragement
provision without material change in what is now Sec. 1002.4(b) and
the commentary thereto. In 2024, the U.S. Court of Appeals for the
Seventh Circuit held that Regulation B's prohibition against
discouragement is consistent with the plain text of the ECOA. In so
holding, the court observed that the discouragement provision had been
adopted pursuant to the Board's (now the Bureau's) broad authority to
``prescribe regulations to carry out the purposes of [ECOA],'' and to
``provide for such adjustments and exceptions'' that, in the Bureau's
judgment, ``are necessary or proper to effectuate the purposes of
[ECOA], to prevent circumvention or evasion thereof, or to facilitate
or substantiate compliance therewith.'' \25\
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\25\ Consumer Fin. Prot. Bureau v. Townstone Fin., Inc., 107
F.4th 768, 774, 777 (7th Cir. 2024).
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Section III.B below discusses the ways in which this proposed rule
would change the current rule regarding discouragement.
D. Special Purpose Credit Programs
As noted above, ECOA prohibits a creditor from discriminating on a
prohibited basis regarding any aspect of a credit transaction. At the
same time, ECOA section 701(c)(3) (15 U.S.C. 1691(c)(3)) states that it
does not constitute discrimination under the Act for a creditor ``to
refuse to extend credit offered pursuant to'' ``any special purpose
credit program offered by a profit-making organization to meet special
social needs which meets standards prescribed in regulations by the
[Bureau].'' \26\
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\26\ See Public Law 94-239, section 701(c)(3), 90 Stat. 251, 251
(1976).
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The intent of ECOA section 701(c)(3), as reflected in the
legislative history, is as follows:
[I]n the case of special purpose credit programs offered by
profit-making organizations, the Conferees approved the language
common to both the House bill and the Senate amendment exempting
such programs from the restrictions of the Act so long as they
conform to Board regulations. The intent of this section of the
statute is to authorize the Board to specify standards for the
exemption of classes of transactions when it has been clearly
demonstrated on the public record that without such exemption the
consumers involved would effectively be denied credit.\27\
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\27\ Joint Explanatory Statement of the Committee of the
Conference, Cong. Rec. H5493 (daily ed. Mar. 4, 1976) (text appears
in House and Senate Reports).
The Board promulgated regulations implementing the 1976 Act's
special purpose credit program (SPCP) provision in what was then Sec.
202.8.\28\ As noted above, the Dodd-Frank Act transferred ECOA
rulemaking authority to the Bureau, which in 2011 republished
Regulation B's SPCP provision without material change in what is now
Sec. 1002.8 and the commentary thereto. More recently, the Bureau in
January 2021 issued an advisory opinion (AO) addressing SPCPs
implemented by for-profit organizations to meet special social
needs.\29\ The AO clarified the content that a for-profit organization
must include in a written plan that
[[Page 50904]]
establishes and administers an SPCP under Regulation B.\30\
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\28\ See 42 FR 1242 (Jan. 6, 1977).
\29\ 86 FR 3762 (Jan. 15, 2021).
\30\ Id.
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Current Rule
Under Regulation B, a for-profit organization that offers or
participates in an SPCP to meet special social needs must establish and
administer the SPCP pursuant to a written plan that identifies the
class of persons the program is designed to benefit and sets forth the
procedures and standards for extending credit pursuant to the
program.\31\ In addition, the for-profit organization must establish
and administer the SPCP to extend credit to a class of persons who,
under the organization's customary standards of creditworthiness,
probably would not receive such credit or would receive it on less
favorable terms than are ordinarily available to other applicants
applying to the organization for a similar type and amount of
credit.\32\
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\31\ 12 CFR 1002.8(a)(3)(i).
\32\ 12 CFR 1002.8(a)(3)(ii).
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A for-profit organization's SPCP qualifies as such only if it was
established and is administered so as not to discriminate against an
applicant on any prohibited basis.\33\ However, the SPCP may require
its participants to share one or more common characteristics that would
otherwise be ECOA prohibited bases so long as the program does not
evade the requirements of ECOA or Regulation B.\34\ If the SPCP does
require its participants to share one or more common characteristics,
and if the program otherwise complies with Regulation B, a creditor may
request and consider information regarding the common characteristic(s)
in determining the applicant's eligibility for the program.\35\
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\33\ 12 CFR 1002.8(b)(2).
\34\ Id.
\35\ 12 CFR 1002.8(c).
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The Bureau discusses the ways in which this NPRM would change the
current rule regarding SPCPs provided by for-profit organizations in
section III.C below.
E. Consultation
Consistent with section 1022(b)(2)(B) of the CFPA, the Bureau
offered to consult with the appropriate agencies, including regarding
consistency with any prudential, market, or systemic objectives
administered by these agencies.
III. Discussion of the Proposed Rule
A. Disparate Impact
The Bureau is proposing changes to Sec. 1002.6(a) and its
accompanying commentary. Consistent with Executive Order 14281, the
Bureau has examined Regulation B and considered whether disparate-
impact claims may be cognizable under ECOA. The Bureau has
preliminarily determined that, under the best reading of the statute,
disparate-impact claims are not applicable under ECOA. As a result, the
Bureau is proposing to delete language in Sec. 1002.6(a) and its
accompanying commentary indicating that disparate-impact liability,
which is referred to in the rule as the ``effects test,'' may be
applicable under ECOA, and add language stating that the Act does not
recognize the ``effects test.'' The Bureau is also proposing to delete
the language in comment 2(p)-4 referring to the effects test. The
Bureau is requesting comment on these proposed changes and on its
preliminary determination that disparate-impact claims are not
applicable under ECOA.
ECOA and Disparate Impact
The Bureau has preliminarily determined that Regulation B's
conclusion that disparate-impact claims may be cognizable under ECOA is
not the best interpretation of ECOA. In particular, the Bureau has
preliminarily determined that the Board (and later the Bureau) relied
solely on the legislative history of ECOA to support its conclusion and
failed to consider whether ECOA's statutory language authorized
disparate-impact liability. 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 Board's regulations to implement the 1976 Act relied solely on
the legislative history to support its conclusion that Congress
intended for ECOA to permit an ``effects test concept'' (i.e.,
disparate-impact) proof of liability. Section 202.6(a), the precursor
to Sec. 1002.6(a), provided in a footnote that the legislative history
of the Act indicates that the Congress intended an ``effects test''
concept, as outlined in the employment field by the Supreme Court in
the cases of Griggs, 401 U.S. 424, and Albemarle Paper Co., 422 U.S.
405, to be applicable to a creditor's determination of
creditworthiness.\36\ Further discussion of the effects test was later
added to the commentary to what is now Sec. 1002.6(a).\37\ Although
there have been minor revisions to what is now Sec. 1002.6(a), that
provision has continued to provide, based solely on the legislative
history, that disparate-impact liability may apply to ECOA.
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\36\ 42 FR 1242, 1255 n.7 (Jan. 6, 1977). As noted in part II,
this footnote was later moved to the text of Sec. 1002.6(a) when
the Bureau republished Regulation B after responsibility for the
rule was transferred from the Board to the Bureau. See 76 FR 79442
(Dec. 21, 2011).
\37\ See 50 FR 48018 (Nov. 20, 1985).
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Since Griggs, the Supreme Court has closely examined the relevant
statutory language of other antidiscrimination laws to determine
whether disparate-impact liability is authorized by those laws. In
particular, the Supreme Court has examined whether the statute in
question includes language focused on the effects of the action rather
than the motivation for the action. For example, in Smith v. City of
Jackson, the Supreme Court emphasized that section 4(a)(2) of the ADEA
and section 703(a)(2) of Title VII--which was found to authorize
disparate-impact claims in Griggs--both contain language that
``prohibit[s] such actions that deprive any individual of employment
opportunities or otherwise adversely affect his status as an employee,
because of such individual's race or age.'' \38\ In Inclusive
Communities, the Supreme Court concluded that ``Griggs holds and the
plurality in Smith instructs that antidiscrimination laws must be
construed to encompass disparate-impact claims when their text refers
to the consequences of actions and not just to the mindset of actors,
and where that interpretation is consistent with statutory purpose.''
\39\ The Supreme Court held in Inclusive Communities that the language
``otherwise make unavailable'' in section 804(a) of the FHA refers to
the consequences of an action rather than the actor's intent and
therefore supports recognizing disparate-impact claims.\40\
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\38\ 544 U.S. 228, 235 (2005) (citation omitted).
\39\ 576 U.S. 519, 533 (2015).
\40\ Id. at 534. Section 804(a) provides that it shall be
unlawful ``[t]o refuse to sell or rent after the making of a bona
fide offer, or to refuse to negotiate for the sale or rental of, or
otherwise make unavailable or deny, a dwelling to any person because
of race, color, religion, sex, familial status, or national
origin.'' 42 U.S.C. 3604(a).
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In contrast, the relevant language of ECOA does not include similar
effects-based language supporting disparate-impact liability. Section
701(a)(1) of ECOA makes it unlawful for any creditor to discriminate
against any applicant, with respect to any aspect of a credit
transaction on the basis of race, color, religion, national origin, sex
or
[[Page 50905]]
marital status, or age.\41\ ECOA does not contain any language like
``otherwise make unavailable'' or ``otherwise adversely affect'' that
suggests that disparate impact claims are cognizable.
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\41\ 15 U.S.C. 1691(a)(1).
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The Bureau recognizes that in Inclusive Communities, the Supreme
Court held that, like section 804(a), section 805(a) of the FHA also
authorizes disparate-impact claims, even though section 805(a) does not
include effects-based language. Section 805(a) provides that it is
unlawful ``for any person or other entity whose business includes
engaging in residential real estate-related transactions to
discriminate against any person in making available such a transaction,
or in the terms or conditions of such a transaction, because of race,
color, religion, sex, handicap, familial status, or national origin.''
\42\ The Supreme Court provided limited explanation for concluding that
section 805(a) authorizes disparate-impact claims, noting only that it
has construed statutory language similar to section 805(a) to include
disparate-impact liability, citing Bd. of Educ. of City Sch. Dist. of
New York v. Harris, 444 U.S. 130 (1979).\43\ Because the Supreme Court
provided no meaningful analysis of the statutory language of section
805(a) in Inclusive Communities, it provides little insight into how
that holding should apply to ECOA, if at all. In the absence of such
guidance, the Bureau relies on the analysis in Harris to inform the
interpretation of ECOA, consistent with the Court's approach in
Inclusive Communities.
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\42\ 42 U.S.C. 3605(a).
\43\ Inclusive Communities, 576 U.S. at 534.
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The statute in Harris, section 706(d)(1) of the Emergency School
Aid Act (ESAA), made an agency ineligible for assistance if it ``had in
effect any practice, policy or procedure which results in the
disproportionate demotion or dismissal of instructional or other
personnel from minority groups in conjunction with desegregation . . .
or otherwise engaged in discrimination based upon race, color, or
national origin in the hiring, promotion, or assignment of employees.''
\44\ The Supreme Court noted that the first portion of the statute
``clearly speaks in term of effect or impact'' but that the second
portion (otherwise engaged in discrimination) ``might be said to
possess an overtone of intent.'' \45\ The Court noted, however, that
the use of the word ``otherwise'' in the second portion suggests that
the disparate-impact standard should also apply to that provision. The
Court noted that absent a good reason, ``one would expect that for such
closely connected statutory phrases, a similar standard'' would apply.
The Supreme Court noted that ESAA's language ``suffers from imprecision
of expression and less than careful draftsmanship'' and therefore found
it necessary to consider other factors to interpret the statutory
language.\46\ The Court looked to the structure, context and
legislative history of the statute to conclude that disparate-impact
liability also applied to the second portion of the provision.
---------------------------------------------------------------------------
\44\ Emergency School Aid Act, Public Law 89-10, section
706(d)(1)(B), 86 Stat. 354, 358 (1972) (emphasis added) (original
version at 20 U.S.C. 1606(d)(1)(B) (1976)), repealed by and
reenacted by Public Law 95-561, tit. VI, section 601(b)(2), Nov. 1,
1978, 92 Stat. 2268 (1978); see also Bd. of Educ. of City Sch. Dist.
of New York v. Harris, 444 U.S. 130, 130 (1979).
\45\ Harris, 444 U.S. at 138-39.
\46\ Id. at 138.
---------------------------------------------------------------------------
In contrast to the statute at issue in Harris, section 701(a) of
ECOA does not suffer from ESAA's less than careful draftsmanship that
would render it similarly ambiguous and therefore require additional
consideration of the structure, history, and purpose to interpret its
meaning. ECOA does not include any effects-based language supporting
disparate-impact liability, nor any ``otherwise'' language, as in ESAA,
that may cloud the directness of its prohibition. ECOA section 701(a)
is a straightforward, plainly stated prohibition against discrimination
on the basis of certain characteristics. As a result, the Bureau
preliminarily determines that section 701(a) does not authorize
disparate-impact claims.
Even if it were necessary to resort to other considerations to
interpret section 701(a), the wording (discussed above), structure, and
context all differ from the statutory provisions at issue in Harris and
Inclusive Communities in ways that counsel reaching a different
conclusion. (As discussed below, the Bureau does not find the
legislative history to be a sufficient basis to override the
conclusions drawn from the other factors.) After balancing these
factors, giving the most weight to the language of the statute, the
Bureau preliminarily determines that the best interpretation of ECOA is
that section 701(a) does not authorize disparate-impact claims. In
terms of its structure, ECOA differs from both ESAA and FHA. As noted
above, the Supreme Court in Inclusive Communities carefully analyzed
the statutory language of section 804(a), along with other factors, to
determine that section 804(a) authorized disparate-impact liability.
However, the Supreme Court provided no meaningful analysis of the
statutory language of section 805(a) and cited to Harris to support the
principle that the Court had found similar language to support
disparate-impact liability. Read together, Harris and Inclusive
Communities suggest that a statutory provision without effects-based
language may be ambiguous as to whether it authorizes disparate-impact
liability when there is closely connected statutory language that
provides for disparate-impact liability.
Unlike the statutory provisions at issue in Harris and Inclusive
Communities, however, neither section 701(a) of ECOA nor any closely
connected statutory provisions include any effects-based language
supporting disparate-impact liability. In the absence of such closely
connected effects-based language, the best interpretation of the text
of section 701(a) is that it does not provide for disparate-impact
liability.
The Bureau also preliminarily determines that interpreting ECOA as
not authorizing disparate-impact claims is consistent with the
statutory purposes of ECOA, suggesting that the credit market context
of ECOA also militates against the statute encompassing disparate
impact. As noted in part II, ECOA was adopted to ensure that various
financial institutions and other firms engaged in the extensions of
credit exercise their responsibility to make credit available with
fairness, impartiality, and without discrimination on the basis of
prohibited characteristics. The Bureau, in exercising its expertise, is
concerned that disparate-impact liability may lead some creditors to
consider prohibited characteristics in developing policies and
procedures, contrary to ECOA's purposes, in order to minimize potential
liability. Under a regime with disparate-impact liability, creditors
may believe that they are required not only to consider the impact of
facially neutral policies and procedures on protected classes, but to
adjust those policies with the goal of achieving particular protected
class outcomes, in order to avoid potential disparate-impact claims.
This may even involve policy changes that disadvantage certain
protected classes in an effort to reduce the disadvantages for others.
