Rule2026-07804
Equal Credit Opportunity Act (Regulation B)
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
April 22, 2026
Effective
July 21, 2026
Issuing agencies
Consumer Financial Protection Bureau
Abstract
The Consumer Financial Protection Bureau (Bureau or CFPB) is issuing a final rule 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 facilitate compliance with ECOA by clarifying the obligations imposed by the statute.
Full Text
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<title>Federal Register, Volume 91 Issue 77 (Wednesday, April 22, 2026)</title>
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[Federal Register Volume 91, Number 77 (Wednesday, April 22, 2026)]
[Rules and Regulations]
[Pages 21620-21670]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-07804]
[[Page 21619]]
Vol. 91
Wednesday,
No. 77
April 22, 2026
Part II
Consumer Financial Protection Bureau
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12 CFR Part 1002
Equal Credit Opportunity Act (Regulation B); Final Rule
Federal Register / Vol. 91 , No. 77 / Wednesday, April 22, 2026 /
Rules and Regulations
[[Page 21620]]
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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: Final rule.
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SUMMARY: The Consumer Financial Protection Bureau (Bureau or CFPB) is
issuing a final rule 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 facilitate compliance with ECOA by clarifying the
obligations imposed by the statute.
DATES: This final rule is effective July 21, 2026.
FOR FURTHER INFORMATION CONTACT: Dave Gettler, Paralegal Specialist,
Office of Regulations, at 202-435-7700 or <a href="https://reginquiries.consumerfinance.gov/">https://reginquiries.consumerfinance.gov/</a>. If you require this document in an
alternative electronic format, please contact
<a href="/cdn-cgi/l/email-protection#195a5f495b46587a7a7c6a6a707b7075706d60597a7f697b377e766f"><span class="__cf_email__" data-cfemail="acefeafceef3edcfcfc9dfdfc5cec5c0c5d8d5eccfcadcce82cbc3da">[email protected]</span></a>.
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 amending 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 a creditor may offer special purpose credit
programs (SPCPs).
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 SPCPs, 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. In November 2025, the Bureau issued a notice of
proposed rulemaking amending Regulation B (proposal or proposed rule).
The Bureau has considered the comments submitted in response to the
proposed rule.\2\
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\1\ 85 FR 46600 (Aug. 3, 2020).
\2\ 90 FR 50901 (Nov. 13, 2025). Corrections to the proposed
amendatory text to conform with the public inspection copy were
published at 91 FR 9191 (Feb. 25, 2026).
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The Bureau now finalizes the rule as proposed. The Bureau's final
rule provides that ECOA does not authorize disparate-impact liability
(effects test), further defines discouragement, and adds prohibitions
and conditions for SPCPs.
II. Background
A. Introduction
Congress enacted ECOA in 1974 (1974 Act) \3\ ``to insure that the
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).\4\ Since
1976, ECOA makes it unlawful for
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\3\ Public Law 90-321, tit. VII, as added by Public Law 93-495,
tit. V, sec. 502, 88 Stat. 1521 (15 U.S.C. 1691 et seq.).
\4\ Equal Credit Opportunity Act Amendments of 1976, Public Law
94-239, 90 Stat. 251.
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).\5\
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\5\ 15 U.S.C. 1691(a).
The Board, which at the time had exclusive rulemaking authority under
ECOA, promulgated regulations, after notice-and-comment, to implement
the 1976 Act.
In 2011, the Dodd-Frank Act transferred responsibility for ECOA
from the Board to the Bureau.\6\ 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.\7\ On December 21, 2011,
the Bureau established a new Regulation B, 12 CFR part 1002, that
substantially duplicated the Board's Regulation B, 12 CFR part 202,
making only certain non-substantive, technical, formatting, and
stylistic changes.\8\ Under the Dodd-Frank Act, it is the Bureau's
responsibility to ensure that outdated, unnecessary, or unduly
burdensome regulations over which the Bureau has authority are
regularly identified and addressed,\9\ and to correctly interpret ECOA.
