Rule2022-10453
Equal Credit Opportunity (Regulation B); Revocations or Unfavorable Changes to the Terms of Existing Credit Arrangements
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
May 18, 2022
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (CFPB) is issuing this advisory opinion to affirm that the Equal Credit Opportunity Act and Regulation B protect not only those actively seeking credit but also those who sought and have received credit.
Full Text
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<title>Federal Register, Volume 87 Issue 96 (Wednesday, May 18, 2022)</title>
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[Federal Register Volume 87, Number 96 (Wednesday, May 18, 2022)]
[Rules and Regulations]
[Pages 30097-30101]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-10453]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
========================================================================
Federal Register / Vol. 87, No. 96 / Wednesday, May 18, 2022 / Rules
and Regulations
[[Page 30097]]
BUREAU OF CONSUMER FINANCIAL PROTECTION
12 CFR Part 1002
Equal Credit Opportunity (Regulation B); Revocations or
Unfavorable Changes to the Terms of Existing Credit Arrangements
AGENCY: Bureau of Consumer Financial Protection.
ACTION: Advisory opinion.
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SUMMARY: The Consumer Financial Protection Bureau (CFPB) is issuing
this advisory opinion to affirm that the Equal Credit Opportunity Act
and Regulation B protect not only those actively seeking credit but
also those who sought and have received credit.
DATES: This advisory opinion is applicable on May 18, 2022.
FOR FURTHER INFORMATION CONTACT: Christopher Davis, Attorney-Advisor;
Office of Fair Lending and Equal Opportunity, at
<a href="/cdn-cgi/l/email-protection#77343127352831161e053b1219131e1910371411071559101801"><span class="__cf_email__" data-cfemail="63202533213c25020a112f060d070a0d0423000513014d040c15">[email protected]</span></a> or 202-435-7000. If you require this document
in an alternative electronic format, please contact
<a href="/cdn-cgi/l/email-protection#03404553415c4260606670706a616a6f6a777a43606573612d646c75"><span class="__cf_email__" data-cfemail="9ddedbcddfc2dcfefef8eeeef4fff4f1f4e9e4ddfefbedffb3faf2eb">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION: The CFPB is issuing this advisory opinion
through the procedures for its Advisory Opinions Policy.\1\ Refer to
those procedures for more information.
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\1\ 85 FR 77987 (Dec. 3, 2020).
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I. Advisory Opinion
A. Background
The Bureau is issuing this advisory opinion to affirm that the
Equal Credit Opportunity Act (ECOA) \2\ and Regulation B \3\ protect
both those actively seeking credit and those who sought and have
received credit. ECOA is a landmark civil rights law that protects
individuals and businesses against discrimination in accessing and
using credit--``a virtual necessity of life'' for most people.\4\
Congress enacted ECOA in 1974, initially to address ``widespread
discrimination . . . in the granting of credit to women.'' \5\
Accordingly, 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.'' \6\ From the
beginning, this prohibition has protected both those actively seeking
credit and those who sought and have received credit.
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\2\ 15 U.S.C. 1691 et seq.
\3\ 12 CFR part 1002.
\4\ S. Rep. 94-589, 94th Cong., 2nd Sess., at 4, reprinted in
1976 U.S.C.C.A.N. 403, 406.
\5\ S. Rep. 93-278, 93rd Cong., 1st Sess., at 16 (1973).
\6\ Public Law 93-495, sec. 503, 88 Stat. 1521, 1521 (1974).
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Then as now, ECOA defined ``applicant'' to mean ``any person who
applies to a creditor directly for an extension, renewal, or
continuation of credit, or applies to a creditor indirectly by use of
an existing credit plan for an amount exceeding a previously
established credit limit.'' \7\ The drafters of these provisions
emphasized that ECOA's prohibition on discrimination ``applies to all
credit transactions including the approval, denial, renewal,
continuation, or revocation of any open-end consumer credit account.''
\8\ Among other examples of the sort of discrimination against
``applicants'' that ECOA would bar, its drafters cited a scenario in
which a lender required a ``newly married woman whose creditworthiness
has otherwise remained the same'' to reapply for her existing credit
arrangement as a new applicant.\9\ The Act also created a private right
of action under which aggrieved ``applicant[s]'' can hold liable a
creditor that fails to comply with ``any requirement imposed under
[ECOA].'' \10\ And it provided that this private right of action
extends to violations of any requirement imposed under ECOA's
implementing regulations.\11\
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\7\ Public Law 93-495, sec. 503, 88 Stat. at 1522 (codified at
15 U.S.C. 1691a(b)).
\8\ S. Rep. 93-278, at 27 (emphasis added).