That the application of disparate-impact liability may promote, rather
than prohibit, such intentional protected class discrimination further
indicates that interpreting ECOA as not permitting disparate-impact
claims is the most
[[Page 50906]]
appropriate reading of the statute.\47\ Moreover, the Bureau is
concerned that creditors may be deterred from pursuing innovative and/
or cost-reducing policies and procedures because they are uncertain
about the impact on protected classes. The Bureau requests comment on
its preliminary determination that interpreting ECOA as not authorizing
disparate-impact liability is consistent with the statutory purpose.
---------------------------------------------------------------------------
\47\ As Justice Alito noted in his dissenting opinion in
Inclusive Communities, where disparate-impact liability frustrates
the purposes of the statute, this also demonstrates congressional
intent. See 576 U.S. at 585-86 (``No matter what the Department
decides, one of these respondents will be able to bring a disparate-
impact case. And if the Department opts to compromise by dividing
the credits, both respondents might be able to sue. Congress surely
did not mean to put local governments in such a position.'').
---------------------------------------------------------------------------
The Bureau recognizes that Regulation B currently relies on the
legislative history of ECOA for evidence of congressional intent that
disparate-impact claims may be cognizable under ECOA. If ECOA contained
effects-based language or if the statutory language were ambiguous--as
with the FHA and the since-repealed ESAA--then the legislative history
would provide stronger evidence to support an interpretation that
disparate-impact liability is permitted under ECOA. However, consistent
with Supreme Court precedent, the most important consideration is the
statutory language.\48\ The Bureau preliminarily determines, therefore,
that the evidence from the legislative history is insufficient to
support an effects test given the statutory language and the absence of
effects-based language in section 701 or anywhere else in ECOA. The
Bureau requests comment on this preliminary determination.
---------------------------------------------------------------------------
\48\ See Bostock v. Clayton Cnty., Georgia, 590 U.S. 644, 673-74
(2020) (``This Court has explained many times over many years that,
when the meaning of the statute's terms is plain, our job is at an
end. The people are entitled to rely on the law as written, without
fearing that courts might disregard its plain terms based on some
extratextual consideration.''). Some are critical of using
legislative history to interpret statutory language. ``The greatest
defect of legislative history is its illegitimacy. We are governed
by laws, not by the intentions of legislators. As the Court said in
1844: `The law as it passed is the will of the majority of both
houses, and the only mode in which that will is spoken is in the act
itself.' '' Conroy v. Aniskoff, 507 U.S. 511, 519 (1993) (Scalia,
J., concurring) (quoting Aldridge v. Williams, 44 U.S. (3 How.) 9,
24 (1844)); see also Frank H. Easterbrook, Text, History, and
Structure in Statutory Interpretation, 17 Harv. J.L. & Pub. Pol'y
61, 68 (1994) (``Intent is elusive for a natural person, fictive for
a collective body.'').
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The Bureau preliminarily concludes that any reliance interests in
the existing regulatory interpretation permitting disparate-impact
liability would not outweigh revising Regulation B to bring it into
closer alignment with the statutory text. Consumers who may be affected
by creditors' facially neutral policies that have disparate effects may
have reliance issues in the existing framework. Creditors may have
developed compliance systems consistent with the existing framework.
However, consumers would remain protected under ECOA from disparate
treatment, including facially neutral policies and procedures that
creditors adopt as proxies for intentional discrimination. Creditors
would have greater flexibility to adopt facially neutral policies and
procedures. The Bureau requests comment on this preliminary
determination.
Notwithstanding Griggs and its progeny, there may be serious
concerns about the constitutionality of disparate-impact liability as
to certain ECOA-protected classes. The Supreme Court has recently
emphasized that policies and procedures that attempt to achieve certain
outcomes for protected classes may run afoul of the Constitution's
guarantee of equal protection, noting that ``[o]utright racial
balancing is patently unconstitutional.'' \49\ To the extent ECOA, if
read as encompassing disparate impact, would functionally require
creditors to engage in such deliberate balancing of protected class
outcomes (as described above), this recent jurisprudence would cast
substantial doubt on its consistency with equal protection. The Bureau
makes no conclusion as to these constitutional questions, but notes
that its finding that ECOA does not encompass disparate impact
liability appropriately avoids such potential constitutional defects.
---------------------------------------------------------------------------
\49\ Students for Fair Admissions, Inc. v. President & Fellows
of Harvard Coll., 600 U.S. 181, 223-24 (2023) (internal quotations
omitted).
---------------------------------------------------------------------------
The Bureau notes that, alternatively, it could remove the
provisions relating to disparate impact, given the statutory text and
based on the fact that neither the Supreme Court nor any other court
has made a specific holding with respect to this theory and ECOA. As
the Supreme Court made clear in Loper Bright Enterprises v.
Raimondo,\50\ courts are the ultimate arbiters of statutory meaning.
The Bureau requests comment on this alternative rationale for removing
the provisions related to disparate impact.
---------------------------------------------------------------------------
\50\ 603 U.S. 369 (2024).
---------------------------------------------------------------------------
The specific proposed changes to the rule with respect to
disparate-impact liability are discussed below.
Section 1002.6(a)--General Rule Concerning Use of Information
Current Sec. 1002.6(a) provides in the first sentence that, except
as otherwise provided in the Act and this part, a creditor may consider
any information obtained, so long as the information is not used to
discriminate against an applicant on a prohibited basis. The second
sentence provides that the legislative history of the Act indicates
that the Congress intended an ``effects test,'' (disparate impact) to
apply to a creditor's determination of creditworthiness. For the
reasons explained above, the Bureau is proposing to delete the second
sentence and add a new sentence stating that the Act does not provide
that the ``effects test'' applies for determining whether there is
discrimination in violation of the Act.
Current comment 6(a)-2 explains the effects test and states that
the Act and regulation may prohibit a creditor practice that is
discriminatory in effect because it has a disproportionately negative
impact on a prohibited basis, even though the creditor has no intent to
discriminate and the practice appears neutral on its face, unless the
creditor practice meets a legitimate business need that cannot
reasonably be achieved as well by means that are less disparate in
their impact. The comment also provides an example. The Bureau is
proposing to delete the current text of comment 6(a)-2 for the reasons
explained above and to add a new title ``Disparate treatment'' and new
language providing as follows: The Act prohibits practices that
discriminate on a prohibited basis regarding any aspect of a credit
transaction. The Act does not provide for the prohibition of practices
that are facially neutral as to prohibited bases, except to the extent
that facially neutral criteria function as proxies for protected
characteristics designed or applied with the intention of advantaging
or disadvantaging individuals based on protected characteristics.
Section 1002.2(p)--Definition of Empirically Derived and Other Credit
Scoring Systems
Current comment 2(p)-4 to the definition of empirically derived and
other credit scoring system is entitled ``Effects test and disparate
treatment.'' The comment states that neutral factors used in credit
scoring systems could nonetheless be subject to challenge under the
effects test and refers to comment 6(a)-2 for a discussion of the
effects test. The Bureau is proposing to delete ``effects test'' from
the title and
[[Page 50907]]
delete the sentence discussing the effects test and the reference to
comment 6(a)-2.
B. Discouragement
The Bureau is proposing changes to Sec. 1002.4(b) and its
accompanying commentary. These Regulation B provisions prohibit
creditors from making oral or written statements to applicants or
prospective applicants that would discourage a reasonable person from
applying for credit. As noted in part II, the Board first adopted a
precursor to current Sec. 1002.4(b) in its 1975 final rule
implementing ECOA, as an exercise of its adjustment authority under
ECOA section 703(a).
In its 1975 final rule, the Board determined that prohibiting
discouragement was ``necessary to protect applicants against
discriminatory acts occurring before an application is initiated.''
\51\ Indeed, ECOA section 701(a) prohibits creditors from
discriminating on a prohibited basis against applicants for credit,\52\
a term the statute defines as a ``person who applies to a creditor''
for credit.\53\ In the absence of a discouragement provision, creditors
could sidestep this prohibition entirely by discouraging prospective
applicants from applying for credit in the first place. For example, in
the absence of a discouragement provision, a creditor could post a sign
outside its office stating, ``Credit available only to applicants under
age 65,'' arguably without violating ECOA as to individuals who choose
not to apply for credit because of the sign. A well-tailored
discouragement provision that prohibits such practices protects ECOA's
purpose of making credit available on a non-discriminatory basis.
---------------------------------------------------------------------------
\51\ 40 FR 49298, 49299 (Oct. 22, 1975).
\52\ 15 U.S.C. 1691(a).
\53\ 15 U.S.C. 1691a(b) (emphasis added).
---------------------------------------------------------------------------
However, the Bureau has preliminarily determined in its expertise
that, in the years since the Board first adopted the discouragement
provision, the provision has been interpreted to prohibit conduct that
it is not necessary or proper to prohibit to prevent the circumvention
or evasion of ECOA's purposes. The Bureau is concerned that this, in
turn, has had an unnecessarily chilling effect on creditors' business
practices and exercise of their rights to speak about matters of public
interest. Pursuant to its authority under ECOA section 703(a), and in
consideration of what it preliminarily finds is necessary and proper
given the purposes of ECOA and facilitating compliance therewith, the
Bureau therefore proposes to revise Sec. 1002.4(b) and its commentary
as described below.\54\
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\54\ In addition to the revisions discussed below, the Bureau
proposes to make two non-substantive changes to comment 4(b)-1. The
Bureau proposes to revise the heading of comment 4(b)-1 from
``prospective applicants'' to ``discouragement'' to conform with the
current heading of Sec. 1002.4(b) and to reflect the fact that the
text of current comment 4(b)-1 refers to both applicants and
prospective applicants. Similarly, the Bureau proposes to revise the
introductory text of comment 4(b)-1 to provide that prohibited
discouraging statements are those that ``would'' discourage (rather
than ``could'' discourage) a reasonable person, on a prohibited
basis, from applying for credit. Again, this change would conform
commentary text to current text of Sec. 1002.4(b).
---------------------------------------------------------------------------
Furthermore, and independent of the above, the Bureau is concerned
that the overbroad coverage of the regulation and its potential
interpretations may constrain free speech and commercial activity in
ways that are unwarranted. The Bureau preliminarily determines that,
given this potential impact, and in consideration of its expertise as a
regulator in the marketplace, the proposed revisions would continue to
prohibit illegal discouragement of potential applicants without
exceeding that purpose in ways that may impose unnecessary constraints
in the marketplace. The Bureau requests comment on its preliminary
determinations.
The proposed revisions would address several different aspects of
Sec. 1002.4(b): (1) what constitutes an oral or written statement, (2)
what constitutes a statement to an applicant or prospective applicant,
and (3) the standard for showing prohibited discouragement. As
described below, the Bureau proposes to revise all these aspects of
Sec. 1002.4(b) together. The Bureau requests comment, however, on the
merits of an alternative approach in which the Bureau would revise only
one or two of these three aspects of Sec. 1002.4(b) and, if such an
approach were adopted, which aspects of Sec. 1002.4(b) should be
revised.
Oral or Written Statement
Current Sec. 1002.4(b) prohibits creditors from making ``any oral
or written statement'' to applicants or prospective applicants that
would discourage a reasonable person from making or pursuing an
application for credit. The regulation text itself does not define
``oral or written statement.'' Comment 4(b)-1, which the Board added to
Regulation B in 1985 without substantive explanation, states, in part,
that Sec. 1002.4(b) covers ``acts or practices'' by creditors that
could discourage on a prohibited basis a reasonable person from
applying for credit.
The Bureau preliminarily determines that the inclusion of the
phrase ``acts or practices'' in comment 4(b)-1 has resulted in Sec.
1002.4(b) being interpreted overly broadly to apply to business
practices that, though they may have some communicative effect, do not
reflect the circumvention or evasion of ECOA's prohibition against
discrimination that the discouragement provision was designed to
address. Such practices include, for example, business decisions about
where to locate branch offices, where to advertise, or where to engage
with the community through open houses or similar events. In the
Bureau's view, such practices do not constitute ``oral or written
statements'' to applicants or prospective applicants within the meaning
of Sec. 1002.4(b) and do not, in and of themselves, demonstrate
prohibited discouragement. The Bureau proposes to revise Sec.
1002.4(b) to reflect this interpretation.
Specifically, the Bureau proposes to add language to Sec.
1002.4(b) clarifying that ``oral or written statement'' means spoken or
written words, or visual images such as symbols, photographs, or
videos. This would include any visual images used in advertising or
marketing campaigns. The Bureau also proposes to align the text of
comment 4(b)-1 with the text of current Sec. 1002.4(b) by replacing
current references in the comment to ``acts or practices'' or
``practices'' with references to ``oral or written statements'' or
``statements,'' respectively.
Under the proposed revisions, the business practices noted above
would not constitute prohibited discouragement even if they had some
communicative effect that some consumers could arguably find
discouraging. Instead, the discouragement provision would cover only
actual oral or written statements by creditors to applicants or
prospective applicants. The Bureau has preliminarily determined that
clarifying the discouragement provision as described would facilitate
compliance with ECOA and Regulation B and result in more targeted and
effective enforcement of conduct designed to circumvent the statute's
prohibition against discrimination. The Bureau requests comment on the
proposed revisions.
Statement to Applicants or Prospective Applicants
As noted, Sec. 1002.4(b) prohibits creditors from making any oral
or written statement to applicants or prospective applicants that would
discourage a reasonable person from making or pursuing an application
for
[[Page 50908]]
credit. Section 1002.4(b) has been interpreted to prohibit the
selective encouragement of certain applicants or prospective applicants
(for example, geographically targeted advertising) on the basis that
such encouragement could discourage applicants or prospective
applicants who did not receive it.
The Bureau has preliminarily determined that this interpretation is
overbroad relative to the intended purposes of the discouragement
prohibition. The purpose of ECOA is to make credit available to all
applicants on a non-discriminatory basis, and Sec. 1002.4(b) helps to
achieve that purpose by prohibiting creditors from discouraging
applicants or prospective applicants. The Bureau proposes that, when a
creditor directs encouraging statements to certain applicants or
prospective applicants, this is not an action intended to (or even
likely to) discourage other applicants or prospective applicants, who
did not receive the statements and might, in fact, have been entirely
unaware of them, from applying for credit. Such conduct is not
typically an evasion of ECOA's prohibitions, nor is prohibiting it
necessary or proper to achieve the purposes of ECOA. As such, the
Bureau preliminarily determines that encouraging statements by
creditors directed at one group of consumers is not prohibited
discouragement as to applicants or prospective applicants who were not
the intended recipients of the statements.
Under this interpretation, any person whom a creditor could
reasonably expect to receive a particular statement would be an
intended recipient of the statement. Factors that could help determine
a statement's intended recipients include the method or mechanism used
to communicate it. For example, the intended recipients of a statement
made by a creditor on a public television or radio broadcast would be
anyone within the area of that broadcast. The intended recipients of a
mailer would be those to whom the mailer is sent.
The Bureau proposes to revise Sec. 1002.4(b) and its accompanying
commentary in several ways to reflect the suggested limitation. First,
Sec. 1002.4(b) would provide that prohibited discouragement occurs
when a creditor makes any oral or written statement ``directed at''
applicants or prospective applicants that would discourage on a
prohibited basis a reasonable person from applying for credit.
