Key Components of CFPB'S Part 1002 - Regulation B: Equal Credit Opportunity Act(ECOA) and What Banks need to do about it

Discrimination is Against the law

The Equal Credit Opportunity Act (ECOA) requires creditors to show no discrimination to their loan applicants with respect to a credit transaction. It applies to all types of consumer loans. For instance, the ECOA forbids the creditor from discouraging the consumer for applying for credit, denying loan applications or charging higher costs such as higher interest rate or higher fees for any of the following reasons:

  • Race
  • Color
  • Religion
  • National origin
  • Sex (including gender)
  • Marital status
  • Age (if the applicant is old enough to enter into a contract)
  • Receiving money from any public assistance program
  • Creditors are required to notify consumers of any action taken with respect to their credit applications within 30 days after the consumer completes all paperwork on the application.
  • Inform specifically why the consumer's application was rejected, or direct that the consumer has the right to learn why if they ask within 60 days
  • Retain records of credit applications and report credit history
  • Collect information about the race and other personal characteristics in applications for some dwelling-related loans
  • Provide applicants with copies of appraisal reports used with respect to their credit transactions

Banks must comply with the ECOA regulations or face stiff penalties

Noncompliance for noncompliance include:

  • Punitive damages of up to $10,000 in an individual action
  • $500,000 or 1% of Bank's net worth in a class action
  • Actual damages, costs, and attorneys' fees

Examples of noncompliance

  • Manhattan U.S. Attorney Settles Lending Discrimination Suit Against JPMorgan Chase For $53 Million
  • DOJ settles redlining lawsuit against KleinBank

Evaluation for compliance with ECOA

The Consumer Financial Protection Bureau (CFPB) do baseline reviews to evaluate how the financial institutions identify and manage their fair lending under ECOA. They also do these reviews to identify and analyze the risk of potential ECOA violations to better inform prioritization of the CFPB's fair lending supervision activities.

The Baseline Review has five models that the CFPB examiners use during the evaluation. These include:

  • Module 1 Fair Lending Supervisory History
  • Module 2 Fair Lending Compliance Management System (CMS)
  • Module 3 Fair Lending Risks Related to Origination
  • Module 4 Fair Lending Risks Related to Servicing Module
  • Module 5 Fair Lending Risks Related to Models

'Once the appropriate modules have been selected, and in advance of the review, examiners will send the institution information requests that correspond with the selected modules. In general, examiners will complete the modules during the on-site portion of the review.' - cfpb website.

Enforcement actions of the ECOA are shared by CFPB, banking agencies, and Department of Justice (DOJ). The examiners visit the institutions, review records, consumer complaints, have supervisory meetings with the employees and officers, make use of publicly available information to monitor the practices of the institution.

If the institution self-reports a violation, it will be exempted from penalties except paying refunds to consumers who are affected by the violation.

To learn more about ECOA compliance, attend the webinar Regulation B - Equal Credit Opportunity Act (ECOA)