The Equal Credit Opportunity Act

The Equal Credit Opportunity Act

​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.



MORTGAGE LAW/FAIR CREDIT REPORTING ACT (Applying Arizona Anti-Deficiency Law)

MORTGAGE LAW/FAIR CREDIT REPORTING ACT (Applying Arizona Anti-Deficiency Law)

Where homeowner lost property to non-judicial foreclosure, Arizona’s “anti-deficiency law” meant that the junior mortgage, which was unsecured following the foreclosure, had been “abolished,” pursuant to previous Arizona Supreme Court ruling. Therefore, the lender’s reporting of the junior mortgage as a “charge off,” rather than an abolished loan, was inaccurate and misleading. The former homeowner/borrower had a colorable claim against the junior lender, pursuant to the Fair Credit Reporting Act, 15 U.S.C. §§1681, 1681a–1681x. The trial court’s erroneous decision to dismiss borrower’s lawsuit was reversed.
Gross v. Citimortgage, Inc., Citibank, NA, Equifax Information Services LLC, Experian Information Solutions, Inc., & Trans Union LLC (9th Circuit, 2022), 33 F.4th 1246
United States Court of Appeals, Ninth Circuit.
Argued and Submitted 11/17/2021 at San Francisco, California.
Opinion Issued 5/16/2022.

FAIR LENDING FIGHT: Battling Redlining

FAIR LENDING FIGHT: Battling Redlining

  During the years of the Financial Crash (2007-2012), one could read in the press about something called “predatory lending,” or “lending discrimination,” or “disparate treatment,” or “disparate impact.” These concepts and legal doctrines were important because they spoke to the fact that persons of color were treated deceptively or unfairly, or tended to receive subprime loans, or loans that they could not repay, or were preyed upon by certain lenders. The end result was that minority borrowers were much more likely to have their homes foreclosed upon than were Caucasian borrowers.

   Central to the effects of the Financial Crash upon minority borrowers, in particular, was the belief among certain lenders that they could do whatever they wanted with regard to minority borrowers.

   A recent ruling from Pennsylvania points to the continued need for vigilance with regard to lending discrimination. The US Department of Justice and the Consumer Financial Protection Bureau sued Trident Mortgage for redlining practices against borrowers of color in the Philadelphia area. Consumer Financial Protection Bureau v. Trident Mortgage Company LP, Case No. 2:22-cv-02936, U.S. District Court for the Eastern District of Pennsylvania.

   In its press release of July 27, 2022, announcing the settlement with Trident Mortgage, the Department of Justice stated that:

“Redlining is an illegal practice in which lenders avoid providing credit services to individuals living in communities of color because of the race, color, or national origin of residents of those communities. The complaint in federal court today alleges that from at least 2015 to 2019, Trident failed to provide mortgage lending services to neighborhoods of color in the Philadelphia Metropolitan area, that its offices were concentrated in majority-white neighborhoods, and that its loan officers did not serve the credit needs of neighborhoods of color. The complaint also alleges that loan officers and other employees sent and received work e-mails containing racial slurs and referring to communities of color as ‘ghetto.’ ”

   The director of the Consumer Financial Protection Bureau, Rohit Chopra, stated the importance of fighting discrimination, when he said, in connection with the Trident settlement, “With housing costs so high, it is critical that illegal discrimination does not put homeownership even further out of reach.”

   The Department of Justice, in commenting on the consent order, stated that the Truth in Lending Laws and other anti-discrimination laws must continue to be enforced. 15 USC §§1601, et seq (Truth in Lending Act); 15 USC §1691 (Equal Credit Opportunity Act); 15 USC §1681 et seq. (Fair Credit Reporting Act). Courts will have an important role, looking to the letter of the anti-discrimination laws, their intent, and to the reality on the ground, rather than finding excuses to look the other way, and blame the victim, simply because confronting reality may be uncomfortable or inconvenient.

Warning: These Posts Does Not Constitute Legal Advice; Please Consult An Attorney

TRUTH IN LENDING: Inaccurate Credit Report 1

TRUTH IN LENDING: Inaccurate Credit Report 1

TRUTH IN LENDING: If a consumer feels that the information in her credit report (i.e., information actually sent to inquiring lenders or other agencies) is inaccurate, her ultimate remedy is to file a lawsuit pursuant to the Fair Credit Reporting Act, 15 U.S.C. Secs. 1681–1681x. To succeed in such a lawsuit, however, the Plaintiff will need to compile evidence. For example, the courts have held that “to state a claim under § 1681e [inaccurate report], the plaintiff must show that the agency’s report contained factually inaccurate information, that the procedures it took in preparing and distributing the report weren’t “reasonable,” and that damages followed as a result.” Cahlin v. General Motors Acceptance Corp., 936 F.2d 1151, 1157, 1160 (11th Cir. 1991); Nagle v. Experian Info. Sols., Inc., 297 F.3d 1305, 1307 (11th Cir. 2002). [Quotations reproduced as commentary.]

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