Comment 4(b)-1 would be revised to provide that encouraging
statements directed at one group of consumers cannot discourage
applicants or prospective applicants who were not the intended
recipients of the statements. In addition, the example in current
comment 4(b)-1.ii (which would be redesignated as comment 4(b)-1.i.B
under the proposed rule) \55\ would be narrowed to provide an example
of a statement that would constitute prohibited discouragement under
the proposed limitation. The revised example would provide that
prohibited discouragement includes statements directed at the public
that express a discriminatory preference or policy of exclusion against
consumers based on one or more prohibited basis characteristics.
---------------------------------------------------------------------------
\55\ The other two examples in current comment 4(b)-1 would be
redesignated under the proposed rule as comments 4(b)-1.i.A and
4(b)-1.i.C, without substantive change.
---------------------------------------------------------------------------
Finally, comment 4(b)-1.ii.A would be added to provide an example
of a statement that would not constitute prohibited discouragement
under the proposed rule. The example would provide that statements
directed at a particular group of consumers, encouraging that group of
consumers to apply for credit, do not constitute prohibited
discouragement. The Bureau requests comment on the proposed revisions,
including on whether additional or different regulatory language or
commentary examples would facilitate compliance with the proposed
interpretation.
Standard for Discouragement
As noted, the prohibition against discouragement was adopted to
prevent creditors from circumventing ECOA's prohibition against
discrimination by deterring prospective applicants from even applying
for credit. While this is an appropriate goal, the Bureau preliminarily
concludes that Sec. 1002.4(b) has been interpreted to apply to
scenarios that should not be characterized as prohibited discouragement
under ECOA. These are scenarios that--though they may involve
potentially controversial statements by creditors--do not involve
statements that an objective creditor would know, or should know, would
cause a reasonable person to believe that the creditor would deny them
credit or offer them credit on less favorable terms than other
borrowers. That is, the Bureau believes that there is a difference
between a statement by a creditor that an applicant or potential
applicant may not like or may disagree with, and a statement that would
cause a reasonable person to be discouraged from applying for credit
with that creditor. The Bureau believes that difference should be
better reflected in Regulation B and accordingly proposes the following
revisions.
First, the Bureau proposes to revise Sec. 1002.4(b) and its
accompanying commentary to provide that a statement is prohibited
discouragement only if a creditor ``knows or should know'' that the
statement would cause a reasonable person to be discouraged.
Second, the Bureau proposes to revise Sec. 1002.4(b) and its
accompanying commentary to clarify that the standard is not whether a
creditor's statement ``would discourage on a prohibited basis a
reasonable person,'' but rather that discouragement occurs only if the
creditor's statement ``would cause a reasonable person to believe that
the creditor would deny, or would grant on less favorable terms, a
credit application by the applicant or prospective applicant because of
the applicant or prospective applicant's prohibited basis
characteristic(s).'' Under this revision, prohibited discouragement
would occur only when the creditor's statement was the proximate cause
of the applicant's or prospective applicant's belief about their
ability to obtain credit on non-discriminatory terms. The revision thus
would narrow the prohibition to cover only statements that themselves
would cause a reasonable person to believe that the creditor would make
a different decision about credit terms or availability based on the
applicant or prospective applicant's prohibited basis
characteristic(s).
Consistent with the proposed revision, the Bureau would narrow
current comment 4(b)-1.ii (proposed comment 4(b)-1.i.A). The comment
currently provides that prohibited discouraging statements include
those that ``express, imply, or suggest'' a discriminatory preference
or policy of exclusion in violation of ECOA. The Bureau proposes to
narrow the comment to refer only to statements that express a
discriminatory preference or policy of exclusion.\56\
---------------------------------------------------------------------------
\56\ The Bureau discusses other proposed changes to the text of
current comment 4(b)-1.ii in part III.B, ``Statement to applicants
or prospective applicants.''
---------------------------------------------------------------------------
To facilitate compliance, the Bureau also proposes to add three
examples to the commentary of the types of statements that a creditor
would not (or should not) know would cause a reasonable person to
believe that the creditor would deny (or would grant on less favorable
terms) credit to an applicant or prospective applicant based on their
prohibited basis characteristic(s). These are illustrative
[[Page 50909]]
examples of non-prohibited statements that a creditor may make,
directed at an applicant or prospective applicant: (1) in support of
local law enforcement, (2) recommending that, before buying a home in a
particular neighborhood, consumers investigate, for example, the
neighborhood's schools, its proximity to grocery stores, and its crime
statistics, and (3) encouraging consumers to seek out resources to
develop their financial literacy. The Bureau requests comment on the
proposed revisions, including on whether additional or different
examples would be helpful in clarifying the types of statements that
would be permissible if the proposed rule were adopted.
Comment 4(b)-2
Current comment 4(b)-2 provides that creditors may affirmatively
solicit or encourage members of traditionally disadvantaged groups to
apply for credit, especially groups that might not normally seek credit
from that creditor. The Bureau proposes to strike this comment as
unnecessary; no substantive change is intended. The Bureau requests
comment on the proposed revision.
Technical Revision Related to Prospective Applicants
Consistent with ECOA section 704A, Regulation B Sec. 1002.15 sets
forth incentives for creditors to self-test for compliance with ECOA
and Regulation B and to correct any issues found.\57\ Section
1002.15(d)(1)(ii) currently states that the report or results of a
privileged self-test may not be obtained or used ``[b]y a government
agency or an applicant (including a prospective applicant who alleges a
violation of Sec. 1002.4(b)) in any proceeding or civil action in
which a violation of the Act or this part is alleged.'' The Bureau
proposes to strike from Sec. 1002.15(d)(1)(ii) the current reference
to prospective applicants. This revision would conform the language of
Sec. 1002.15(d)(1)(ii) with the statutory language of ECOA sections
704A(a)(2) and 706.\58\ No substantive change is intended. The Bureau
requests comment on the proposed revision.
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\57\ 15 U.S.C. 1691c-1 (Incentives for self-testing and self-
correction).
\58\ 15 U.S.C. 1691c-1(a)(2), 1691e.
---------------------------------------------------------------------------
C. Special Purpose Credit Programs
Pursuant to its authority under 15 U.S.C. 1691(c)(3) and 15 U.S.C.
1691b(a), the Bureau proposes changes to the Regulation B provisions
governing SPCPs offered by for-profit organizations. As noted above,
that statutory provision permits ``any special purpose credit program
offered by a profit-making organization to meet special social needs
which meets standards prescribed in regulations by the Bureau.''
(emphasis added). Further, as noted above, ECOA authorizes the Bureau
to write regulations to carry out ECOA's purposes and also provides the
Bureau with adjustment authority to effectuate those purposes.\59\
ECOA's purpose is to require that firms engaged in the extension of
credit make that credit equally available to all credit-worthy
customers without regard to prohibited bases.\60\ In sum, just as ECOA
authorized the Board's initial regulatory promulgation setting the
standards for permissible SPCPs offered or participated in by for-
profit organizations, the Bureau has preliminarily determined that it
also authorizes the revision of those standards to carry out and more
closely align them with the statutory purpose, including appropriate,
necessary, or proper additional prohibitions and restrictions in the
standards for such SPCPs to prevent unlawful discrimination, as the
Bureau now proposes.
---------------------------------------------------------------------------
\59\ 15 U.S.C. 1691b(a).
\60\ Public Law 93-495, tit. V, section 502, 88 Stat. 1521
(1974).
---------------------------------------------------------------------------
More specifically, the Bureau proposes to prohibit an SPCP offered
or participated in by a for-profit organization from using the
prohibited basis of race, color, national origin, or sex, or any
combination thereof, of the applicant, as the common characteristic in
determining eligibility for the SPCP. See proposed Sec. 1002.8(b)(3).
In addition, the Bureau also proposes in Sec. 1002.8(a) and (b)
several new restrictions (discussed in more detail below) on such an
SPCP that uses any permissible common characteristic that would
otherwise be a prohibited basis as eligibility criteria. Under the
Bureau's proposal, these prohibitions and restrictions would become
effective if and when a Bureau rule finalizing the proposal were to
become effective. Thus, at that time, an SPCP offered or participated
in by a for-profit organization would be (1) prohibited from using
race, color, national origin, or sex as eligibility criteria and (2)
restricted, as discussed below, in using religion, marital status, age,
or income derived from a public assistance program as eligibility
criteria. The Bureau proposes the restrictions independently of and in
addition to the prohibitions. That is, under the Bureau's proposal, if
the Bureau's proposed prohibitions were to not be finalized or to
otherwise become inoperative, the proposed restrictions would then be
operative with respect to an SPCP offered or participated in by a for-
profit organization that uses race, color, national origin, or sex as
eligibility criteria, and would continue to be operative with respect
to such an SPCP that uses religion, marital status, age, or income
derived from a public assistance program as eligibility criteria. In
other words, the Bureau independently proposes both the prohibitions
and the restrictions such that, were the prohibitions to become
inoperative, any SPCP offered or participated in by a for-profit
organization that uses any otherwise prohibited basis (as defined in
Sec. 1002.2(z)) as eligibility criteria would be subject to the
restrictions the Bureau now proposes. The Bureau is proposing the
above-described prohibitions and restrictions at the present time for
the following reasons.
While the Bureau declines in this proposal to reach a conclusion
about whether ECOA's SPCP provision permitting discrimination in favor
of groups with special social needs--typically minority groups--is
unconstitutional, the Bureau is mindful of recent Supreme Court
decisions highlighting the legal infirmity under the Fifth and
Fourteenth Amendments of laws that enable such discrimination.\61\ The
constitutional guarantee of equal protection generally prohibits the
government from discriminatory treatment on the bases of race, color,
national origin, or sex; where those categories are implicated, it
requires a thorough examination of the purported need for such
discrimination and whether it is appropriately limited. Consistent with
that precedent and the purposes of ECOA, and pursuant to its authority
provided by 15 U.S.C. 1691(c)(3) to set standards for SPCPs offered or
participated in by for-profit organizations to meet special social
needs, the Bureau has reexamined the provisions of Regulation B that
allow such SPCPs to use a prohibited basis--including but not limited
to race, color, national origin, or sex--as common characteristics.
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\61\ See, e.g., Students for Fair Admissions, Inc. v. President
& Fellows of Harvard Coll., 600 U.S. 181 (2023). Cf. Ames v. Ohio
Dep't of Youth Servs., 605 U.S. 303 (2025) (affirming that there is
no exception to civil rights laws (e.g., Title VII) that allows for
discrimination against majority groups). See also Nuziard v.
Minority Bus. Dev. Agency, 721 F. Supp. 3d 431, 465 (N.D. Tex.
2024), appeal dismissed, No. 24-10603, 2024 WL 5279784 (5th Cir.
July 22, 2024); Strickland v. United States Dep't of Agric., 736 F.
Supp. 3d 469, 480 (N.D. Tex. 2024).
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Additionally, the Bureau preliminarily concludes that significant
changes in the legal landscape and in credit markets mean that such
SPCPs
[[Page 50910]]
based on certain prohibited bases no longer serve the particular social
needs envisioned in the 1976 Act. When Congress enacted ECOA, the legal
framework and the market environment as to credit discrimination were
rapidly evolving. The FHA was enacted in 1968. The Home Mortgage
Disclosure Act (HMDA) was enacted in 1975 to enable data collection on
mortgage lending in order to address ongoing concerns about redlining
and credit shortages in certain neighborhoods. The Community
Reinvestment Act (CRA), intended to promote the availability of
financial services in areas that had been underserved, had not yet been
enacted, but was enacted in 1977. State laws addressing credit
discrimination, for the limited number of states that had enacted them,
were typically only a few years old.\62\ In general, the legal
framework was in the course of transforming from one in which credit
discrimination was condoned, and was sometimes official policy, to one
in which it was--and remains--prohibited.
---------------------------------------------------------------------------
\62\ See Credit Discrimination: Hearing on H.R. 14856 and H.R.
14908 Before the H. Subcomm. on Consumer Affairs of the H. Comm. on
Banking and Currency, 93d Cong. at 509 (reprinting Sylva L. Beckey,
Woman and Credit: Available Legal Remedies Against Discriminatory
Practices, Cong. Res. Serv. (Mar. 13, 1974)) (surveying state credit
antidiscrimination laws). The report, included in the congressional
record, finds that fourteen states and the District of Columbia had
statutes prohibiting credit discrimination against women (and, in
some cases, on other bases). Of those fifteen laws, twelve are
identified as having been enacted in 1973, and six appear to have
provisions covering race, color, or national origin.
---------------------------------------------------------------------------
Robust data regarding the nature and extent of credit
discrimination at the time of ECOA's passage are sparse. HMDA data were
not yet available. Assessing the prevalence and effect of credit
discrimination was typically done through individual academic,
government, or nonprofit research projects, or personal narratives, all
with limited scope. Nonetheless, it is clear that at that time market-
wide intentional credit discrimination was a fact of the then-recent
past and a matter of ongoing concern.\63\
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\63\ See, e.g., Linda Charlton, 2[hyphen]to[hyphen]1 Turndown of
Minorities For Mortgage Loans is Found, N.Y. Times (July 26, 1975)
(describing the results of a government survey of 185 lenders across
six metropolitan areas in 1974).
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Further, the congressional record accompanying ECOA's adoption
reflects the problems Congress sought to address. A National
Commission's report on credit availability that informed ECOA's
drafting found widespread sex discrimination in credit.\64\ The Senate
Committee Report accompanying the 1976 Act noted that the legislative
record included ``instances of discrimination against racial
minorities'' and that ``studies conducted by federal agencies have
indicated the strong probability of race discrimination in mortgage
credit.'' \65\ Another report at the time recounts the experiences of
black businessmen being effectively shut out from small business
lending.\66\ ECOA's purpose was to prevent and prohibit such
discrimination.
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\64\ See, e.g., Senate Comm. on Banking, Housing and Urban
Affairs, Truth in Lending Act Amendments, S. Rep. No. 93-278, at 16-
18 (1973) (citing the National Commission on Consumer Finance's 1972
report, which found widespread barriers to credit access for women).
\65\ S. Rep. No. 94-589, at 3 (1976). See also Credit
Discrimination: Hearing on H.R. 14856 and H.R. 14908 Before the H.
Subcomm. on Consumer Affairs of the H. Comm. on Banking and
Currency, 93d Cong. 5, 63 (1974) (describing a lending institution
that assigned point values for race and national origin).
\66\ Credit Discrimination: Hearing on H.R. 14856 and H.R. 14908
Before the H. Subcomm. on Consumer Affairs of the H. Comm. on
Banking and Currency, 93d Cong., at 150-51 (reprinting Obstacles to
Financing Minority Enterprises, D.C. Advisory Committee to the U.S.
Comm'n on Civil Rights, Feb. 1974).