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\6\ Public Law 111-203, 124 Stat. 1376 (2010).
\7\ 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.
\8\ 76 FR 79442 (Dec. 21, 2011).
\9\ 12 U.S.C. 5511(b)(3).
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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 non-
discriminatory access to credit, address potential regulatory
uncertainty, and develop viable solutions to regulatory compliance
challenges under ECOA and Regulation B.\10\ The RFI requested
information related to disparate impact, prospective applicants, and
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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\10\ 85 FR 46600.
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In 2025, the President issued several Executive Orders (E.O.s)
relevant to the Bureau's administration of ECOA. E.O. 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.'' \11\ E.O. 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.''
\12\
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\11\ 90 FR 8633 (Jan. 31, 2025).
\12\ 90 FR 17537 (Apr. 28, 2025).
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On November 13, 2025, the Bureau issued a proposed rule that would
amend Regulation B. The proposed rule:
[[Page 21621]]
(1) provided that ECOA does not authorize disparate-impact claims; (2)
proposed to 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 (3)
proposed to amend the standards for SPCPs offered or participated in by
for-profit organizations to include new standards and related
conditions.
The Bureau received approximately 64,500 comments on the proposed
rule. A majority of those comments were from individual commenters,
including consumers and individuals commenting from their personal and
professional experience. The Bureau also received many comments from
consumer advocate commenters, industry commenters, policy group
commenters, State Attorneys General commenters, and Members of
Congress. All comments are available on the public docket for this
rulemaking.\13\ Relevant information received via comment letters is
discussed below in subsequent parts of this document, as applicable.
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\13\ See <a href="https://www.regulations.gov/docket/CFPB-2025-0039/comments">https://www.regulations.gov/docket/CFPB-2025-0039/comments</a>.
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Consistent with the above discussed actions and after consideration
of the comments, the Bureau is finalizing the rule as proposed. This
final rule will take effect 90 days after publication in the Federal
Register.
B. Disparate Impact
In Griggs v. Duke Power Co.\14\ 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.''
\15\
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\14\ 401 U.S. 424 (1971).
\15\ Texas Dep't of Hous. & Cmty. Affairs v. 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,\16\ 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. Inclusive Communities Project, Inc.,\17\ 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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\16\ 544 U.S. 228 (2005) (plurality op.).
\17\ 576 U.S. 519.
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The Supreme Court has not examined 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].''
\18\
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\18\ 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.\19\
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\19\ S. Rep. No. 94-589, at 4-5 (1976).
A House Report similarly provides evidence that ECOA authorizes
disparate-impact claims.\20\
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\20\ 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.\21\ 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 conclusion that disparate-impact claims are cognizable
under ECOA.\22\
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\21\ 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.
\22\ 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 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. Current comment 6(a)-2 explains the ``effects test,''
cited to the legislative history of ECOA, and provides an example.
Current 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.
Part III.B below discusses the ways in which this final rule
changes the current rule regarding disparate impact.
[[Page 21622]]
C. Discouragement
Regulation B Sec. 1002.4(b) 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.'' \23\ The commentary to Sec. 1002.4(b) provides
additional details about conduct prohibited or permitted under the
provision.
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\23\ 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 Sec. 202.4(a), a precursor to current Sec.
1002.4(b), in its 1975 final rule implementing the 1974 Act.\24\ 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.\25\ 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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\24\ 40 FR 49298 (Oct. 22, 1975). In 1977, the Board moved this
provision, with minimal changes, to Sec. 202.5(a). See 42 FR 1242.
In 2003, the Board moved this provision to Sec. 202.4(b). See 68 FR
13144.
\25\ 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
to facilitate or substantiate compliance therewith.\26\
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\26\ 15 U.S.C. 1691b.
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.'' \27\
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\27\ 40 FR 49298 at 49299.