\9\ S. Rep. 93-278, at 17.
\10\ 15 U.S.C. 1691e(a).
\11\ 15 U.S.C. 1691a(g) (``Any reference to any requirement
imposed under this subchapter . . . includes reference to the
regulations of the Bureau under this subchapter . . . .'').
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Congress originally tasked the Board of Governors of the Federal
Reserve System (Board) with prescribing those regulations.\12\ The
Board issued those rules, known as Regulation B, the year after ECOA
was enacted and several days before the Act took effect.\13\ From the
beginning, Regulation B made clear that the new law's protections
against credit discrimination cover both those currently applying to
receive credit and those who have already received it. It did so by
defining ``applicant'' to expressly include not only ``any person who
applies to a creditor directly for an extension, renewal or
continuation of credit'' but also, ``[w]ith respect to any creditor[,]
. . . any person to whom credit is or has been extended by that
creditor.'' \14\ In explaining this provision, the Board noted that
ECOA's express terms and its legislative history ``demonstrate that
Congress intended to reach discrimination . . . `in any aspect of a
credit transaction.' '' \15\
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\12\ Public Law 93-495, sec. 503, 88 Stat. at 1522.
\13\ See 40 FR 49298 (Oct. 22, 1975) (promulgating 12 CFR part
202); 40 FR 42030 (Sept. 10, 1975); 40 FR 18183 (Apr. 25, 1975).
\14\ 12 CFR 202.3(c) (1976); see also 40 FR 49306.
\15\ 40 FR 49298 (quoting 15 U.S.C. 1691(a)).
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Two years after enacting ECOA, Congress significantly broadened the
Act to prohibit discrimination on bases in addition to sex and marital
status.\16\ These bases now generally include ``race, color, religion,
national origin, sex or marital status, or age'' as well as the receipt
of public-assistance income.\17\ In what the Senate drafters called
``one of [the amendments'] most important provisions,'' \18\ the
amendments also provided that ``[e]ach applicant against whom adverse
action is taken shall be entitled to a statement of reasons for such
action from the creditor.'' \19\ The amendments defined
[[Page 30098]]
``adverse action'' as ``a denial or revocation of credit, a change in
the terms of an existing credit arrangement, or a refusal to grant
credit in substantially the amount or on substantially the terms
requested.'' \20\ Thus, since 1976, ECOA has provided that
``applicants'' are entitled to an explanation when the terms of an
existing credit arrangement are altered or the credit cancelled
outright, among other circumstances.
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\16\ See ECOA Amendments of 1976, Public Law 94-239, 90 Stat.
251.
\17\ ECOA Amendments of 1976, Public Law 94-239, sec. 2, 90
Stat. 251 (codified at 15 U.S.C. 1691(a)). In 2021, the CFPB issued
an interpretive rule to clarify that, with respect to any aspect of
a credit transaction, the prohibition against sex discrimination in
ECOA and Regulation B encompasses sexual orientation discrimination
and gender identity discrimination, including discrimination based
on actual or perceived nonconformity with sex-based or gender-based
stereotypes and discrimination based on an applicant's associations.
86 FR 14363 (Mar. 16, 2021).
\18\ S. Rep. 94-589, 94th Cong., 2nd Sess., at 2, reprinted in
1976 U.S.C.C.A.N. 403, 404.
\19\ 15 U.S.C. 1691(d)(2); see also 15 U.S.C. 1691(d)(3) (``A
statement of reasons meets the requirements of this section only if
it contains the specific reasons for the adverse action taken.'').
In lieu of providing this statement of specific reasons, a creditor
may instead disclose the applicant's right to receive such a
statement. 15 U.S.C. 1691(d)(2)(B); see also 12 CFR
1002.9(a)(2)(ii).
\20\ 15 U.S.C. 1691(d)(6).
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ECOA's notice requirements ``were designed to fulfill the twin
goals of consumer protection and education.'' \21\ In terms of consumer
protection, ``the notice requirement is intended to prevent
discrimination ex ante because `if creditors know they must explain
their decisions . . . they [will] effectively be discouraged' from
discriminatory practices.'' \22\ The notice requirement ``fulfills a
broader need'' as well by educating consumers about the reasons for the
creditor's action.\23\ As a result of being informed of the specific
reasons for the adverse action, consumers can take steps to try to
improve their credit status or, in cases ``where the creditor may have
acted on misinformation or inadequate information[,] . . . to rectify
the mistake.'' \24\
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\21\ Fischl v. Gen. Motors Acceptance Corp., 708 F.2d 143, 146
(5th Cir. 1983); see also id. (calling these provisions ``[p]erhaps
the most significant of the 1976 amendments to the ECOA'').