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But also at that time, some organizations sought to fill the gap by
making credit available especially to individuals who had been
otherwise excluded from the credit marketplace.\67\ Through ECOA's
provision for SPCPs (15 U.S.C. 1691(c)), Congress sought to enable
these programs that served then-extant special social needs to
continue.\68\ To accomplish this objective, at the same time that
Congress broadly prohibited credit discrimination, Congress added
provisions allowing the continued operation of credit assistance
programs ``expressly authorized by law for an economically
disadvantaged class of persons'' \69\ or ``administered by a nonprofit
organization for its members or an economically disadvantaged class of
persons.'' \70\ Congress additionally ``authorize[d] the Board to
prescribe standards [by which] profit-making organizations (commercial
creditors)'' could offer programs, with the expectation that they be
``designed to increase access to the credit market by persons
previously foreclosed from it'' \71\ and that, ``without such exemption
the consumers involved would effectively be denied credit.'' \72\
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\67\ Among other examples, this included municipal programs for
minority business lending, see 121 Cong. Rec. 16743 (1975)
(statements of Congressman Wylie) (describing a City of Columbus
program for minority business lending), banks establishing minority-
focused urban affairs lending divisions, see U.S. Comm'n on Civil
Rights, Greater Baltimore Commitment: A Study of Urban Minority
Economic Development, at 31 (Apr. 1983), as well as the
establishment of Feminist Federal Credit Unions, see Michael Knight,
Feminists Open Own Credit Union, N.Y. Times (Aug. 27, 1974); Anne
Sinila, Feminist Federal: Economic Self-Help, Ann Arbor Sun (July
15, 1976).
\68\ H. Rep. No. 94-879, at 8 (Mar. 4, 1976). See also 121 Cong.
Rec. 16743 (1975) (statements of Congressman Wylie).
\69\ 15 U.S.C. 1691(c)(1).
\70\ 15 U.S.C. 1691(c)(2).
\71\ S. Rep. No. 94-589, at 7 (1976).
\72\ H. Rep. No. 94-879, at 8 (Mar. 4, 1976).
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In its reexamination of the use of race, color, national origin,
and sex as participant eligibility criteria for SPCPs offered or
participated in by for-profit organizations, the Bureau has
preliminarily determined that, to the extent the current Regulation B
standards for such SPCPs authorize credit programs beyond what is
necessary to meet the expressly limited congressional intent for such
SPCPs, the standards are working counter to ECOA's purpose of
preventing discrimination and are potentially inconsistent with
constitutional guarantees of equal protection. The Bureau preliminarily
finds that fifty years of legal prohibitions against credit
discrimination--at the Federal and State level and across multiple laws
working in concert--have substantially reshaped credit markets relative
to what Congress, the Board, and consumers would have encountered in
1976. Regardless of whether instances of credit discrimination continue
to occur in the marketplace, the Bureau is not aware of any credit
markets in which consumers would be ``effectively denied credit''
because of their race, color, national origin, or sex in the absence of
SPCPs offered or participated in by for-profit organizations. The
Bureau requests comment on whether and the extent to which there may
remain any such credit markets. For comparison purposes, the Bureau
also requests comment on the nature and extent of credit discrimination
at the time of ECOA's passage. The Bureau particularly requests
quantitative data in these respects.
For these reasons, the Bureau has preliminarily determined that it
is no longer appropriate (in light of ECOA's purpose of preventing
discrimination) or that it is no longer necessary or proper (in light
of changed circumstances and ECOA's purposes) for the SPCP standards in
Regulation B to permit such SPCPs to use the common characteristics of
race, color, national origin, or sex as eligibility criteria.
Accordingly, pursuant to the Bureau's authority provided by ECOA,
including its authority to set standards, and as applicable its
``adjustment and exception'' authority, the Bureau proposes to prohibit
them from doing so. As noted, the Bureau sets forth this
[[Page 50911]]
prohibition in proposed Sec. 1002.8(b)(3), which is discussed in the
section-by-section analysis below. The Bureau seeks comment on this
proposed prohibition and on whether the proposed SPCP restrictions
would, if finalized in the absence of the prohibition, better serve
ECOA's purposes and the purposes of ECOA's SPCP provision.
Proposed SPCP Restrictions
Independent from and in addition to the above-described
prohibitions, the Bureau has also preliminarily determined that
additional restrictions in the Regulation B standards for SPCPs offered
or participated in by for-profit organizations are necessary and
appropriate; these restrictions are also discussed in the section-by-
section analysis below. As part of its basis for the proposed
restrictions, the Bureau incorporates by reference here the
justifications set forth above in this section III.C, including but not
limited to the Bureau's concerns regarding recent Supreme Court
decisions highlighting the constitutional infirmity of laws that enable
discrimination and, independently, the Bureau's finding that fifty
years of legal prohibitions against credit discrimination have reshaped
credit markets relative to 1976.
More specifically, the Bureau preliminarily determines as a matter
of its policy discretion provided by 15 U.S.C. 1693b(a) to adopt
regulations proper to effectuate the purposes of ECOA that the proposed
additional restrictions--independent of the proposed prohibitions
described above--would appropriately bring the regulation's standards
for such SPCPs--as expressly authorized by 15 U.S.C. 1691(c)(3)--into
closer alignment with congressional intent, as indicated in the
legislative history (quoted above). That is, the Bureau preliminarily
determines that the proposed additional restrictions would
appropriately increase the likelihood that such SPCPs provide credit to
consumers who would otherwise be denied the credit and that the for-
profit organizations that offer or participate in such SPCPs will have
and provide evidence that supports the need for the SPCPs. The Bureau
also preliminarily determines that this increase in likelihood would
appropriately help ensure that such SPCPs are not inconsistent with
ECOA's purpose of preventing credit discrimination. The Bureau's
reasoning follows.
In light of changed circumstances (discussed in more detail above),
the Bureau preliminarily finds that the current Regulation B SPCP
standards applicable to for-profit organizations have become
inappropriately permissive. The current standards permit for-profit
organizations to offer or participate in SPCPs even when there has been
no showing that discrimination based on protected class membership is
what is causing program participants to be unable to obtain credit.
That is, the regulation's SPCP standards may have been appropriate when
the Board promulgated them, given societal circumstances at that time.
But in light of changed circumstances, and because an SPCP that bases
eligibility on protected class membership inherently discriminates
against excluded individuals, the Bureau has preliminarily determined
that the regulation's standards should be amended to require any such
SPCP to be predicated on formal (and regulatorily required) evidence
and documentation by the creditor that it is the fact of protected
class membership that is causing program participants to be unable to
obtain credit. If considerations other than that fact are what is
causing the inability to obtain credit, then an SPCP based on protected
class membership is not necessary to address the inability. Further,
the Bureau preliminarily finds that in such cases it also is not
appropriate to use an SPCP to address the inability. Any protected-
class SPCP that is not necessary--and which unavoidably discriminates
against ineligible individuals--is inconsistent with ECOA's purpose of
making credit equally available to all without regard to prohibited
bases. The Bureau requests comment on whether there are existing SPCPs
that would no longer qualify for SPCP status under the Bureau's
proposed additional restrictions, and on what new credit programs could
qualify for SPCP status, if any.
The following section-by-section analysis discusses in more detail
the Bureau's proposed prohibitions and restrictions in the Regulation B
standards for SPCPs in Sec. 1002.8.\73\
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\73\ A few Regulation B provisions outside Sec. 1002.8 refer to
the SPCP provisions in Sec. 1002.8. The Bureau has preliminarily
determined that no changes are necessary to these cross references.
See Sec. 1002.11(b)(1)(v) and comments 5(a)(2)-3, 6(b)(1)-1,
6(b)(2)-1, and 11(a)-1 and (a)-2.
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Section 1002.8(a)(3)--Special Purpose Credit Programs Offered by For-
Profit Organizations
Section 1002.8(a)(3) governs any SPCP offered by a for-profit
organization, or in which such an organization participates, to meet
special social needs.\74\ The Bureau observes, as an initial matter,
that the provisions of Sec. 1002.8(a)--i.e., the provisions discussed
immediately below--are subordinate to the provisions of Sec. 1002.8(b)
(discussed farther below).\75\ As noted, the prohibitions described
above are set forth in proposed Sec. 1002.8(b)(3). Thus, all of the
following proposed restrictions in Sec. 1002.8(a)(3) are subordinate
to the proposed prohibitions in Sec. 1002.8(b)(3).
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\74\ 12 CFR 1002.8(a)(3).
\75\ See Sec. 1002.8(a) introductory text (emphasis added):
``(a) Standards for programs. Subject to the provisions of paragraph
(b) of this section, the Act and this part permit a creditor to
extend special purpose credit to applicants who meet eligibility
requirements under the following types of credit programs:'').
---------------------------------------------------------------------------
i. SPCPs Offered by For-Profit Organizations, Written Plan (Sec.
1002.8(a)(3)(i))
Under current Sec. 1002.8(a)(3)(i), a for-profit organization must
establish and administer an SPCP pursuant to a written plan that
identifies the class of persons that the program is designed to benefit
and sets forth the procedures and standards for extending credit
pursuant to the program.\76\ The Bureau proposes to separate this
current provision into Sec. 1002.8(a)(3)(i)(A) and (B). Proposed Sec.
1002.8(a)(3)(i)(A) would retain the current requirement that the
written plan identify the class of persons that the program is designed
to benefit; proposed Sec. 1002.8(a)(3)(i)(B) would retain the current
requirement that the written plan set forth the procedures and
standards for extending credit pursuant to the program. The Bureau also
proposes to add new requirements for the written plan in Sec.
1002.8(a)(3)(i)(C), (D), and (E) as follows.
---------------------------------------------------------------------------
\76\ 12 CFR 1002.8(a)(3)(i).
---------------------------------------------------------------------------
In new Sec. 1002.8(a)(3)(i)(C) the Bureau proposes to require the
SPCP's written plan to provide evidence of the need for the SPCP. The
Bureau preliminarily determines that this proposed new restriction
would more closely align the regulation's written-plan standard with
ECOA's purposes and the congressional intent expressed in the
legislative history. Although, as noted above, legislative history is
limited in its value when statutory text, context, and purpose provide
sufficient meaning, the SPCP provision in ECOA as to for-profit
entities is deliberately open-ended, referring to ``special social
needs'' and expressly granting the Bureau discretion to set relevant
standards. The Bureau therefore finds it appropriate to look to
Congress's stated goals, as a means of ensuring that this exercise of
discretion is appropriately cabined and
[[Page 50912]]
directionally consistent with the statute. In enacting the SPCP
provision, Congress indicated its expectation that the exemption for
SPCPs by for-profit organizations would allow for lending where ``it
has been clearly demonstrated on the public record that without such
exemption the consumers involved would effectively be denied credit.''
\77\ The Bureau preliminarily interprets effectively in the legislative
history to mean ``in effect.'' \78\ Pursuant to that interpretation,
the Bureau preliminarily finds that the consumers involved would
effectively be denied credit if in the absence of the SPCP they ``would
not receive'' such or similar credit, irrespective of whether the
consumers had actually applied for such credit or actually been denied
such credit by a creditor. The Bureau requests comment on this
interpretation.
---------------------------------------------------------------------------
\77\ Joint Explanatory Statement of the Committee of the
Conference, Cong. Rec. H5493 (daily ed. Mar. 4, 1976).
\78\ Effectively, Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/effectively (defining
``effectively'' as ``in effect: virtually'' ``by withholding further
funds they effectively killed the project.'') (last visited Aug. 19,
2025).
---------------------------------------------------------------------------
In new Sec. 1002.8(a)(3)(i)(D) the Bureau proposes to require the
SPCP's written plan to explain why, under the for-profit organization's
standards of creditworthiness, the class of persons would not receive
such credit in the absence of the program. As with (a)(3)(i)(C), this
new proposed restriction for the written plan would apply irrespective
of whether the SPCP requires its participants to share a common
characteristic that would otherwise be a prohibited basis. The Bureau
preliminarily determines that this proposed new restriction would more
closely align the regulation's written-plan standard with ECOA's
purposes and the congressional intent expressed in the legislative
history.
Proposed new Sec. 1002.8(a)(3)(i)(E) would apply, in addition to
Sec. 1002.8(a)(3)(i)(A), (B), (C), and (D), to SPCPs that require the
persons in the class served by the program to share one or more common
characteristics that would otherwise be a prohibited basis. The
provision's proposed new restrictions would require the written plan of
such an SPCP to explain why meeting the special social needs addressed
by the program necessitates that its participants share the specific
common characteristic that would otherwise be a prohibited basis and
cannot be accomplished through a program that does not use otherwise
prohibited bases as participant eligibility criteria. As is discussed
in more detail above, the Bureau has preliminarily determined that
these proposed new restrictions in the standards for SPCPs would more
closely align the regulation with the statutory purpose of ``mak[ing] .
. . credit equally available to all credit-worthy customers without
regard to [prohibited bases].'' Specifically, the Bureau has
preliminarily determined that it is inconsistent with ECOA's purpose--
preventing discrimination--for an SPCP that uses an otherwise
prohibited basis to discriminate against ineligible individuals, unless
the SPCP's use of the otherwise prohibited basis is necessary to
overcome an inability to access credit that is specifically based on
those same characteristics.
ii. SPCPs Offered by For-Profit Organizations, Class of Persons (Sec.
1002.8(a)(3)(ii))
Current Sec. 1002.8(a)(3)(ii) requires that a for-profit
organization offering an SPCP establish and administer the program to
extend credit to a class of persons who, under the organization's
customary standards of creditworthiness, probably would not receive
such credit or would receive it on less favorable terms than are
ordinarily available to other applicants applying to the organization
for a similar type and amount of credit. This provision applies
irrespective of whether the SPCP requires its participants to share a
common characteristic that would otherwise be a prohibited basis. The
Bureau proposes three changes to this standard, as follows.
First, the Bureau proposes to strike the clause that begins with
``or would receive it on less favorable terms . . . .'' This change
would restrict permissible SPCPs offered by a for-profit organization
to those that are established and administered to extend credit to a
class of persons who would otherwise not receive the type and amount of
credit, as opposed to those who would receive it on less favorable
terms. Second, the Bureau proposes to strike the term ``customary;''
and, third, the Bureau proposes to strike the term ``probably.'' These
latter two changes would restrict permissible SPCPs offered by a for-
profit organization to those that are established and administered to
extend credit to a class of persons who actually (in lieu of
``probably'') would not receive such credit under the organization's
actual (in lieu of ``customary'') credit standards. In sum, the three
proposed changes would restrict a for-profit organization to offering
an SPCP to a class of persons to whom, under the organization's actual
credit standards, the organization would actually deny credit in the
absence of the SPCP.\79\ The Bureau requests comment on this standard
of ``actual'' for establishing and administering an SPCP offered or
participated in by a for-profit organization and, in particular, on
whether there might be an another standard that would better facilitate
compliance while achieving the Bureau's objective of a standard that is
more than a mere probability.
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\79\ In combination, textually, the three proposed changes would
revise Sec. 1002.8(a)(3)(ii) to require that a for-profit
organization offering an SPCP establish and administer the program
to extend credit to a class of persons who, under the organization's
standards of creditworthiness, would not receive such credit.
---------------------------------------------------------------------------
The Bureau has preliminarily determined that each of the three
proposed restrictions, and the three proposed restrictions in
combination, would more closely align the regulatory standards for an
SPCP offered by a for-profit organization with ECOA's purposes and with
the congressional intent expressed in the legislative history: that
without the SPCP ``the consumers involved would effectively be denied
credit.'' \80\ Furthermore these proposed restrictions, as a
preliminary matter, are appropriate, necessary, and proper to carry out
the purposes of ECOA, for the reasons above.
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\80\ Joint Explanatory Statement of the Committee of the
Conference, Cong. Rec. H5493 (daily ed. Mar. 4, 1976).
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iii. SPCPs Offered By For-Profit Organizations, Determining Need
(Comment 8(a)-5)
Current comment 8(a)-5 addresses SPCPs offered by for-profit
organizations. Under the Bureau's proposal, the comment would continue
to clarify that a for-profit organization's determination of the need
for an SPCP ``can be based on a broad analysis using the organization's
own research or data from outside sources, including governmental
reports and studies.'' \81\
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\81\ Regulation B comment 8(a)-5.