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In 1975, ECOA prohibited discrimination based only 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.'' \28\ The Board later added
commentary providing examples of prohibited conduct.\29\ In 1991,
Congress amended ECOA to require enforcing regulatory agencies to refer
to the Department of Justice (DOJ) 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).\30\
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\28\ 42 FR 1242.
\29\ 50 FR 48018.
\30\ 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.'' \31\
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\31\ Consumer Fin. Prot. Bureau v. Townstone Fin., Inc., 107
F.4th 768, 774, 777 (7th Cir. 2024).
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Part III.C below discusses the ways in which this final rule
changes 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].'' \32\
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\32\ See Public Law 94-239, sec. 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.\33\
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\33\ 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 SPCP
provision in what was then Sec. 202.8.\34\ 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.\35\ The AO clarified the content that a for-profit organization
must include in a written plan that establishes and administers an SPCP
under Regulation B.\36\
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\34\ See 42 FR 1242.
\35\ 86 FR 3762 (Jan. 15, 2021).
\36\ Id.
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Current Rule
Under current Regulation B, a for-profit organization that offers
or participates in an SPCP to meet special social needs is required to
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.\37\ In addition, the for-profit organization is
required to 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.\38\
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\37\ 12 CFR 1002.8(a)(3)(i).
\38\ 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.\39\ However, the
[[Page 21623]]
SPCP is permitted to 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.\40\ If the SPCP does require its participants to share
one or more common characteristics, and if the program otherwise
complies with current Regulation B, a creditor is able to request and
consider information regarding the common characteristic(s) in
determining the applicant's eligibility for the program.\41\
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\39\ 12 CFR 1002.8(b)(2).
\40\ Id.
\41\ 12 CFR 1002.8(c).
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The Bureau discusses the ways in which this final rule changes the
current rule regarding SPCPs provided by for-profit organizations in
part III.D below.
E. Consultation
The Bureau has consulted with the appropriate prudential regulators
and other Federal agencies regarding consistency with any prudential,
market, or systemic objectives administered by these agencies as
required by section 1022(b)(2)(B) of the Dodd-Frank Act.
III. Discussion of the Final Rule
A. Overview of Bureau's Approach
As discussed in the background section above, in November 2025, the
Bureau issued a proposed rule that (i) provided that ECOA does not
authorize disparate-impact claims; (ii) proposed to 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) proposed to amend the standards
for SPCPs offered or participated in by for-profit organizations to
include new standards and related conditions.\42\
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\42\ See 90 FR 50901.
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The Bureau received approximately 64,500 comments in response to
the proposed rule. A majority of those comments, including individual
commenters, consumer advocate commenters, policy group commenters,
State Attorneys General commenters, and Members of Congress, opposed
the proposed rule. Several commenters stated that the proposed rule is
deficient under the Administrative Procedure Act (APA). Some commenters
argued that the proposed rule is arbitrary and capricious because after
fifty years of the current rule, the Bureau did not provide the
required explanation for the significant change in the current rule.
Furthermore, the 30-day comment period over the Thanksgiving holiday
did not provide a meaningful opportunity to comment on a rule of this
significance, according to these commenters. These commenters also
stated that the Bureau is exceeding its rulemaking authority with this
rule, and that the proposed rule conflicts with ECOA. They also
asserted that the proposed rule is inconsistent with ECOA's legislative
history and case law.
Numerous commenters stated that the proposed rule ignores or
dismisses that the current credit market continues to show structural
barriers to credit access for certain protected class groups, and that
the proposed rule would result in an increase in discrimination for
these protected classes. These groups include women, Black, Hispanic,
Asian, and American Indian consumers, those who receive income from
public assistance programs such as disability income and social
security income, and those who exercised their rights under the
Consumer Credit Protection Act such as by asserting their rights
against improper debt collection, wage garnishment, and credit
reporting. Commenters also asserted that the proposed rule runs counter
to the goals of growing the economy with small businesses and
increasing homeownership as these small business owners and first-time
homeowners are likely to be women, Black, or Hispanic consumers who
apply for credit for their small business or to buy their first home.
