The Equal Credit Opportunity Act (Title 15 United States Code, Sec. 1691), which has been law since 1974, is intended to curb discrimination in “credit transactions.” Specifically, it protects racial minorities, women, religious minorities, and others who might otherwise be the subject of discrimination in these transactions through institutions that are regulated by the Federal government.
“Credit transaction,” in turn, refers to “every aspect of an applicant’s dealings with a creditor regarding an application for credit or an existing extension of credit (including, but not limited to, information requirements; investigation procedures; standards of creditworthiness; terms of credit; furnishing of credit information; revocation, alteration, or termination of credit; and collection procedures).” 12 CFR 2002.2.
The Courts, the Office of the Comptroller of the Currency, and other regulators interpret 15 USC Sec. 1691 to include as illegal discrimination conduct that has a more negative effect upon minorities, such as defined above, than upon the “average white male” (who, presumably, is usually in the position of lender, or who owns the lender, or who is generally not the target of such discrimination; reference redlining, or restrictive covenants in real estate). In other words, if the effect of a particular lending practice, collection practice, or credit extension practice, has a more negative effect upon minorities than upon a white man, the policy is presumed discriminatory, and the lender must show some good faith justification for it.
For example, if a bank has a policy only lending to those who earn over $200,000 per year, data compiled by the US Department of Labor show that only a very small percentage of African Americans and Latinos have such earnings. Thus, the loan might be available to 30% of whites, but only 2% of African Americans. This policy would be presumed discriminatory, based upon the “disparate impact” or “effects” test. Office of the Comptroller of the Currency, “Fair Lending” (2010), pp. 6-8.
Recently, the Consumer Financial Protection Bureau (CFPB) has sought to expand the reach of the ECOA and similar anti-discrimination statutes through its Unfair, Deceptive, or Abusive Acts or Practices (“UDAAP”) examination manual, a workbook or guide that regulators may use to determine if a particular institution is engaging in discrimination. Institutions contacted for such an examination must respond to questions and provide statistics to ensure that they are in compliance with the law.
According to one commentator, the expanded UDAAP “allows (the CFPB) to address discriminatory conduct in the offering of any [consumer] financial product or service.” Leonhardt, Naimon & Coleman, “CFPB Revises UDAAP Manual to Include Discriminatory Practices,” 139 Banking Law Journal 431 (July-August 2022).
According to this update, ECOA could potentially reach non-credit transactions, or non-lending practices of financial institutions.
This might include bank depositing practices, or bank product offerings. Could it also reach annuities, precious metal IRA’s, and cryptocurrency exchanges? These will have to be decided.
While the reach of the CFPB’s new regulation is unclear, it is certain that there will be political friction over the CFPB’s attempt to increase its regulatory purview. For example, in 2013, Pres. Obama announced that car dealer financing transactions would fall under the guidance of ECOA; minorities often pay significantly more in interest on these dealer-financed loans. The Department of Justice and CFPB successfully litigated discrimination claims pursuant to this guidance. “Justice Department and Consumer Financial Protection Bureau Reach Settlement to Resolve Allegations of Auto Lending Discrimination by Fifth Third Bank,” US DOJ Press Release, September 18, 2015.
This guidance was undone during the following Administration. “Trump Reverses Obama-era Rule Designed to Prevent Racial Bias by Car Dealers,” The Independent, May 21, 2018.
Thus, the question remains whether the reach of ECOA and other anti-discrimination laws can now be successfully applied to enforce the policy of non-discrimination to any number of consumer financial products. This will certainly be the subject of congressional hearings, and will likely be hotly contested in the courts.
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