---------------------------------------------------------------------------
For the reasons set forth above, the Bureau proposes changes to
comment 8(a)-5 that would conform the comment's text to the proposed
changes to the regulatory text of Sec. 1002.8(a)(3), as follows. For
precision, and because the comment addresses only SPCPs provided by
for-profit organizations, the Bureau proposes to change the comment's
citation to the regulatory text from ``Sec. 1002.8(a)'' to ``Sec.
1002.8(a)(3),'' which is the paragraph that addresses such SPCPs. The
Bureau also proposes to strike the phrase ``or would receive it
[credit] on less favorable terms,'' for the same reasons that the
Bureau is
[[Page 50913]]
proposing to strike the corresponding phrase from the regulatory text
of Sec. 1002.8(a)(3)(ii), discussed above.
The third and fourth sentences of comment 8(a)-5 set forth two
examples of the types of research or data that a for-profit
organization may use for the analysis on which it bases its
determination of the need for the SPCP. The Bureau proposes edits to
the examples' text to conform to the proposed regulatory changes
discussed above. The proposed edits would neither intend nor effect any
change to the types of research or data that a for-profit organization
may use.
The Bureau requests comment on the restrictions that the Bureau
proposes in Sec. 1002.8(a)(3) and, in particular, on the proposed
evidentiary requirements and on whether there might be another
standard(s) that would better facilitate compliance while achieving the
Bureau's objective of ensuring that any SPCP offered or participated in
by a for-profit organization provides credit only to participants who
would not receive such credit in the absence of the SPCP.
Section 1002.8(b)(2)--Common Characteristics
Current Sec. 1002.8(b)(2) provides that a credit program qualifies
as an SPCP only if the program was established and is administered so
as not to discriminate against an applicant on any prohibited basis. It
also provides that all program participants may be required to share
one or more common characteristics (for example, race, national origin,
or sex) so long as the program is not established and is not
administered with the purpose of evading the requirements of ECOA or
Regulation B. The Bureau proposes to amend the section to make it
subordinate to the new proposed prohibitions and restrictions in Sec.
1002.8(b)(3) and (4), which are discussed below.
For clarity, the Bureau proposes to strike the parenthetical in
Sec. 1002.8(b)(2)--``(for example, race, national origin, or sex)''--
and replace it with the text ``that would otherwise be a prohibited
basis.'' The Bureau would neither intend nor effect any change in
substance with this proposed change, because Sec. 1002.2(z) defines
``prohibited basis'' to include race, national origin, and sex. Also
for clarity, the Bureau also proposes to add new comment 8(b)-2 to
explain the Sec. 1002.8(b)(2) regulatory text. In 1977, when the Board
promulgated what was then Sec. 202.8(b)(2) to implement the 1976 Act,
the Board's section-by-section analysis of the regulatory text stated:
Section 202.8(b)(2) provides that a creditor may determine
eligibility for a special purpose credit program using one or more
of the prohibited bases; but, once the characteristics of the class
of beneficiaries are established, a creditor may not discriminate
among potential beneficiaries on a prohibited basis. For example, a
creditor might establish a credit program for impoverished American
Indians. If the program met the requirements of Sec. 202.8(a), the
creditor could refuse credit to non-Indians but could not
discriminate among Indian applicants on the basis of sex or marital
status.\82\
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\82\ 42 FR 1242, 1248 (Jan. 6, 1977).
The Bureau proposes to incorporate the substance of the Board's
section-by-section analysis in new comment 8(b)-2. Specifically, the
proposed comment would clarify that Sec. 1002.8(b)(2)--subject to the
prohibitions and restrictions in Sec. 1002.8(b)(3) and (4), as well as
the other requirements of 12 CFR part 1002--permits a creditor to
determine eligibility for an SPCP using one or more common
characteristics that would otherwise be a prohibited basis. The
proposed comment would also clarify that under Sec. 1002.8(b)(2), once
the characteristics of the program's class of participants are
established, the creditor is prohibited from discriminating among
potential participants on a prohibited basis.
Proposed New Sec. 1002.8(b)(3)--Prohibited Common Characteristics
The Bureau proposes to add to the regulation new Sec.
1002.8(b)(3), which would prohibit an SPCP offered or participated in
by a for-profit organization from using the common characteristic of
race, color, national origin, or sex, or any combination thereof, as a
factor in determining eligibility for the program. For the reasons
discussed above, the Bureau has preliminarily determined that it is no
longer necessary (in light of changed circumstances) or appropriate (in
light of ECOA's purpose of preventing discrimination) for the SPCP
standards in Regulation B to permit such SPCPs to use the common
characteristics of race, color, national origin, or sex as eligibility
criteria.
The Bureau requests comment on the prohibitions that the Bureau
proposes in Sec. 1002.8(b)(3).
Proposed New Sec. 1002.8(b)(4)--Otherwise Prohibited Bases in For-
Profit Programs
The Bureau proposes to add to the regulation new Sec.
1002.8(b)(4), which, for characteristics not prohibited under proposed
Sec. 1002.8(b)(3), would apply when an SPCP offered or participated in
by a for-profit organization requires its participants to share one or
more common characteristics that would otherwise be a prohibited basis.
The new proposed section (subject to Sec. 1002.8(b)(3)) would require
the organization to provide evidence for each participant who receives
credit through the program that, in the absence of the program, the
participant would not receive such credit as a result of those specific
characteristics.
As is discussed in more detail above, the Bureau has preliminarily
determined that these proposed new restrictions in the standards for
SPCPs would more closely align the regulation with the statutory
purpose of ``mak[ing] . . . credit equally available to all credit-
worthy customers without regard to [prohibited bases].'' Specifically,
because an SPCP that bases eligibility on protected class membership
inherently discriminates against ineligible individuals, the Bureau has
preliminarily determined that it is inconsistent with ECOA's purpose
(preventing discrimination) for an SPCP to use an otherwise prohibited
basis (and thereby discriminate against ineligible individuals) unless
the SPCP's use of the otherwise prohibited basis is necessary to
overcome an inability to access credit that is specifically based on
those same characteristics.
The Bureau requests comment on the restrictions that the Bureau
proposes in Sec. 1002.8(b)(4) and, in particular, on the standard of
requiring a for-profit organization to provide evidence for each
participant; and, on whether there might be an another standard that
would better facilitate compliance while achieving the Bureau's
objective of ensuring that any SPCP offered or participated in by a
for-profit organization that uses one or more prohibited-basis common
characteristics provides credit only to participants who in the absence
of the SPCP would not receive such credit as a result of the
participants' specific characteristics.
Section 1002.8(c)--Special Rule Concerning Requests and Use of
Information
In Sec. 1002.8(c) and the commentary thereto the Bureau proposes
nonsubstantive changes for clarity. The Bureau proposes to strike the
section's parenthetical--``(for example, race, national origin, or
sex)''--and replace it with the text ``that would otherwise be a
prohibited basis.'' This proposed change would neither intend nor
effect any change in substance, because Sec. 1002.2(z) defines
``prohibited basis'' to include race, national origin, and sex. The
Bureau also proposes to make explicit that Sec. 1002.8(c) is
subordinate to Sec. 1002.8(b), including its newly proposed
prohibitions and restrictions,
[[Page 50914]]
discussed above. This proposed change would neither intend nor effect
any change in substance because current Sec. 1002.8(c) is expressly
subordinate to Sec. 1002.8(a) and current Sec. 1002.8(a) is expressly
subordinate to Sec. 1002.8(b); thus, Sec. 1002.8(c) is subordinate to
Sec. 1002.8(b). Finally, the Bureau proposes to delete one of the
examples from comment 8(c)-2 regarding programs under a Minority
Enterprise Small Business Investment Corporation. This proposed
deletion would neither intend nor effect any change in substance
because as a general matter examples do not carry legal force.
The Bureau requests comment on the changes that the Bureau proposes
in Sec. 1002.8(c) and its commentary.
IV. Proposed Effective Date
The Bureau proposes that a final rule relating to this proposal
would have an effective date of [90 days after publication in the
Federal Register]. This would provide creditors sufficient time to
evaluate existing SPCPs to ensure compliance with the final rule for
extensions of credit on or after the effective date. Where creditors
have already extended credit prior to the effective date under existing
SPCPs, those credit extensions would be grandfathered and their
programs must qualify as SPCPs under the rule in effect at the time of
the credit extensions. The Bureau does not anticipate as much time, if
any, would be needed for creditors to comply with a final rule relating
to disparate impact and discouragement. The Bureau seeks comment on the
proposed effective date, including whether it should be at a different
time, and if so, when and why.
V. CFPA Section 1022(b) Analysis
A. Overview
The Bureau is considering the potential benefits, costs, and
impacts of the proposed rule.\83\ The Bureau requests comments on the
preliminary discussion presented below, as well as submissions of
additional information and data that could inform the Bureau's
consideration of the benefits, costs, and impacts of the proposed rule.
As discussed in greater detail elsewhere in this NPRM, the Bureau is
proposing to amend provisions related to disparate impact,
discouragement, and SPCPs under Regulation B, which implements ECOA.
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\83\ Specifically, section 1022(b)(2)(A) of the Dodd-Frank Act
calls for the Bureau to consider the potential benefits and costs of
a regulation to consumers and covered persons, including the
potential reduction of access by consumers to consumer financial
products or services; the impact on depository institutions and
credit unions with $10 billion or less in total assets as described
in section 1026 of the Dodd-Frank Act; and the impact on consumers
in rural areas.
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The Bureau believes that the amendment to the provisions related to
disparate impact and discouragement are largely deregulatory in nature
and therefore are expected to reduce burden for the covered persons.
The Bureau also has reason to believe that the current number of SPCPs
is small and therefore proposed changes to SPCPs as part of this
proposed rule would have limited impacts. The discussion below further
considers the benefits, costs, and impacts of the proposed provisions
to consumers and covered persons in detail.
B. Statement of Purpose
The purpose of Regulation B is to promote the availability of
credit to all creditworthy applicants without regard to race, color,
religion, national origin, sex, marital status, or age (provided the
applicant has the capacity to contract); to the fact that all or part
of the applicant's income derives from a public assistance program; or
to the fact that the applicant has in good faith exercised any right
under the Consumer Credit Protection Act.\84\ The Bureau is proposing
to amend the regulation as follows: (1) provide that ECOA does not
authorize disparate impact claims; (2) amend the prohibition on
discouraging applicants or prospective applications to clarify that it
prohibits statements of intent to discriminate in violation of ECOA and
is not triggered merely by negative consumer impressions, and to
clarify that encouraging statements by creditors directed at one group
of consumers is not prohibited discouragement as to applicants or
prospective applicants who were not the intended recipients of the
statements; and (3) amend the standards for SPCPs offered or
participated in by for-profit organizations to include new standards
and related restrictions.
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\84\ See Sec. 1002.1(b).
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C. Baseline for Consideration of Analysis
The Bureau has discretion in any rulemaking to choose an
appropriate scope of consideration with respect to potential benefits
and costs and an appropriate baseline. Accordingly, this analysis
considers the benefits, costs, and impacts of the proposed provisions
against Regulation B prior to its amendment as a baseline, i.e., the
current state of the world before the Bureau's proposed provisions are
implemented. Under this baseline, the Bureau assumes that institutions
are complying with regulations that they are currently subject to. The
Bureau believes that such a baseline will provide the public with
better information about the benefits and costs of the proposed
amendment.
D. Data Limitations and Quantification of Benefits, Costs, and Impacts
The discussion below relies on data that the Bureau has obtained
from publicly available sources. However, limitations on what data are
available restrict the Bureau's ability to quantify the potential
costs, benefits, and impacts of the proposed rule. Therefore, the
discussion below generally provides a qualitative consideration of the
benefits, costs, and impacts of the proposed rule. General economic
principles, together with the limited data available, provide insights
into these benefits, costs, and impacts. Where possible, the Bureau has
made quantitative estimates based on these principles and the available
data. The Bureau seeks comments on the appropriateness of the approach
described below, including submissions of additional data relevant to
the benefits and costs to consumers and covered persons.
Benefits to Covered Persons
As discussed further below, most provisions of the proposal would
benefit covered persons. Quantifying and monetizing the benefits to
covered institutions would require identifying costs of compliance
under the baseline and quantifying the magnitude of the covered
persons' cost savings arising from the proposed provisions. For
example, the Bureau believes that the proposed provisions are
deregulatory in nature and hence would benefit covered persons in the
long run by reducing compliance burden. The Bureau anticipates these
cost savings to vary with the covered person's size and the complexity
of operations. However, the Bureau is unaware of any data that would
enable reliable quantitative estimation of these benefits. Therefore,
the Bureau seeks comment and data regarding the benefits to covered
persons of the proposed provision. The Bureau is particularly
interested in the number of employee hours, or estimates of total costs
that covered persons anticipate saving as a result of the proposed
rule.
Costs to Covered Persons
Certain costs to covered persons are difficult to quantify. For
example, the Bureau anticipates that covered persons would incur costs
associated with implementing changes to their internal
[[Page 50915]]
processes that result from the proposed provisions. The Bureau
categorizes costs required to comply with the proposed provision into
``one-time'' and ``ongoing'' costs. ``One-time'' costs refer to
expenses that the covered persons would incur only once to implement
operational changes arising from the proposal. On the other hand,
``ongoing'' costs refer to expenses incurred as a result of the ongoing
compliance of the rule. The Bureau also expects both of these types of
costs to vary with a covered person's size and complexity of
operations. The Bureau is unaware of any data that would help to
quantify such costs and seeks data from available sources to quantify
the costs to covered persons and seeks comment or data that may help
quantify these types of costs.
Benefits to Consumers
Due to the deregulatory nature of the proposed provisions, covered
persons can potentially pass on the saved compliance costs to consumers
by offering lower prices or better products. However, the Bureau is
unable to quantify these potential benefits because it lacks relevant
data. The Bureau seeks additional comments, including submissions of
relevant data, that would help quantify the benefits of the proposed
provisions to consumers.
Costs to Consumers
According to economic theory, in a perfectly competitive market
where covered persons are profit maximizers, reductions in the marginal
cost of operation would be passed on to consumers, and firms would
absorb one-time fixed costs of compliance. However, covered persons'
response likely varies with supply, demand, and competitive conditions.
Moreover, in addition to any costs that covered persons may pass onto
consumers, the proposed provisions concerning disparate impact and
discouragement may potentially limit legal protections for consumers
and affect consumers' access to credit. Because of the lack of data to
quantify such costs, the Bureau seeks information on the number of
consumers potentially affected by the proposed rules as well as the
data that would allow quantification of costs to consumers.
E. Potential Benefits and Costs of the Proposed Rule to Consumers and
Covered Persons
Covered Persons Under the Proposed Rule
The three categories of proposed changes to Regulation B would
apply to all covered persons that meet the definition of creditor under
Regulation B. To estimate the total number of persons covered by the
proposed changes, the Bureau relies on the total number of entities
subject to Regulation B as estimated in the approved Paperwork
Reduction Act supporting statement (OMB Control Number 3170-0013) last
updated in 2024.\85\ The Bureau estimates that there are about 12,000
depository institutions and 482,000 non-depository institutions that
are subject to Regulation B.