In addition, commenters had other comments such as requesting a public
hearing on the proposed rule, questioning whether AI was used to draft
the proposed rule, and whether the other agencies were in fact
consulted on the proposed rule as required by law.
The commenters who supported the proposal, including many industry
commenters and some policy group commenters agreed the proposed rule
more closely aligns with the Constitution, ECOA's text and purpose,
congressional intent, case law, and the policy goals of providing
compliance clarity and relief while encouraging innovation and business
in the credit markets. Some of these commenters also asked for further
clarifications, modifications, exemptions, and safe harbors in the
rule. They also requested interagency coordination such as with the
prudential regulators on the Community Reinvestment Act of 1977
(CRA),\43\ and the Board on rules for motor vehicle dealers.\44\
Finally, one commenter noted an error with the proposed amendatory
text.
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\43\ Public Law 95-128, tit. VIII, 91 Stat. 1147 (12 U.S.C. 2901
et seq.).
\44\ As mentioned earlier, under Dodd-Frank Act section 1029,
subject to certain exceptions, the Board retains ECOA 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.
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In both the proposed rule and in this final rule, each of the
discussions of disparate impact, discouragement, and SPCPs provides
detailed explanations for the rule, satisfying the APA. The discussions
include explanations about how the Bureau is acting within its
rulemaking authority and how the rule is consistent with ECOA,
legislative history, and case law. The sufficiency of the comment
period is evidenced by the robust response the Bureau received. The
Bureau received approximately 64,500 comment letters from a diverse
range of stakeholders. Many of these comments were detailed and
substantive. The number and depth of these comments demonstrate that
interested parties had adequate time to review the proposal and
formulate comprehensive views during the comment period. Thus, the
Bureau concludes that the comment period provided a reasonable
opportunity to participate in the rulemaking process.
With regard to comments related to policy, policy cannot override
the law. As explained in the discussions below, these amendments to
Regulation B are to ensure consistency with the letter and intent of
ECOA. These amendments in the proposed rule clarify the obligations
imposed by ECOA and facilitate compliance with ECOA. As for requests
for a public hearing on the proposed rule, a hearing is not necessary
to obtain additional information nor required by law. There has been
ample exchange of analysis and information through the notice-and-
comment process, including the delivery and review of the comment
letters on the RFI, and the over 64,500 comment letters on the proposed
rule. A public hearing on the proposed rule would not provide more
insight or information than what had been collected through the notice-
and-comment process required by law. With regard to the Bureau using AI
with the proposed rule, that did not occur. Bureau attorneys,
paralegals, economists, analysts, and other employees worked on the
proposed rule and on this final rule, including its drafting and
underlying research. As to whether other agencies were consulted prior
to the issuance of the proposed
[[Page 21624]]
rule, the Bureau consulted or offered to consult with other agencies as
required by the Dodd-Frank Act and ECOA, and considered the feedback
the agencies provided. The Bureau is also available for consultations
with the prudential regulators regarding their CRA rule and the Board
regarding its rule for motor vehicle dealers. Other clarifications,
modifications, exemptions, and safe harbors requested by commenters are
addressed in detail further below. Finally, with regard to the
inadvertent publication errors in the proposed amendatory text in the
Federal Register, the commenter was correct. The errors were not
present in the Public Inspection version of the Federal Register
published on November 12, 2025.\45\ The Office of the Federal Register
published a correction on February 25, 2026.\46\
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\45\ See <a href="https://public-inspection.federalregister.gov/2025-19864.pdf">https://public-inspection.federalregister.gov/2025-19864.pdf</a>.
\46\ 91 FR 9191.
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After consideration of the comments, the Bureau is finalizing the
proposed Regulation B amendments addressing disparate impact,
discouragement, and SPCPs as discussed in further detail below.