\22\ Treadway v. Gateway Chevrolet Oldsmobile Inc., 362 F.3d
971, 977-78 (7th Cir. 2004) (quoting Fischl, 708 F.2d at 146); see
also S. Rep. 94-589, at 4 (calling the notice requirement ``a strong
and necessary adjunct to the antidiscrimination purpose of the
legislation'').
\23\ S. Rep. 94-589, at 4.
\24\ Id.
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Following the ECOA Amendments of 1976, the Board amended Regulation
B, including by adding new provisions to implement ECOA's notice
requirement.\25\ The amended rule defined ``adverse action'' to include
``[a] termination of an account or an unfavorable change in the terms
of an account that does not affect all or substantially all of a class
of the creditor's accounts.'' \26\ And it required that adverse action
notices give a ``statement of reasons'' for the action that is
``specific'' and ``indicate[s] the principal reason(s) for the adverse
action.'' \27\
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\25\ 42 FR 1242 (Jan. 6, 1977); 41 FR 49123 (Nov. 8, 1976); 41
FR 29870 (July 20, 1976).
\26\ 12 CFR 1002.2(c)(1)(ii).
\27\ 12 CFR 1002.9(b)(2).
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Finally, the Board made a ``minor editorial change'' to Regulation
B's definition of ``applicant'' in order to ``express more succinctly
the fact that the term includes both a person who requests credit and a
debtor,'' a debtor being one who has already requested and received
credit.\28\ Whereas Regulation B originally defined ``applicant'' to
include one who ``applies to a creditor directly for an extension,
renewal or continuation of credit'' as well as, ``[w]ith respect to any
creditor[,] . . . any person to whom credit is or has been extended by
that creditor,'' \29\ the revised definition simply stated that
``applicant'' includes ``any person who requests or who has received an
extension of credit from a creditor.'' \30\ Although the Board revised
other parts of the definition over the years, it never departed from
the bedrock understanding of the term ``applicant'' as including any
person ``who has received'' an extension of credit.\31\
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\28\ 41 FR 29870, 29871 (July 20, 1976) (proposed rule).
\29\ 12 CFR 202.3(c) (1976).
\30\ 12 CFR 202.2(e) (1978) (emphasis added); see also 42 FR
1242, 1252 (Jan. 6, 1977) (final rule).
\31\ See 12 CFR 1002.2(e).
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The Dodd-Frank Wall Street Reform and Consumer Protection Act,
enacted in 2010, revoked primary rulemaking responsibility under ECOA
from the Board and transferred it to the newly created Bureau.\32\
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\32\ Public Law 111-203, sec. 1085, 124 Stat. 1376, 2083-84.
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Shortly thereafter, the Bureau republished the Board's ECOA
regulations, including the definition of ``applicant,'' without
material change.\33\ In addition, the Bureau's Supervision and
Examination Manual makes clear that creditors subject to the Bureau's
supervisory jurisdiction must comply with ECOA and Regulation B's
requirements with respect to existing accounts. For instance, the
Examination Manual explains that ``[n]otification of adverse action
taken on an existing account must also be made within 30 days.'' \34\
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\33\ See 76 FR 79442 (Dec. 21, 2011) (promulgating 12 CFR part
1002 & supplement I).
\34\ CFPB Supervision and Examination Manual, at ECOA 7, <a href="https://files.consumerfinance.gov/f/documents/201510_cfpb_ecoa-narrative-and-procedures.pdf">https://files.consumerfinance.gov/f/documents/201510_cfpb_ecoa-narrative-and-procedures.pdf</a> (emphasis added); see also id. at ECOA 10 (``[a]
creditor must preserve any written or recorded information
concerning adverse action on an existing account as well as any
written statement submitted by the applicant alleging a violation of
the ECOA or Regulation B.'').
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B. Coverage
This advisory opinion applies to all ``creditors'' as defined in
section 702 of ECOA.\35\ As used in this advisory opinion, ``existing
account holder'' refers to an applicant who has applied for and
received an extension of credit. ``Existing account'' or ``existing
credit arrangement'' refers to an extension of credit previously made
by a creditor other than an extension of credit that is closed or
inactive. This advisory opinion has no application to any other
circumstance and does not offer a legal interpretation of any other
provisions of law.