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\85\ https://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=202402-3170-001.
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Provisions Concerning Disparate Impact
i. Benefits to Covered Persons
The proposed provisions would likely allow covered persons to save
on ongoing compliance costs. For example, covered persons may save time
and resources presently spent on creating, testing, validating, and
auditing models for potential disparate impact risks in their lending
strategy or portfolio. Resources dedicated to statistical testing,
documenting business necessities of policies and evaluating alternative
lending strategies may be saved or redirected to other uses. Covered
persons may also save costs by reducing spending associated with fair
lending exams and training loan officers, compliance staff,
contractors, and modelers of disparate impact risks. Lastly, the
proposed change can reduce the potential litigation risks to the extent
lenders would have otherwise had to defend against lawsuits under a
disparate impact theory of discrimination. Fewer enforcement actions
and private claims premised on disparate impact theories as a result of
the proposed provisions would reduce defense burden and any financial
costs related to remediation. The compliance cost saving from the
proposed provisions likely varies by the size and complexity of the
operational structure of the institutions.
Covered persons' profitability could increase as a result of the
proposed provisions by improving operational flexibility and spurring
innovation in the credit application process. For example, covered
persons could more freely experiment with risk-based pricing and
automated underwriting with reduced risk of facially neutral policies
with disproportionate effects triggering liability without intent. The
proposed provisions may result in an adoption of new modeling
techniques that use additional data sources. These benefits, however,
may be limited by the ongoing need to comply with other State and
Federal fair lending laws. Due to lack of available data, the Bureau
cannot provide quantitative estimates of potential cost savings and
increased profits by covered persons and seeks comment and data that
would allow quantification of these cost savings.
ii. Costs to Covered Persons
Covered persons may incur one-time adjustment costs resulting from
these proposed provisions. These one-time costs include updating
policies, practices, procedures, and control systems; verifying,
updating and reviewing compliance; and training staff and third
parties. In addition, covered persons already incur ongoing compliance
costs associated with the current Regulation B. Therefore, the Bureau
expects the one-time cost and any ongoing costs that may arise from the
proposed provisions to be small.
The Bureau does not have the data to provide quantitative estimates
of the one-time costs that covered persons may incur but can propose a
rough estimate based on one-time costs estimated for other rules. For
example, the Bureau recently estimated a one-time cost of each covered
small non-depository entity for implementing the Automated Valuation
Models (AVM) Rule to be $23,000: $7,000 for drafting and developing
policies, practices, procedures, and control systems, $10,000 for
verifying compliance, and $6,000 for training.\86\ Furthermore, the
Bureau estimated the ongoing costs to be one-third of the one-time
costs (i.e., $7,667). Since the proposed provisions involves updating
existing policies rather than implementing new policies, the Bureau
expects the cost of the proposed provisions to be closer to the AVM
Rule's total ongoing cost of $7,667.
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\86\ 12 CFR part 1026 AVM Final Rule, 89 FR 64538, 64569 (Aug.
7, 2024).
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The one-time costs of updating policies and procedures and training
personnel likely vary with the size and the type of covered person. For
example, the Bureau recently in the Small Business Lending (1071) Rule
estimated that the one-time cost of developing policies and procedures
to range between $2,500 and $4,300 while the cost of training staff and
third parties to range between $3,100 and $5,300 depending on the size
and the type of institutions.\87\ Given that these estimates are for
implementing a new rule, whereas the proposed provisions only updates
an existing rule, the Bureau expects the total one-time cost associated
with the proposed provisions
[[Page 50916]]
to be smaller than the estimated one-time costs for implementing the
1071 Rule. In other words, the Bureau expects the upper bound of the
cost to vary between $5,600 and $9,600, which is consistent with what
was estimated from the AVM Rule.
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\87\ 1071 Final Rule, 88 FR 35150, 35507-35510 (May 31, 2023).
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The Bureau emphasizes that it lacks data with which to estimate
implementation costs for the proposed provisions concerning disparate
impact, and that the cost estimates above are based on costs that were
estimated for other rules. As such, these estimates may not be close to
the actual costs that covered persons would incur as a result of the
proposed provisions. The Bureau seeks comments and data related to the
one-time costs that covered persons would incur to implement the
proposed provisions.
iii. Benefits to Consumers
Covered persons may pass on compliance cost savings to consumers,
who may benefit as a result. According to standard economic theory, the
degree to which consumers would benefit from lower prices would depend
on competitive market conditions and the shapes of market demand and
supply, as well as firm characteristics. In addition, some consumers
may experience a faster credit application process and greater product
variety as some covered persons would reallocate cost savings arising
from proposed provisions to improving operational efficiency and
developing new products and services. The Bureau lacks data with which
to estimate these benefits to consumers and seeks comments and data
that would allow quantifying these benefits.
iv. Costs to Consumers
To the extent that legal liability discourages covered persons from
implementing policies that lead to disparate impact, removing such
liability could potentially have a negative impact on some consumers.
Consumers who are adversely affected by neutral policies would lose
legal options and opportunities for redress. Some consumers may be more
likely to be denied credit or to pay higher prices without effects-
based legal protection. However, such costs to consumers may be
limited; covered persons are still liable under other
antidiscrimination statutes such as the FHA and state laws similar to
ECOA, so the incentives for covered persons to implement policies or
engage in practices that lead to disparate impact may be limited.
The Bureau has also considered the possibility of one-time costs
that covered persons incur because of the proposed provisions being
passed on to consumers in the form of higher prices. The Bureau
believes that this is unlikely to occur since economic theory generally
views changes in fixed costs as unrelated, all other things equal, to
changes in price.
Provisions Concerning Discouragement
v. Benefits to Covered Persons
The proposed provisions would limit legal liability for covered
persons and can reduce compliance burden as a result. For example,
covered persons may reduce spending related to limiting liability as to
prospective applicants by decreasing the amount of time and resources
spent monitoring marketing strategies and materials, and by adjusting
marketing to focus on areas where they expect the greatest return on
investment. In addition, covered persons may spend less on training
loan officers, compliance staff, contractors, and other employees on
legal and compliance risks related to prospective applicants. Lastly,
the proposed change would limit potential litigation risks from
enforcement actions based on allegations of discouragement of
prospective applicants. The proposed change would reduce legal exposure
to the extent lenders would have had to defend against lawsuits under
broader legal liability in the baseline. As a result, covered persons
may save costs related to legal counsel.
The proposed provisions would potentially increase covered persons'
profitability by allowing additional operational flexibility. For
example, lenders who under the baseline choose not to focus on offering
certain products to certain groups of consumers would be able to
potentially increase their revenues by offering products that are
better tailored to the demands of different groups of consumers. In
other words, under this proposal, some covered persons would be able to
conduct more targeted advertising campaigns and offer certain products
to subsets of consumers (when they otherwise would not have been able
to under the baseline). Covered persons may choose to relocate branch
locations that are less profitable and reallocate resources that were
previously spent on oversight of marketing materials and interactions
with prospective applicants at call centers and branches to other uses.
On the other hand, requirements to serve community credit needs under
the CRA would still be in effect and could mitigate such business
decisions. The benefits to covered persons that arise as a result of
these proposed provisions likely vary with the size and type of each
covered person. However, the Bureau lacks data with which to reliably
estimate these benefits, and seeks comment and data that may help
quantify these benefits to covered persons.
vi. Costs to Covered Persons
Covered persons may incur adjustment costs associated with the
proposed change in liability for discrimination against prospective
applicants. Covered persons may need to update their policies,
procedures, and systems to accommodate changes resulting from the
proposed provisions. However, these adjustment costs would be incurred
only once and are unlikely to have a significant long-term impact on
covered entities. The one-time costs associated with these proposed
provisions would be similar in scope to the one-time costs associated
with the change to the disparate impact provisions above. The Bureau
lacks data with which to reliably estimate the potential cost to
covered persons arising from these proposed provisions and seeks
comments and data that would help quantify these costs.
vii. Benefits to Consumers
The proposed provisions on discouragement limits may result in
ongoing cost savings for covered entities, which could be passed on to
consumers through lower prices. The rate of pass through generally
varies with demand and supply conditions, as well as firm
characteristics. The Bureau lacks data with which to reliably estimate
the benefits to consumers arising from the proposed provisions and
seeks comments and data that would help quantify these benefits.
viii. Costs to Consumers
The proposed provisions may result in consumers not applying for
credit and facing greater barriers to accessing credit than they
otherwise would have under the existing rule. For example, covered
persons may exclude certain groups of consumers from advertising
campaigns or may choose to engage less with certain groups of
consumers. As a result, some consumers may not be aware of credit
products from all available covered persons. Moreover, some consumers
may lose convenient access to financial services if covered persons
alter their branch location decisions as a result of these proposed
provisions. In particular, elderly, minority, and low-income consumers
are more likely to rely on brick-and-mortar branch services instead of
online or mobile banking. If covered persons alter their branch
location decisions, then these customers may no longer be
[[Page 50917]]
able to easily access financial services and products. As before
though, requirements to serve community credit needs under the CRA
could mitigate such impacts.
Consumers would have less protection against discouragement at a
pre-application stage under the proposed provisions compared to the
baseline. Under a narrower standard of liability, lenders may be more
likely to discourage or informally reject certain consumers, among
other things, before credit is formally sought.\88\ The proposed
provisions could lead to some consumers being discouraged in ways not
captured by the proposed prohibition, constituting a cost to these
consumers. The Bureau lacks data with which to reliably estimate such
costs to consumers arising from the proposed provisions and seeks
comments and data that would help quantify these costs.
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\88\ See, e.g., Andrew Hanson et al., Discrimination in mortgage
lending: Evidence from a correspondence experiment, 92 J. Urban
Econ. 48-65 (2016); Neil Bhutta et al., How much does racial bias
affect mortgage lending? Evidence from human and algorithmic credit
decisions, 80(3) J. Fin. 1463-1496 (2025).
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While the proposed provisions limit covered persons' liability on
discouragement, it does not eliminate it. Covered persons will remain
prohibited by the proposed discouragement prohibition from expressing
to applicants or prospective applicants an intention to discriminate
against them on a prohibited basis. Moreover, covered persons would
still be subject to other statutes such as the FHA and state laws
similar to ECOA. While the proposed provisions reduce legal liability
for covered persons under ECOA, the legal risk under other statutes
remains unchanged and therefore the incentives for covered persons to
significantly change their policies as a result from the proposed
provisions may be limited. Thus, the costs to consumers may be limited.
The Bureau seeks comments on the potential costs of the proposed
provisions to consumers.
Provisions Concerning Special Purpose Credit Programs
The Bureau also proposes changes to Regulation B's provisions
regarding SPCPs. The proposed changes can be grouped into two
categories for the purposes of discussing their potential impacts.
First, the Bureau proposes to prohibit an SPCP offered or participated
in by a for-profit organization from using a common characteristic of
race, color, national origin, or sex, or any combination thereof, as a
factor in determining eligibility for the SPCP. Second, the Bureau also
proposes several new restrictions on such SPCPs that use any prohibited
basis common characteristic as eligibility criteria. 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.
Compared to the baseline, the overall effect of these two
categories of proposed changes is to place additional restrictions on
the design of lenders' existing SPCPs and the development of new SPCPs.
The Bureau considers the costs and benefits of these restrictions
below.
ix. Benefits to Covered Persons
At baseline, Regulation B permits creditors to create SPCPs and
prescribes the procedures for doing so but does not require any
creditor to create an SPCP. The Bureau, consistent with standard
economic theory, assumes that creditors only decide to create SPCPs if
the incremental benefits from doing so outweigh the incremental costs
from creating and administering the SPCP. Since the proposed changes to
Regulation B may make it more difficult or costly to create an SPCP,
the Bureau does not expect the proposed changes to the SPCP provisions
to generate benefits to covered persons from credit provided or not
provided under the revised SPCP provisions.
x. Costs to Covered Persons
At baseline, Regulation B permits creditors to create SPCPs and
prescribes the procedures for doing so but does not require any
creditor to create an SPCP. Under standard economic theory, a creditor
would only create an SPCP if the expected benefit of doing so is
greater than the costs of creating and administering the program.
Creditors may benefit, for example, from the public relations value
that such a program may provide. Owners of a for-profit credit provider
may also derive some non-monetary benefit from the creation of an SPCP.
Setting up an SPCP involves ``significant effort'' in following the
proper procedures for doing so.\89\ Many existing SPCPs also involve
the creditor taking on additional risk because they may involve
providing credit to applicants the creditor would have otherwise denied
or providing credit at terms that would have otherwise been more
favorable to the creditor. The Bureau assumes that, if a creditor
implements an SPCP, they do so because the benefits outweigh the costs.
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\89\ Comment from the JPMorgan Chase & Co., OCC-2022-0002-0252
(June 6, 2022), https://www.regulations.gov/comment/OCC-2022-0002-0252.
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The effects of the proposed Regulation B provisions affecting SPCPs
are to impose restrictions on creditors' ability to create an SPCP and,
therefore, reduce the expected net benefit of the programs relative to
the baseline. In some cases, the proposed changes would prohibit some
types of SPCPs. For example, an SPCP that currently uses race as a
common characteristic would be prohibited under the proposed changes.
In other cases, the proposed changes would impose additional costs on
creditors' who attempt to develop an SPCP. Such would be the case when
a creditor must establish the fact that members of a protected class
would otherwise be unable to receive credit in the absence of an SPCP.
Imposing such restrictions could make it difficult to achieve the
intended effect of an SPCP or otherwise reduce the net benefit of doing
so. This change imposes a cost on affected creditors who either have an
SPCP or would otherwise create an SPCP in the absence of the proposed
changes to Regulation B. As a result, fewer SPCPs may exist under the
NPRM relative to the baseline.
However, such costs could be mitigated to the extent that creditors
could redesign programs to use criteria that are not prohibited under
the proposed changes to Regulation B. For example, if a creditor has an
existing SPCP that uses race as a common characteristic determining
eligibility to reach a certain segment of socioeconomically
disadvantaged borrowers, it may be able to preserve much of its program
in a form that is open to such socioeconomically disadvantaged
borrowers without regard to prohibited basis characteristics. In this
case, the creditor would incur both the one-time cost of the program
redesign and any costs arising if the redesigned program is unable to
achieve the intended results as effectively.
While the Bureau is unaware of data that could be used to
comprehensively measure the scale of existing SPCPs, the Bureau does
have reason to believe that the overall market effect of these proposed
limits is likely to be small. Historically, few SPCPs existed prior to
[[Page 50918]]
the Bureau's advisory opinion in January 2021, when the Bureau last
assessed the market.\90\ In August 2020, the Bureau issued a Request
for Information on the Equal Credit Opportunity Act and Regulation
B.\91\ Multiple commenters noted that, despite a long history of being
allowed under Regulation B, most lenders have not used SPCPs.\92\ In
2021, the U.S. Department of Housing and Urban Development noted in its
statement on SPCPs that ``very few of these Programs have been
established to create homeownership opportunities for affected
communities.'' \93\
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\90\ 86 FR 3762 (Jan. 15, 2021).
\91\ Request for Information on the Equal Credit Opportunity Act
and Regulation B, https://www.federalregister.gov/d/2020-16722.
\92\ See comment from Nat'l Fair Hous. All., https://www.regulations.gov/comment/CFPB-2020-0026-0133, and Mortg. Banker's
Ass'n, https://www.regulations.gov/comment/CFPB-2020-0026-0115.