B. Disparate Impact
Proposed Rule
The Bureau proposed changes to Sec. 1002.6(a) and its accompanying
commentary. As the Bureau explained in the proposal, consistent with
E.O. 14281 the Bureau examined Regulation B and considered whether
disparate-impact claims may be cognizable under ECOA. The Bureau
preliminarily determined that, under the best reading of the statute,
disparate-impact claims are not cognizable under ECOA. As a result, the
Bureau proposed 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 proposed to add language stating that the
Act does not recognize the ``effects test.'' The Bureau also proposed
deleting the language in comment 2(p)-4 referring to the ``effects
test.'' In the proposal, the Bureau requested comment on these changes
and on its preliminary determination that disparate-impact claims are
not applicable under ECOA. For the reasons discussed below, the Bureau
is adopting the changes as proposed.
In the proposal, the Bureau preliminarily determined that the
interpretation in Regulation B that disparate-impact claims may be
cognizable under ECOA is not the best interpretation of ECOA. The
Bureau noted 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 itself authorized disparate-
impact liability. The Bureau 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 Bureau explained in the proposal that since Griggs, although it
has not decided the question under ECOA, 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 Bureau explained that the Supreme Court
has examined whether those other statutes include language focused on
the effects of the action rather than the motivation of the actor. The
Bureau noted that 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.'' \47\ The Bureau explained in the
proposal that the relevant language of ECOA, in contrast, 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 marital status, or age.\48\
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\47\ 576 U.S. 519, 533 (2015).
\48\ 15 U.S.C. 1691(a)(1).
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In the proposal, the Bureau explained that section 701(a) of ECOA
is a straightforward, plainly stated prohibition against discrimination
on the basis of certain characteristics and that it therefore does not
require additional consideration of the structure, history, and purpose
to interpret its meaning. As a result, the Bureau preliminarily
determined that section 701(a) does not authorize disparate-impact
claims. As the Bureau explained in the proposal, its conclusion would
not change even if it were necessary to resort to other considerations
to interpret section 701(a). After balancing these factors, giving the
most weight to the language of the statute, the Bureau preliminarily
determined that the best interpretation of ECOA is that section 701(a)
does not authorize disparate-impact claims.
The Bureau also preliminarily determined that when read together,
the Supreme Court cases Board of Education of City School District of
New York v. Harris, 444 U.S. 130 (1979), 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. The Bureau's proposal explained, however,
that unlike the statutory provisions at issue in Harris and Inclusive
Communities 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 Bureau preliminarily determined that the
best interpretation of the text of section 701(a) is that it does not
provide for disparate-impact liability.
In the proposal, the Bureau also preliminarily determined that
interpreting ECOA as not authorizing disparate-impact claims is
consistent with the statutory purposes of ECOA. The Bureau, in
exercising its expertise, explained that it was 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.
Moreover, the Bureau explained that it was concerned that creditors may
be deterred from pursuing innovative or cost-reducing policies and
procedures because they are uncertain about the impact on protected
classes. In the proposal, the Bureau requested comment on its
preliminary determination that interpreting ECOA as not authorizing
disparate-impact liability is consistent with the statutory purpose.
The Bureau recognized in the proposal that Regulation B previously
relied on the legislative history of ECOA for evidence of congressional
intent that disparate-impact claims may be cognizable under ECOA. As
the Bureau explained, if ECOA contained effects-based language or if
the statutory language were ambiguous, then the legislative history
would provide stronger evidence to support an interpretation that
disparate-impact liability is permitted under ECOA. The Bureau
explained, however, that consistent with Supreme Court precedent, the
most important
[[Page 21625]]
consideration is the statutory language. The Bureau preliminarily
determined, 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. In the proposal, the Bureau requested comment on this
preliminary determination.
In the proposal, the Bureau preliminarily concluded that any
reliance interests in the existing regulatory interpretation permitting
disparate-impact liability do not outweigh revising Regulation B to
bring it into alignment with the statutory text. The Bureau requested
comment on this preliminary determination.