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\35\ See 15 U.S.C. 1691a(e).
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C. Legal Analysis
ECOA and Regulation B plainly protect applicants who have received
credit and are existing account holders, not just those in the process
of applying for credit. This has been the longstanding position of the
Bureau, and the view of Federal agencies prior to the Bureau's
creation. Despite this well-established interpretation,\36\ the Bureau
is aware that some creditors fail to acknowledge that ECOA and
Regulation B plainly apply to circumstances that take place after an
extension of credit has been granted, including a revocation of credit
or an unfavorable change in the terms of a credit arrangement.\37\ In
addition, the Bureau is aware that some creditors fail to provide
applicants with required notifications that include a statement of the
specific reasons for the adverse action taken or disclose an
applicant's right to such a statement.\38\ But ECOA's
[[Page 30099]]
text, history, purpose, and judicial interpretation all point the same
way: As used in ECOA, the term ``applicant'' includes persons who
applied for and have received credit. Any uncertainty about ECOA's
protections for existing borrowers is dispelled by Regulation B.
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\36\ See 12 CFR 202.3(c) (1976) (expressly defining the term
``applicant'' to include ``any person to whom credit is or has been
extended'').
\37\ See Brief of Amici Curiae Consumer Fin. Prot. Bureau, Dep't
of Justice, Bd. of Governors of the Fed. Reserve Sys., and Fed.
Trade Comm'n in Support of Appellant and Reversal, Fralish v. Bank
of Am., No. 21-2846 (7th Cir. filed Dec. 16, 2021), <a href="https://files.consumerfinance.gov/f/documents/cfpb_fralish-v-bank-of-america_amicus-brief_2021-12.pdf">https://files.consumerfinance.gov/f/documents/cfpb_fralish-v-bank-of-america_amicus-brief_2021-12.pdf</a>; Brief of Amici Curiae Consumer
Fin. Prot. Bureau and Fed. Trade Comm'n, TeWinkle v. Capital One,
N.A., No. 20-2049 (2d Cir. filed Oct. 7, 2020), <a href="https://files.consumerfinance.gov/f/documents/cfpb_amicus-brief_tewinkle-v-capital-one-na_2020-10.pdf">https://files.consumerfinance.gov/f/documents/cfpb_amicus-brief_tewinkle-v-capital-one-na_2020-10.pdf</a>.
\38\ Credit cards are one of the most commonly held and widely
used financial products in America--over 175 million Americans hold
at least one credit card. During the COVID-19 pandemic, credit cards
played a vital role as both a source of credit in emergencies and a
payment method as more transactions occurred online. According to
the CFPB's 2021 Credit Card Report, about 2%, or over 10 million
credit card accounts, were closed in 2020 and consumers with low
credit scores are two to three times more likely to have their
accounts closed than those with a higher credit score. See Bureau of
Consumer Fin. Prot., The Consumer Credit Card Market (Sept. 2021),
<a href="https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2021.pdf">https://files.consumerfinance.gov/f/documents/cfpb_consumer-credit-card-market-report_2021.pdf</a>. Additionally, the same report shows
that over 10 million accounts experienced a credit line decrease in
2020. See id.; see also 5 Reasons Credit Card Companies Close
Accounts Without Notice--And How to Fix Them, USA TODAY (July 13,
2021), <a href="https://www.usatoday.com/story/money/personalfinance/budget-and-spending/2021/07/13/5-reasons-a-credit-card-company-can-close-your-account-with-no-notice/47470647/">https://www.usatoday.com/story/money/personalfinance/budget-and-spending/2021/07/13/5-reasons-a-credit-card-company-can-close-your-account-with-no-notice/47470647/</a>; `My Credit Card Just Got
Canceled and I Don't Know Why,' THE CUT (Sept. 11, 2020), <a href="https://www.thecut.com/article/can-my-credit-card-company-cancel-my-card.html">https://www.thecut.com/article/can-my-credit-card-company-cancel-my-card.html</a>.
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a. Statutory Text
``It is a fundamental canon of statutory construction that the
words of a statute must be read in their context and with a view to
their place in the overall statutory scheme.'' \39\ Reading together
the relevant provisions of ECOA makes clear that the term ``applicant''
is not limited to those who are in the process of applying for credit.