\93\ Memorandum from Demetria L. McCain, Principal Deputy
Assistant Secretary for Fair Housing & Equal Opportunity, U.S. Dep't
of Hous. & Urban Dev., to Office of Fair Housing and Equal
Opportunity (Dec. 7, 2021), FHEO's Statement by HUD's Office of Fair
Housing and Equal Opportunity on Special Purpose Credit Programs as
a Remedy for Disparities in Access to Homeownership, https://web.archive.org/web/20241024180840/https://www.hud.gov/sites/dfiles/FHEO/documents/FHEO_Statement_on_Fair_Housing_and_Special_Purpose_Programs_FINAL.pdf
.
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Since 2021, there has been growth in the number of SPCPs, with
prominent examples from large banks, large non-depository institutions,
and several non-profit organizations.\94\ However, available
information suggests that the use of SPCPs is likely still limited. The
Federal Housing Finance Agency (FHFA) released a report in 2024 showing
that government-sponsored enterprises (GSEs) acquired almost 15,000
mortgages originated through SPCPs in 2023, or 0.8 percent of the total
mortgages GSEs acquired that year.\95\ With respect to small business
lending, the American Bankers Association (ABA), as of 2025, also notes
that few lenders have implemented SPCPs for small business lending.\96\
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\94\ U.S. Dep't of Hous. & Urb. Dev., Market examples of SPCPs--
SPCP Toolkit for Mortgage Lenders, https://spcptoolkit.com/market-examples-of-spcps/ (last visited Sept. 9, 2025).
\95\ Inside Mortg. Fin., Special Purpose Credit Program
Mortgages a Fraction of GSE Business (Oct. 19, 2023), https://www.insidemortgagefinance.com/articles/230785-special-purpose-credit-program-mortgages-a-fraction-of-gse-business; Fed. Hous. Fin.
Agency, Mission Report 2023 (2024), https://www.fhfa.gov/reports/mission-report/2023.
\96\ Am. Banker's Ass'n, Special Purpose Credit Programs,
https://www.aba.com/banking-topics/commercial-banking/small-business/special-purpose-credit-programs (last visited Sept. 9,
2025).
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The Bureau also expects that SPCPs are even less likely to be
provided by small lenders, compared to larger ones. In a 2022 comment
letter, J.P. Morgan Chase Bank (JPMC) described that launching an SPCP
required ``significant effort'' because they ``often necessitate
modifications to existing processes, close monitoring of execution and
results, engagement with community leaders, adjustments to the program
over time, updates to documentation, and consistent engagement with the
relevant supervisory agency.'' \97\
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\97\ https://www.regulations.gov/comment/OCC-2022-0002-0252.
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While certain government agencies have sought to encourage SPCPs in
recent years, the information available to the Bureau indicates that
the actual prevalence of SPCPs, is quite low. Therefore, while the
Bureau cannot quantify with any precision the number of potentially
affected lenders, it has documented reasons to believe that the number
is small.
The Bureau also does not have detailed information on the amount of
lending that SPCPs represent as a fraction of a creditor's portfolio.
However, some individual lenders have made available information on
their existing SPCPs. As one case study stated, ``Wells Fargo [in the
spring of 2022] set aside $150 million to lower interest rates on
mortgages for Black customers'' \98\ under SPCPs. However, this amount
only constituted a small percentage of Wells Fargo's overall lending
business.\99\ Large lenders such as Wells Fargo (one of the largest in
the country) are best positioned to create and benefit from SPCPs.
Given research showing that net interest margins increase with bank
size, and the fixed administrative costs and credit risks of operating
a SPCP, it seems likely that SPCP lending would represent an even
smaller fraction of lending for smaller lenders.\100\
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\98\ Orla McCaffrey, JPMorgan Chase takes special-purpose credit
program national (Nov. 18, 2022), Am. Banker, https://www.americanbanker.com/news/jpmorgan-chase-takes-special-purpose-credit-program-national.
\99\ According to 2024 Home Mortgage Disclosure Act Data, Wells
Fargo originated $38 billion in total mortgage volume. See https://ffiec.cfpb.gov/data-publication/modified-lar/2024 (last visited
Sept. 9, 2025).
\100\ W. Blake Marsh & Taisiya Goryacheva, Do Net Interest
Margins for Small and Large Banks Vary Differently with Interest
Rates?, Fed. Rsrv. Bank of Kan. City (Feb. 10, 2022), https://www.kansascityfed.org/research/economic-review/do-net-interest-margins-for-small-and-large-banks-vary-differently-with-interest-rates/.
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Since, based on the limited information available, few lenders
appear to have developed SPCPs and, for an individual lender, it seems
to represent a small fraction of existing lending, the Bureau expects
the total cost to covered persons by the proposed changes to Regulation
B to be small relative to the total dollar amount of lending. The
Bureau requests comment on the size and extent of existing SPCPs and
the costs to covered persons described in this section.
xi. Benefits to Consumers
Some consumers may benefit from the proposed changes in the form of
additional credit availability. Designing and operating SPCPs involves
meaningful administrative costs as well as, in many cases, accepting
higher levels of risk from program participants. It is possible that
creditors decide to provide fewer loans outside of the SPCP in response
to these costs. Thus, consumers who do not qualify for an existing SPCP
may see additional credit availability if the proposed changes cause
creditors to discontinue their SPCPs and make those funds available to
borrowers at large, or else to broaden the eligibility criteria for
existing SPCPs previously limited to certain prohibited basis groups.
For reasons explained above, the Bureau has reason to believe that
SPCPs currently account for an insignificant portion of consumer
lending. The Bureau therefore believes that the extent to which
consumers will benefit from additional credit availability as a result
of this regulatory change is likely insignificant.
The Bureau lacks sufficient data to quantify these potential
benefits and seeks comments on the extent to which consumers may
benefit in this way from the proposed changes.
xii. Costs to Consumers
Consumers who could have expected to benefit from an SPCP under the
baseline could see this benefit reduced or removed under the proposed
changes. This includes consumers who receive credit from an SPCP when
they otherwise would not have, as well as consumers who receive more
favorable credit terms under an SPCP than they otherwise would have in
the absence of the SPCP. To the extent that the proposed changes cause
lenders to remove SPCPs or redesign programs such that these consumers
no longer benefit, customers would incur a cost.
The Bureau lacks the necessary data to estimate the total cost of
the proposed regulations to consumers. However, as described in the
previous section, the Bureau has reason to believe that the prevalence
of SPCPs is quite low and, at a market level, the total number of
consumers receiving benefits under SPCPs likely represents a small
portion of total credit. Therefore, the Bureau expects the costs to
consumers to be
[[Page 50919]]
small from the proposed changes to Regulation B related to SPCPs. The
Bureau requests comment on the overall cost to consumers from the
proposed changes to SPCP provisions in Regulation B.
F. Potential Impacts of the Proposed Rule on Depository Institutions
and Credit Unions With $10 Billion or Less in Total Assets, as
Described in Section 1026
The Bureau believes that nearly all depository institutions and
credit unions with $10 billion or less in total assets would be subject
to Regulation B and therefore subject to the proposals described above.
To estimate the number of covered depository institutions with $10
billion or less in total assets, the Bureau uses data collected by the
Federal Financial Institutions Examination Council's (FFIEC's) Reports
of Condition and Income (Call Reports). To estimate the number of
credit unions with $10 billion or less in total assets, the Bureau uses
data collected by the National Credit Union Administration's (NCUA)
Call Reports. Based on the 2024Q4 FFIEC Call Reports, there are 4,328
banks with $10 billion or less in total assets. Based on 2025Q2 NCUA
Call Report data, there are 4,348 credit unions with $10 billion or
less in total assets.
The Bureau believes that the proposed changes to disparate impact
liability and liability for discouragement will likely lead
institutions with $10 billion or less in total assets to save on
ongoing compliance costs. As described above, financial institutions
may save time and resources creating, testing, validating, and auditing
models for potential disparate impact risks in their lending strategy
or portfolio, although the need to comply with other fair lending laws
may limit this benefit. The institutions may also reduce spending
associated with compliance activities and training relevant staff,
contractors, and modelers on disparate impact risks. Institutions may
also reduce the time and resources associated with monitoring
marketing, pre-application conversations, and preliminary inquiries.
Both proposed changes also reduce potential litigation risk from
enforcement actions or private claims based on disparate impact
theories or allegations of discouragement or discrimination prior to
applying for credit. The Bureau lacks the necessary data to quantify
the extent of these benefits.
With respect to the proposed changes regarding disparate impact or
discouragement, the Bureau expects depository institutions or credit
unions with $10 billion or less in total assets to incur one-time costs
associated with updating policies, practices, procedures, and control
systems; verifying, updating and reviewing compliance; and training
staff and third parties on changed policies. As described above, the
Bureau has reason to believe that institutions are likely to incur one-
time costs similar to that of the Bureau's previous AVM Rule. As
discussed above, the Bureau expects, as an upper bound, each
institution with $10 billion or less in total assets to incur a cost of
between $5,600 to $9,600 in one-time costs associated with each of the
two categories of proposals. The Bureau seeks comment on the one-time
cost of the proposed rule on depository institutions with $10 billion
or less in total assets.
The Bureau also expects that the proposed revisions regarding SPCPs
will impose additional restrictions on any depository institution with
$10 billion or less in total assets who either has or would have had an
SPCP. As described above, the new restrictions may reduce the net
benefit that a depository institution derives from implementing an
SPCP. However, for the reasons described above, the Bureau expects that
few depository institutions with $10 billion or less in total assets
have or would be expected to create an SPCP and that it represents a
small part of any individual institution's lending. For this reason,
the Bureau expects the proposed SPCP changes to have a small impact on
depository institutions with $10 billion or less.
G. Potential Impacts on Consumers in Rural Areas, as Described in
Section 1026
This section assesses the potential impact of the proposed
amendments to Regulation B on rural consumers. The Bureau evaluates the
proposed provisions jointly given their overall implications on fair
lending protections and credit access for rural consumers.
Consumers in rural areas may experience greater impact from fewer
protections against disparate impact because of the proposed changes to
Regulation B. Without disparate impact liability, covered persons may
curtail their efforts in reviewing and mitigating neutral policies that
could disproportionately exclude rural borrowers. One potential reason
for this exclusion is that the loan application process in rural areas
often involve consideration of informal or soft information, given the
small-dollar or agricultural nature typical of such rural loans.
The Bureau expects that rural consumers would face many of the same
costs and benefits from the proposed changes to discouragement
provisions as described above in Section E. It is possible that rural
consumers could be excluded from advertising about products from which
they may have benefitted, relative to the baseline. They also may
experience fewer protections from discouraging behavior by lenders made
at the pre-application stage, relative to the baseline.
Restriction of SPCP eligibility criteria would curtail programs
designed to increase lending to consumers of prohibited basis groups in
rural areas. Consumers who benefit from targeted mortgages and small
business SPCPs could face higher barriers to credit access and fewer
opportunities for entrepreneurship. However, as described in the
previous section, the Bureau believes that the prevalence of SPCPs is
quite low and the total number of consumers receiving benefits under
SPCPs represent a small portion of any credit market. Therefore, the
proposed changes to SPCPs will likely have a small impact on rural
consumers. The Bureau seeks comment as to the proposed rule's effect on
rural consumers.
VI. Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (RFA), as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996, requires each
agency to consider the potential impact of its regulations on small
entities, including small businesses, small governmental units, and
small not-for-profit organizations.\101\ The RFA defines a ``small
business'' as a business that meets the size standard developed by the
Small Business Administration pursuant to the Small Business Act.\102\
Potentially affected small entities include depository and non-
depository providers of credit.
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\101\ 5 U.S.C. 601 et seq. The Bureau is not aware of any small
governmental units or not-for-profit organizations to which the
proposal would apply.
\102\ 5 U.S.C. 601(3) (the Bureau may establish an alternative
definition after consultation with the Small Business Administration
and an opportunity for public comment).
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The RFA generally requires an agency to conduct an initial
regulatory flexibility analysis (IRFA) and a final regulatory
flexibility analysis (FRFA) of any rule subject to notice-and comment
rulemaking requirements, unless the agency certifies that the rule will
not have a significant economic impact on a substantial number of small
[[Page 50920]]
entities.\103\ The Bureau also is subject to certain additional
procedures under the RFA involving the convening of a panel to consult
with small business representatives prior to proposing a rule for which
an IRFA is required.\104\
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\103\ 5 U.S.C. 603 through 605.
\104\ 5 U.S.C. 609.
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An IRFA is not required for this proposal because the proposal, if
adopted, would not have a significant economic impact on a substantial
number of small entities. The Bureau does not expect the rule to impose
significant economic impacts on small entities relative to the
baseline. Any effects, including one-time costs, would be expected to
be small for each entity. In part V.E.x, the Bureau described how the
size of SPCPs as a share of a lender's overall portfolio is expected to
be small based on existing evidence. In part V.E.x, the Bureau also
described how the prevalence of SPCPs is low and the Bureau expects
this would also be true of (and especially for) small entities.
Therefore, the Bureau does not expect the SPCPs provisions to affect a
substantial number of small entities.
Accordingly, the Acting Director certifies that this proposal, if
adopted, would not have a significant economic impact on a substantial
number of small entities. The Bureau requests comment on its analysis
of the impact of the proposed rule on small entities and requests any
relevant data.
Paperwork Reduction Act
Under the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501 et
seq.), Federal agencies are generally required to seek the Office of
Management and Budget (OMB)'s approval for information collection
requirements prior to implementation. The collections of information
related to Regulation B have been previously reviewed and approved by
OMB and assigned OMB Control Number 3170-0013 (Regulation B). Under the
PRA, the Bureau may not conduct or sponsor and, notwithstanding any
other provision of law, a person is not required to respond to an
information collection unless the information collection displays a
valid control number assigned by OMB.
The Bureau has determined that this proposed rule would not impose
any new or revised information collection requirements (recordkeeping,
reporting or disclosure requirements) on covered entities or members of
the public that would constitute collections of information requiring
OMB approval under the PRA.
The Bureau welcomes comments on this determination, which may be
submitted to the Bureau at the Consumer Financial Protection Bureau
(Attention: PRA Office), 1700 G Street NW, Washington, DC 20552, or by
email to [email protected]. All Comments are matters of Public Record.
VII. Severability
The Bureau preliminarily intends that the provisions of the rule
are separate and severable from one another. If any provision of the
final rule, or any application of a provision, is stayed or determined
to be invalid, the remaining provisions or applications are severable
and shall continue to be in effect. The Bureau has designed each
provision to operate independently so that the effect of each provision
will continue regardless of whether one or another provision is not
effectuated. Therefore, proposed provisions related to disparate
impact, discouragement, and special purpose credit programs are
intended to be separate and severable. Moreover, aspects of these
provisions are also intended to be severable, if any portion is not
effectuated, including the changes proposed to the discouragement
provision and the prohibitions and restrictions proposed for special
purpose credit programs.