In the proposal, the Bureau noted that notwithstanding Griggs and
its progeny, there are serious concerns about the constitutionality of
disparate-impact liability as to certain ECOA-protected classes. The
Bureau made no conclusion as to these constitutional questions but
noted that its preliminary finding that ECOA does not encompass
disparate-impact liability appropriately avoids such constitutional
concerns.
The Bureau's proposal noted 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.
The Bureau noted that, as the Supreme Court made clear in Loper Bright
Enterprises v. Raimondo,\49\ courts are the ultimate arbiters of
statutory meaning. In the proposal, the Bureau requested comment on
this alternative rationale for removing the provisions related to
disparate impact.
---------------------------------------------------------------------------
\49\ 603 U.S. 369 (2024).
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Based on its preliminary determination that disparate-impact claims
are not cognizable under ECOA, the Bureau proposed deleting 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 proposed adding
language stating that the Act does not recognize the ``effects test.''
The Bureau also proposed deleting the language in comment 2(p)-4
referring to the ``effects test.''
Comments Received
Several commenters, including policy group, industry, and
individual commenters, supported amending Regulation B to provide that
ECOA does not authorize disparate-impact liability. One industry
commenter explained that its members and lenders in general have every
incentive to make loans to all creditworthy borrowers regardless of
their protected characteristics and to identify any unnecessary
policies that limit their ability to make prudent loans. Some
commenters stated that ECOA's prohibition on disparate treatment
provides consumers with appropriate protection against discrimination,
including where a creditor intentionally uses a proxy for a prohibited
basis to discriminate.
A number of commenters, including consumer advocate commenters,
policy group commenters, the State Attorneys General commenters,
Members of Congress, and individual commenters, opposed amending
Regulation B to provide that ECOA does not authorize disparate-impact
liability. Many of these commenters stated that the proposed rule's
interpretation of ECOA to not authorize disparate-impact liability is
inconsistent with the statutory text. Many of these commenters also
maintained that the legislative history, statutory purpose,
longstanding agency interpretations, and judicial interpretation all
support the conclusion that disparate-impact liability is authorized by
ECOA. Many of these commenters also stated that disparate-impact
liability is an important tool for identifying and addressing
discrimination, particularly with the growth of complex technologies
and processes driven by artificial intelligence, and provided examples
of circumstances in which they argued that disparate-impact liability
was important for addressing discrimination. Several commenters also
maintained that disparate-impact liability does not raise
constitutional concerns. Some commenters also stated that disparate-
impact liability does not stifle innovation or raise significant policy
concerns that might undermine the purposes of ECOA.
Many commenters expressing support for the proposed rule agreed
with the Bureau's preliminary determination that under the best reading
of ECOA, disparate-impact claims are not cognizable under the Act.
Commenters generally noted that the proposed rule, if adopted, will
harmonize Regulation B with the actual statutory scheme Congress
enacted. In addition, some commenters raised various concerns about the
application of disparate-impact liability to creditors, including
potential unintended consequences that may undermine the purpose of
ECOA. A few commenters requested that the Bureau provide clarification
on certain topics, including whether creditors may lawfully use
statistical techniques, such as proxy analysis, to assess their
compliance with ECOA.
Several commenters disagreed with the proposed rule's preliminary
determination that ECOA did not include effects-based language and that
the absence of this language should lead to the conclusion that ECOA
does not authorize disparate-impact liability. As discussed in more
detail below, several commenters stated that ECOA includes effects-
based language supporting disparate-impact liability and maintained
that the Supreme Court has found that other antidiscrimination statutes
with similar language authorize disparate-impact liability. Some
commenters also stated that Supreme Court precedent does not preclude
recognizing disparate-impact liability in statutes that lack specific
wording.