The Supreme Court's analysis in Robinson v. Shell Oil Co.\40\ is
instructive. In that case, the Court held that the term ``employees''
in Section 704(a) of Title VII includes those who were former employees
when the discrimination occurred. Writing for a unanimous Court,
Justice Thomas explained that although ``[a]t first blush, the term
`employees' . . . would seem to refer to those having an existing
employment relationship with the employer in question,'' that ``initial
impression . . . does not withstand scrutiny in the context of Sec.
704(a).'' \41\
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\39\ Nat'l Ass'n of Home Builders v. Defs. of Wildlife, 551 U.S.
644, 666 (2007) (quotation marks omitted).
\40\ 519 U.S. 337 (1997).
\41\ Id. at 341.
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For one thing, the Court observed, there is ``no temporal qualifier
in the statute such as would make plain that Sec. 704(a) protects only
persons still employed at the time of the retaliation.'' \42\ The same
reasoning applies to the term ``applicant'' in ECOA, which is not
expressly limited to those currently in the process of seeking credit.
The Court further noted that ``a number of other provisions in Title
VII use the term `employees' to mean something more inclusive or
different than `current employees.' '' \43\ The same reasoning applies
to the term ``applicant'' used in ECOA.
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\42\ Id.
\43\ Id. at 342.
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Reading ECOA's definition of ``applicant'' alongside the Act's
other provisions makes clear that the term includes applicants who have
received credit and become existing borrowers. For example, ECOA's core
anti-discrimination provision protects ``applicant[s]'' from
discrimination ``with respect to any aspect of a credit transaction''--
not just during the application process itself.\44\ The phrase ``any
aspect of a credit transaction'' is most naturally read to include both
the initial formation of a credit agreement as well as the performance
of that agreement.\45\ Consistent with this ordinary meaning,
Regulation B has always defined the term ``credit transaction'' to
encompass ``every aspect of an applicant's dealings with a creditor,''
including elements of the transaction that take place after credit has
been extended.\46\ The expansive language of this provision shows an
intent to sweep broadly, beyond just the initial process of requesting
credit, to bar discrimination in all parts of a credit arrangement.
Indeed, the main Senate report accompanying ECOA specifically noted
that ``[t]he prohibition applies to all credit transactions including .
. . revocation of any open-end consumer credit account.'' \47\
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\44\ 15 U.S.C. 1691(a) (emphasis added); see also Ali v. Fed.
Bureau of Prisons, 552 U.S. 214, 218 (2008) (``[T]he word `any' has
an expansive meaning . . . .'') (quoting United States v. Gonzales,
520 U.S. 1, 5 (1997)).
\45\ See, e.g., Black's Law Dictionary 1668 (rev. 4th ed. 1968)
(defining ``transaction'' to include the ``[a]ct of transacting or
conducting any business'' and defining ``transact'' as ``equivalent
to `carry on,' when used with reference to business'').
\46\ 12 CFR 1002.2(m) (defining ``credit transaction'' to
include, among other things, the ``revocation, alteration, or
termination of credit'' and ``collection procedures''); 12 CFR
202.3(k) (1976) (defining ``credit transaction'' to include the
``furnishing of credit information and collection procedures'').
Accordingly, the Bureau interprets aspects of the credit
transactions enumerated in Regulation B as including and
encompassing the servicing of that credit, debt collection, loss
mitigation, payment plans, settlements, co-signer release, and
certain other services provided to existing accountholders.
\47\ S. Rep. 93-278, 93rd Cong., 1st Sess., at 27 (1973).
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Similarly, ECOA's disclosure provision requires that creditors give
a statement of reasons to ``[e]ach applicant'' against whom they take
``adverse action.'' \48\ ECOA defines ``adverse action'' to include a
``revocation of credit'' as well as a ``change in the terms of an
existing credit arrangement.'' \49\ These are actions that can be taken
only with respect to persons who have already received credit.
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\48\ 15 U.S.C. 1691(d)(2).
\49\ 15 U.S.C. 1691(d)(6).
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ECOA's private right of action points in the same direction. It
allows an aggrieved ``applicant'' to bring suit against creditors who
fail to comply with ECOA or Regulation B.\50\ These references to
``applicant[s]'' cannot be understood to refer only to those with
pending credit applications. Otherwise, a person whose application was
denied on a prohibited basis would have no recourse under ECOA's
private right of action, which Congress intended would be the Act's
``chief enforcement tool.'' \51\ Instead, these references further
confirm that the term ``applicant'' is not limited to those currently
applying for credit.\52\
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\50\ 15 U.S.C. 1691e(a); see also id. 1691e(b) (a ``creditor,
other than a government or governmental subdivision or agency,''
shall be liable to the aggrieved ``applicant'' for punitive
damages); id. 1691e(c) (aggrieved ``applicant'' may seek relief in
district court).