Executive Order 12866
Executive Orders 12866 and 13563 direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select those regulatory approaches that
maximize net benefits (including potential economic, environmental,
public health and safety, and other advantages; and distributive
impacts). Section 3(f) of Executive Order 12866 defines a ``significant
regulatory action'' as any regulatory action that is likely to result
in a rule that may: (1) have an annual effect on the economy of $100
million or more or adversely affect in a material way the economy, a
sector of the economy, productivity, competition, jobs, the
environment, public health or safety, or State, local, or tribal
governments or communities; (2) create a serious inconsistency or
otherwise interfere with an action taken or planned by another agency;
(3) materially alter the budgetary impact of entitlements, grants, user
fees, or loan programs or the rights and obligations of recipients
thereof; or (4) raise novel legal or policy issues arising out of legal
mandates, or the President's priorities. The Office of Information and
Regulatory Affairs within the Office of Management and Budget (OMB) has
determined that this action is a ``significant regulatory action''
under Executive Order 12866. Accordingly, OMB has reviewed this action.
List of Subjects in
12 CFR Part 1002
Banks, Banking, Civil rights, Consumer protection, Credit, Credit
unions, Marital status discrimination, National banks, Penalties,
Religious discrimination, Reporting and recordkeeping requirements,
Savings associations, Sex discrimination.
Authority and Issuance
For the reasons set forth in the preamble, the Bureau proposes to
amend Regulation B, 12 CFR part 1002, as set forth below:
PART 1002--EQUAL CREDIT OPPORTUNITY ACT (REGULATION B)
0
1. The authority citation for part 1002 continues to read as follows:
Authority: 12 U.S.C. 5512, 5581; 15 U.S.C. 1691b. Subpart B is
also issued under 15 U.S.C. 1691c-2.
SUBPART A--GENERAL
0
2. Amend Sec. 1002.4 by revising paragraph (b) to read as follows:
Sec. 1002.41002.4 General rules.
* * * * *
(b) Discouragement. A creditor shall not make any oral or written
statement, in advertising or otherwise, directed at applicants or
prospective applicants that the creditor knows or should know would
cause a reasonable person to believe that the creditor would deny, or
would grant on less favorable terms, a credit application by the
applicant or prospective applicant because of the applicant or
prospective applicant's prohibited basis characteristic(s). For
purposes of this paragraph (b), oral or written statements are spoken
or written words, or visual images such as symbols, photographs, or
videos.
* * * * *
0
3. Amend Sec. 1002.6(b) Discouragement. A creditor shall not make any
oral or written statement, in advertising or otherwise, directed at
applicants or prospective applicants that the creditor knows or should
know would cause a reasonable person to believe that the creditor would
deny, or would grant on less favorable terms, a credit application by
the applicant or prospective applicant because of the applicant or
prospective applicant's prohibited basis characteristic(s). For
purposes of this paragraph (b), oral or written statements are spoken
or written words, or visual images such as symbols, photographs, or
videos.
[[Page 50921]]
3. Amend Sec. 1002.6 by revising paragraph (a) to read as follows:
Sec. 1002.61002.6 Rules concerning evaluation of applications.
(a) General rule concerning use of information. Except as otherwise
provided in the Act and this part, a creditor may consider any
information obtained, so long as the information is not used to
discriminate against an applicant on a prohibited basis. The Act does
not provide that the ``effects test'' applies for determining whether
there is discrimination in violation of the Act.
* * * * *
0
4. In Sec. 1002.8(a) General rule concerning use of information.
Except as otherwise provided in the Act and this part, a creditor may
consider any information obtained, so long as the information is not
used to discriminate against an applicant on a prohibited basis. The
Act does not provide that the ``effects test'' applies for determining
whether there is discrimination in violation of the Act.
* * * * *
4. In Sec. 1002.8, revise paragraphs (a)(3)(i) and (ii), the
heading of paragraph (b), and paragraphs (b)(2) and (c), and add
paragraphs (b)(3) and (4), to read as follows:
Sec. 1002.81002.8 Special purpose credit programs.
(a) * * *
(3) * * *
(i) * * *
(A) Identifies the class of persons that the program is designed to
benefit;
(B) Sets forth the procedures and standards for extending credit
pursuant to the program;
(C) Provides evidence of the need for the program;
(D) Explains why, under the organization's standards of
creditworthiness, the class of persons would not receive such credit in
the absence of the program; and
(E) When the persons in the class are required to share one or more
common characteristics that would otherwise be a prohibited basis,
explains why meeting the special social needs addressed by the program:
(1) Necessitates that its participants share the specific common
characteristics that would otherwise be a prohibited basis; and
(2) Cannot be accomplished through a program that does not use
otherwise prohibited bases as participant eligibility criteria; and
(ii) The program is established and administered to extend credit
to a class of persons who, under the organization's standards of
creditworthiness, would not receive such credit.
(b) Controlling provisions--
* * * * *
(2) Common characteristics. A program described in paragraphs
(a)(2) or (a)(3) of this section qualifies as a special purpose credit
program only if it was established and is administered so as not to
discriminate against an applicant on any prohibited basis; however,
except as provided in paragraphs (b)(3) and (b)(4) of this section, all
program participants may be required to share one or more common
characteristics that would otherwise be a prohibited basis so long as
the program was not established and is not administered with the
purpose of evading the requirements of the Act or this part.
(3) Prohibited common characteristics. A special purpose credit
program described in paragraph (a)(3) of this section shall not use the
race, color, national origin, or sex, or any combination thereof, of
the applicant, as a common characteristic or factor in determining
eligibility for the program.
(4) Otherwise prohibited bases in for-profit programs. Subject to
paragraph (b)(3) of this section, a special purpose credit program
described in paragraph (a)(3) of this section may require its
participants to share one or more common characteristics that would
otherwise be a prohibited basis only if the for-profit organization
provides evidence for each participant who receives credit through the
program that in the absence of the program the participant would not
receive such credit as a result of those specific characteristics.
(c) Special rule concerning requests and use of information. If
participants in a special purpose credit program described in paragraph
(a) of this section are required to possess one or more common
characteristics that would otherwise be a prohibited basis and if the
program otherwise satisfies the requirements of paragraphs (a) and (b)
of this section, a creditor may request and consider information
regarding the common characteristic(s) in determining the applicant's
eligibility for the program.
* * * * *
0
5. Amend Sec. 1002.1002.8 Special purpose credit programs.
(a) * * *
(3) * * *
(i) * * *
(A) Identifies the class of persons that the program is designed to
benefit;
(B) Sets forth the procedures and standards for extending credit
pursuant to the program;
(C) Provides evidence of the need for the program;
(D) Explains why, under the organization's standards of
creditworthiness, the class of persons would not receive such credit in
the absence of the program; and
(E) When the persons in the class are required to share one or more
common characteristics that would otherwise be a prohibited basis,
explains why meeting the special social needs addressed by the program:
(1) Necessitates that its participants share the specific common
characteristics that would otherwise be a prohibited basis; and
(2) Cannot be accomplished through a program that does not use
otherwise prohibited bases as participant eligibility criteria; and
(ii) The program is established and administered to extend credit
to a class of persons who, under the organization's standards of
creditworthiness, would not receive such credit.
(b) Controlling provisions--
* * * * *
(2) Common characteristics. A program described in paragraphs
(a)(2) or (a)(3) of this section qualifies as a special purpose credit
program only if it was established and is administered so as not to
discriminate against an applicant on any prohibited basis; however,
except as provided in paragraphs (b)(3) and (b)(4) of this section, all
program participants may be required to share one or more common
characteristics that would otherwise be a prohibited basis so long as
the program was not established and is not administered with the
purpose of evading the requirements of the Act or this part.
(3) Prohibited common characteristics. A special purpose credit
program described in paragraph (a)(3) of this section shall not use the
race, color, national origin, or sex, or any combination thereof, of
the applicant, as a common characteristic or factor in determining
eligibility for the program.
(4) Otherwise prohibited bases in for-profit programs. Subject to
paragraph (b)(3) of this section, a special purpose credit program
described in paragraph (a)(3) of this section may require its
participants to share one or more common characteristics that would
otherwise be a prohibited basis only if the for-profit organization
provides evidence for each participant who receives credit through the
program that in the absence of the program the participant would not
receive such credit as a result of those specific characteristics.
[[Page 50922]]
(c) Special rule concerning requests and use of information. If
participants in a special purpose credit program described in paragraph
(a) of this section are required to possess one or more common
characteristics that would otherwise be a prohibited basis and if the
program otherwise satisfies the requirements of paragraphs (a) and (b)
of this section, a creditor may request and consider information
regarding the common characteristic(s) in determining the applicant's
eligibility for the program.
* * * * *
5. Amend Sec. 1002.15 by revising paragraph (d)(1)(ii) to read as
follows:
Sec. 1002.15 Incentives for self-testing and self-correction.
(d) * * *
(1) * * *
(ii) By a government agency or an applicant in any proceeding or
civil action in which a violation of the Act or this part is alleged.
* * * * *
0
6. In Supplement I to part 1002:
0
a. Under Section 1002.2--Definitions, revise Paragraph 2(p)(4),
including the heading.
0
b. Under Section 1002.4--General Rules, revise Paragraph 4(b),
including the heading.
0
c. Under Section 1002.6--Rules Concerning Evaluation of Applications,
revise 6(a)--General rule concerning use of information, by revising
Paragraph (6)(a)(2).
0
d. Under Section 1002.8--Special Purpose Credit Programs, revise 8(a)--
Standards for programs by revising Paragraph (8)(a)(5), revise 8(b)--
Rules in other sections by revising the heading and adding Paragraph
(8)(b)(2), revise 8(c)--Special rule concerning requests and use of
information by revising Paragraph (8)(c)(2).
The revisions and additions read as follows:
Supplement I to Part 1002--Official Interpretations
* * * * *
Section 1002.2--Definitions
* * * * *
2(p) Empirically derived and other credit scoring systems.
* * * * *
4. Disparate treatment. An empirically derived, demonstrably and
statistically sound, credit scoring system may include age as a
predictive factor (provided that the age of an elderly applicant is
not assigned a negative factor or value). Besides age, no other
prohibited basis may be used as a variable. Generally, credit
scoring systems treat all applicants objectively and thus avoid
problems of disparate treatment. In cases where a credit scoring
system is used in conjunction with individual discretion, disparate
treatment could conceivably occur in the evaluation process.
* * * * *
Section 1002.4--General Rules
* * * * *
Paragraph 4(b).
1. Discouragement. Generally, the regulation's protections apply
only to persons who have requested or received an extension of
credit. In keeping with the purpose of the Act--to promote the
availability of credit on a nondiscriminatory basis--Sec. 1002.4(b)
prohibits creditors from making oral or written statements directed
at applicants or prospective applicants that the creditor knows or
should know would cause a reasonable person to believe that the
creditor would deny their credit application, or would grant it on
less favorable terms, because of their prohibited basis
characteristic(s). For purposes of Sec. 1002.4(b), encouraging
statements directed at one group of consumers cannot discourage
other consumers who were not the intended recipients of the
statements.
i. Statements prohibited by Sec. 1002.4(b) include:
A. A statement that the applicant should not bother to apply,
after the applicant states that he is retired.
B. Statements directed at the general public that express a
discriminatory preference or a policy of exclusion against consumers
based on one or more prohibited basis characteristics in violation
of the Act.
C. The use of interview scripts that discourage applications on
a prohibited basis.
ii. Statements not prohibited by Sec. 1002.4(b) include:
A. Statements directed at one group of consumers, encouraging
that group of consumers to apply for credit.
B. Statements in support of local law enforcement.
C. Statements recommending that, before buying a home in a
particular neighborhood, consumers investigate, for example, the
neighborhood's schools, its proximity to grocery stores, and its
crime statistics.
D. Statements encouraging consumers to seek out resources to
develop their financial literacy.
* * * * *
Section 1002.6--Rules Concerning Evaluation of Applications
6(a) General rule concerning use of information.
1. General. When evaluating an application for credit, a
creditor generally may consider any information obtained. However, a
creditor may not consider in its evaluation of creditworthiness any
information that it is barred by Sec. 1002.5 from obtaining or from
using for any purpose other than to conduct a self-test under Sec.
1002.15.
2. Disparate treatment. The Act prohibits practices that
discriminate on a prohibited basis regarding any aspect of a credit
transaction. The Act does not provide for the prohibition of
practices that are facially neutral as to prohibited bases, except
to the extent that facially neutral criteria function as proxies for
protected characteristics designed or applied with the intention of
advantaging or disadvantaging individuals based on protected
characteristics.
* * * * *
Section 1002.8--Special Purpose Credit Programs
8(a) Standards for programs.
1. Determining qualified programs. The Bureau does not determine
whether individual programs qualify for special purpose credit
status, or whether a particular program benefits an ``economically
disadvantaged class of persons.'' The agency or creditor
administering or offering the loan program must make these decisions
regarding the status of its program.
2. Compliance with a program authorized by Federal or state law.
A creditor does not violate Regulation B when it complies in good
faith with a regulation promulgated by a government agency
implementing a special purpose credit program under Sec.
1002.8(a)(1). It is the agency's responsibility to promulgate a
regulation that is consistent with Federal and state law.
3. Expressly authorized. Credit programs authorized by Federal
or state law include programs offered pursuant to Federal, state, or
local statute, regulation or ordinance, or pursuant to judicial or
administrative order.
4. Creditor liability. A refusal to grant credit to an applicant
is not a violation of the Act or regulation if the applicant does
not meet the eligibility requirements under a special purpose credit
program.
5. Determining need. In designing a special purpose credit
program under Sec. 1002.8(a)(3), a for-profit organization must
determine that the program will benefit a class of people who would
otherwise be denied credit. This determination can be based on a
broad analysis using the organization's own research or data from
outside sources, including governmental reports and studies. For
example, a creditor might design new products to reach consumers who
would not meet its traditional standards of creditworthiness due to
such factors as credit inexperience or the use of credit sources
that may not report to consumer reporting agencies. Or, a bank could
review Home Mortgage Disclosure Act data along with demographic data
for its assessment area.
6. Elements of the program. The written plan must contain
information that supports the need for the particular program. The
plan also must either state a specific period of time for which the
program will last, or contain a statement regarding when the program
will be reevaluated to determine if there is a continuing need for
it.
8(b) Controlling provisions.
1. Applicability of rules. A creditor that rejects an
application because the applicant does not meet the eligibility
requirements (common characteristic or financial need, for example)
must nevertheless notify the applicant of action taken as required
by Sec. 1002.9.
2. Use of common characteristics. Section 1002.8(b)(2) permits a
creditor to determine eligibility for a special purpose credit
program using one or more common
[[Page 50923]]
characteristics that would otherwise be a prohibited basis only so
long as that section's requirements, the requirements of Sec.
1002.8(b)(3) and (4), and the other requirements of this part are
satisfied. Under Sec. 1002.8(b)(2), once the characteristics of the
program's class of participants are established, the creditor is
prohibited from discriminating among potential participants on a
prohibited basis.
8(c) Special rule concerning requests and use of information.
1. Request of prohibited basis information. This section permits
a creditor to request and consider certain information that would
otherwise be prohibited by Sec. Sec. 1002.5 and 1002.6 to determine
an applicant's eligibility for a particular program.
2. Example. An example of a program under which the creditor can
ask for and consider information about a prohibited basis is an
energy conservation program to assist the elderly, for which the
creditor must consider the applicant's age.
* * * * *
Russell Vought,
Acting Director, Consumer Financial Protection Bureau.
[FR Doc. 2025-19864 Filed 11-12-25; 8:45 am]
BILLING CODE 4810-AM-P