\51\ S. Rep. 94-589, at 13.
\52\ Cf. Robinson, 519 U.S. at 343 (similarly concluding that
the reference to aggrieved ``employees'' in Title VII's private
right of action shows that that term is not limited to current
employees).
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b. Legislative History
Congress's history of amending the statute strongly supports
reading the statute to include existing borrowers. As noted, the Board
issued Regulation B in 1975, through notice-and-comment rulemaking,
shortly before ECOA took effect. The rule defined ``applicant'' to
include ``any person to whom credit is or has been extended.'' \53\ If
Congress thought this definition an unreasonable departure from the
statute it had just passed, it would surely have given some sign of
that when it amended and expanded ECOA the following year. Nor is there
any doubt that the drafters of those statutory amendments were
generally aware of the new Regulation B, as they cited parts of it in
explaining their bill.\54\
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\53\ 12 CFR 202.3(c) (1976).
\54\ See S. Rep. 94-589, at 2 (citing the Board's rules and
noting that the amendments expanded the Board's rulemaking
authority).
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But the 1976 amendments did not limit the reasonable definition of
``applicant'' that the Board had promulgated just months before. To the
contrary, the 1976 amendments added new provisions--such as the ones
entitling ``applicants'' to a statement of reasons when their credit is
revoked or modified--that make sense only if ``applicant'' is
understood to include existing borrowers, as stated in Regulation B.
Nor has Congress ever amended the statutory definition of ``applicant''
or otherwise expressed disapproval of the understanding of that term in
Regulation B, despite revising the statute multiple times since
1976.\55\
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\55\ See FDIC Improvement Act of 1991, Public Law 102-242, sec.
223, 105 Stat. 2306-07; Dodd-Frank Act, Public Law 111-203, secs.
1071, 1474, 124 Stat. 2056-57, 2199-2200.
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``[W]hen,'' as here, ``Congress revisits a statute giving rise to a
longstanding administrative interpretation without pertinent change,
the `congressional failure to revise or repeal the agency's
interpretation is persuasive evidence that the interpretation is the
one
[[Page 30100]]
intended by Congress.' '' \56\ That maxim applies with particular force
here: The first time Congress revisited the statute after the Board
defined ``applicant'' to include existing borrowers, Congress enacted
new provisions that implicitly approved the Board's interpretation by
requiring that creditors provide an explanation for adverse actions
that can be taken only with respect to existing borrowers.
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\56\ CFTC v. Schor, 478 U.S. 833, 846 (1986) (quoting NLRB v.
Bell Aerospace Co., 416 U.S. 267, 274-75 (1974)).
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c. Statutory Purpose
Reading ``applicant'' to protect individuals and businesses from
discrimination both during the process of requesting credit and once
credit has been extended furthers ECOA's purpose. It prevents a
creditor from canceling an existing account because of a borrower's
race. It bars a creditor from unfavorably modifying the terms of an
existing account--perhaps by lowering the amount available on a line of
credit--because of a borrower's national origin. It stops a creditor
from requiring women with existing accounts to reapply for their credit
upon getting married.\57\ And it ensures that a creditor would be
required to provide a statement of reasons to the applicant in any of
these situations. This is the most plausible interpretation of ECOA.
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\57\ Cf. S. Rep. 93-278, at 17 (citing this very scenario as an
example of the discrimination against ``applicants'' that ECOA
prohibits).
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Finally, reading ``applicant'' in this way--i.e., ECOA protects
applicants from discrimination both during the process of requesting
credit and once credit has been extended--precludes obvious paths to
evasion. A creditor that wished to deny credit applications on a
prohibited basis, or to offer credit on inferior terms for the same
prohibited reason, cannot do so by simply extending credit on the terms
requested and later revoking or amending the terms of the credit
arrangement. Nor can a creditor use similar means to avoid ever having
to explain to an applicant the reasons for an adverse action. This
interpretation of ECOA, therefore, forecloses a potential loophole that
could effectively swallow much of the Act. Such a loophole would be
plainly inconsistent with ECOA.
d. Judicial Precedent
Those courts that have properly read the term ``applicant'' in its
statutory context, including the only court of appeals to have
addressed the issue, have agreed that the statute protects existing
borrowers. In Kinnell v. Convenient Loan Co.,\58\ the Tenth Circuit
considered a claim that a creditor discriminated in violation of ECOA
when it refused to accept a late payment on an existing loan and
instead accelerated the remaining balance due. The court rejected the
argument that the plaintiff was not an ``applicant'' under ECOA because
he was no longer actively seeking credit.\59\ ECOA, the court
explained, prohibits discrimination ``with respect to any aspect of a
credit transaction,'' \60\ and was meant ``to protect people from the
`denial or termination of credit' '' on a prohibited basis.\61\ The
lender's reading of ``applicant'' would mean that ``any sua sponte
action on the part of the creditor . . . would not be actionable. Such
an interpretation improperly narrows the scope of the ECOA.'' \62\ The
court noted that its reading of ``applicant'' was directly supported by
Regulation B.\63\
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\58\ 77 F.3d 492 (10th Cir. 1996) (unpublished table decision).
\59\ Id. at *2.
\60\ Id. (quoting 15 U.S.C. 1691(a)).
\61\ Id. (emphasis added) (quoting Miller v. American Express
Co., 688 F.2d 1235, 1239 (9th Cir. 1982)).
\62\ Id.
\63\ Id.
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At least one district court has reached the same conclusion. In
Powell v. Pentagon Fed. Credit Union,\64\ the court held that the
plaintiff, who alleged that his existing credit plan was terminated on
a prohibited basis, was an ``applicant'' under ECOA. The court relied
on ECOA's requirement that ``applicants'' receive notice when their
credit is revoked and on the longstanding definition in Regulation
B.\65\ The court observed that the contrary interpretation would be
wholly at odds with ECOA's purposes because it ``would preclude a
plaintiff with an existing account from bringing a claim for the
discriminatory revocation of that account.'' \66\ The court found
nothing to ``suggest[ ] that Congress' intent to discourage
discrimination against applicants somehow ceases when the alleged
discrimination is against existing credit customers.'' \67\
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\64\ No. 10-cv-785, 2010 WL 3732195 (N.D. Ill. Sept. 17, 2010).
\65\ Id. at *4-5.
\66\ Id. at *4.
\67\ Id. at *4 n.2.
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The Bureau acknowledges that a few other district court decisions
have interpreted ``applicant'' to include only persons actively seeking
credit, but the Bureau does not believe this interpretation is
persuasive.\68\ No court of appeals has endorsed these district courts'
narrow reading. These district court decisions read ``applicant'' in
isolation instead of reading this statutory term in context, as
required by the Supreme Court. For example, these decisions did not
attempt to square their interpretation with ECOA's requirement that
``applicants'' receive an explanation when their existing credit is
terminated or modified. Nor did they grapple with the clear loophole
their interpretation would create or the degree to which it would
frustrate the Act's remedial purposes.
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\68\ See, e.g., TeWinkle v. Capital One, N.A., No. 1:19-cv-
01002, 2019 WL 8918731, at *4-5 (W.D.N.Y. Dec. 11, 2019); Kalisz v.
Bank of America, N.A., No. 1:18-cv-00516, 2018 WL 4356768, at *2-3
(E.D. Va. Sept. 11, 2018).
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e. Regulation B
Regulation B has always defined the term ``applicant'' to include
those who applied for and have received credit.\69\ Other provisions
reflect the same interpretation.\70\ Neither the Board nor the Bureau
has ever amended the rule to reflect a contrary understanding of the
term.
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\69\ See 12 CFR 1002.2(e) (including in the definition ``any
person . . . who has received an extension of credit from a
creditor''); see also 12 CFR 202.3(c) (1976) (including in the
definition ``any person to whom credit is or has been extended by
[a] creditor'').
\70\ See, e.g., 12 CFR 1002.2(m) (defining ``credit
transaction'' to mean ``every aspect of an applicant's dealings with
a creditor regarding an application for credit or an existing
extension of credit'') (emphasis added).
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As described above, the best interpretation of ECOA is that the
term ``applicant'' includes existing borrowers. It was thus reasonable
for the Board and then the Bureau to adopt that interpretation in
Regulation B. Adopting the contrary reading would have led to the
serious textual inconsistencies described above and run directly
contrary to the statute's purposes. Regulation B's definition avoids
those difficulties and, in the process, serves to ``carry out'' and
``effectuate'' the purposes of ECOA.\71\ And because the contrary
interpretation would open a glaring loophole in ECOA, Regulation B's
definition is ``necessary or proper . . . to prevent circumvention or
evasion'' of the Act.\72\
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\71\ 15 U.S.C. 1691b(a).
\72\ Id.
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Notably, Regulation B has expressly included existing borrowers as
applicants since the rule was first promulgated through notice-and-
comment rulemaking in 1975. Indeed, the interpretation of ``applicant''
discussed here has been confirmed by numerous Federal agencies for
decades. For example, nine separate agencies or offices, including the
Department of Justice, Federal Trade Commission, and
[[Page 30101]]
the Board, previously published a statement confirming their view that
ECOA prohibits discrimination in the treatment of existing borrowers,
such as by ``[t]reat[ing] a borrower differently in servicing a loan or
invoking default remedies'' or ``[using] different standards for
pooling or packaging a loan in the secondary market.'' \73\ The same
view is reflected in the manual used by the Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency, and other
financial regulators to conduct examinations of financial institutions
for compliance with fair lending laws.\74\ The Bureau has consistently
taken the same view of ``applicant,'' including by reissuing the
Board's original definition; issuing guidance that Regulation B
``covers creditor activities before, during, and after the extension of
credit''; \75\ and taking enforcement action to address violations of
ECOA against existing borrowers.\76\ In short, the Bureau's
interpretation is longstanding and well established.
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\73\ Policy Statement on Discrimination in Lending, 59 FR 18266,
18268 (Apr. 15, 1994).
\74\ See Interagency Fair Lending Examination Procedures, at ii
(Aug. 2009), available at <a href="https://go.usa.gov/xeY37">https://go.usa.gov/xeY37</a>.
\75\ Bureau of Consumer Fin. Prot., Equal Credit Opportunity Act
Examination Procedures, at 1 (Oct. 2015), available at <a href="https://go.usa.gov/xekcN">https://go.usa.gov/xekcN</a>.
\76\ See, e.g., In re American Express Centurion Bank and
American Express Bank, FSB, No. 2017-CFPB-0016, 2017 WL 7520638
(Aug. 23, 2017) (consent order resolving claims that creditors
discriminated against existing borrowers on the basis of race and
national origin by, for example, subjecting certain borrowers to
more aggressive collection practices).
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II. Regulatory Matters
This advisory opinion is an interpretive rule issued under the
Bureau's authority to interpret ECOA and Regulation B, including under
section 1022(b)(1) of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, which authorized guidance as may be necessary or
appropriate to enable the Bureau to administer and carry out the
purposes and objectives of Federal consumer financial laws.\77\
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\77\ 12 U.S.C. 5512(b)(1). The relevant provisions of ECOA and
Regulation B form part of Federal consumer financial law. 12 U.S.C.
5481(12)(D), (14).
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By operation of ECOA section 706(e), no provision of ECOA imposing
any liability applies to any act done or omitted in good faith in
conformity with this interpretive rule, notwithstanding that after such
act or omission has occurred, the interpretive rule is amended,
rescinded, or determined by judicial or other authority to be invalid
for any reason.\78\
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\78\ 15 U.S.C. 1691e(e).
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As an interpretive rule, this rule is exempt from the notice-and-
comment rulemaking requirements of the Administrative Procedure
Act.\79\ Because no notice of proposed rulemaking is required, the
Regulatory Flexibility Act does not require an initial or final
regulatory flexibility analysis.\80\ The Bureau also has determined
that this interpretive rule does not impose any new or revise any
existing recordkeeping, reporting, or disclosure requirements on
covered entities or members of the public that would be collections of
information requiring approval by the Office of Management and Budget
under the Paperwork Reduction Act.\81\
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\79\ 5 U.S.C. 553(b).
\80\ 5 U.S.C. 603(a), 604(a).
\81\ 44 U.S.C. 3501-3521.
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Pursuant to the Congressional Review Act,\82\ the Bureau will
submit a report containing this interpretive rule and other required
information to the U.S. Senate, the U.S. House of Representatives, and
the Comptroller General of the United States prior to the rule's
published effective date. The Office of Information and Regulatory
Affairs has designated this interpretive rule as not a ``major rule''
as defined by 5 U.S.C. 804(2).
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\82\ 5 U.S.C. 801 et seq.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2022-10453 Filed 5-17-22; 8:45 am]
BILLING CODE 4810-AM-P
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