Several commenters agreed with the Bureau's preliminary analysis of
the text of section 701(a) of ECOA. Commenters supporting the proposal
to amend Regulation B were generally in favor of deleting language in
the existing regulation referring to an ``effects test'' concept and
replacing it with new language clarifying that disparate-impact claims
are not cognizable under ECOA. One industry commenter supported
deleting the language in the existing rule referring to an ``effects
test'' concept but did not support adding new language to Regulation B
clarifying that disparate impact is not cognizable under ECOA. This
commenter noted that simply removing the existing ``effects test''
language without replacing it respects the Supreme Court's instruction,
in Loper Bright Enterprises v. Raimondo,\50\ that courts--not
agencies--are the ultimate arbiter of statutory meaning, particularly
when it comes to the availability of a particular cause of action under
a statute.
---------------------------------------------------------------------------
\50\ 603 U.S. 369 (2024).
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Some commenters agreed with the Bureau's statement in the proposed
rule that the Supreme Court has not determined whether a disparate-
impact claim is permitted under ECOA. A few commenters supporting the
proposed rule stated that the Supreme Court, in Texas Department of
Housing & Community Affairs v. Inclusive Communities Project, Inc.,\51\
provided the proper instruction for determining whether an
antidiscrimination statute such as ECOA gives rise to disparate-impact
liability. Commenters explained that in Inclusive Communities the Court
instructed that disparate-impact claims may be authorized under an
antidiscrimination statute where the
[[Page 21626]]
statute's text refers to the consequences of actions and not just to
the mindset of actors, and where that interpretation is consistent with
statutory purpose.
---------------------------------------------------------------------------
\51\ 576 U.S. 519 (2015).
---------------------------------------------------------------------------
Most commenters supporting the proposed rule generally agreed with
the Bureau's preliminary determination that under the best reading of
the Act, the text of section 701(a) of ECOA does not authorize
disparate-impact liability. One industry commenter, agreeing with the
Bureau's statement that the Supreme Court has not determined whether
disparate-impact claims are cognizable under the ECOA, took no position
and offered no comment on whether the Bureau's preliminary
determination is legally correct. Some commenters agreeing with the
Bureau's preliminary determination specifically cited the text of
section 701(a) of ECOA, which 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, sex, or any other
prohibited characteristic. A few commenters noted that section 701(a)
makes it unlawful for a creditor to ``discriminate''--language those
commenters pointed out has been construed in other contexts as giving
rise to disparate-treatment liability. Some commenters also noted
section 701(a)'s use of ``on the basis of,'' which one industry
commenter indicated directs attention to intentional conduct, not
outcomes alone.
Numerous commenters noted the absence of any effects-based language
in section 701(a), in contrast with language found in other statutes
like title VII of the Civil Rights Act of 1964, the Age Discrimination
in Employment Act (ADEA) and the Fair Housing Act (FHA), which the
Supreme Court has held all authorize disparate-impact liability. One
industry commenter noted that in Inclusive Communities the Court deemed
the presence of such language to be ``of central importance'' to its
analysis. Some commenters agreed with the Bureau's preliminary analysis
that interpreting ECOA to conclude that there is no disparate-impact
liability under the Act is consistent with the purpose of ECOA. Other
commenters supporting the proposed rule stated that because the
statutory text of ECOA does not contain any ``effects-based'' language
whatsoever there is no need to analyze whether the Bureau's proposed
interpretation is consistent with ECOA's purpose.
Several consumer advocate commenters stated that the text of ECOA
shows that Congress intended to authorize disparate-impact liability.
Several consumer advocate commenters argued that by prohibiting
discrimination ``on the basis of'' certain protected classes in 15
U.S.C. 1691(a)(1), ECOA allows disparate-impact claims. These
commenters asserted that the term ``on the basis of'' refers to the
consequences of actions and not just the mindset of actors. These
commenters stated that Congress was aware of the Supreme Court's
precedents concerning disparate-impact liability and used the term ``on
the basis of'' because the Supreme Court had used that language to
describe disparate-impact liability under title VII in Griggs v. Duke
Power Co. A consumer advocate commenter also stated that other
antidiscrimination statutes also use ``on the basis of'' or similar
language to characterize the scope of prohibited discrimination to
include disparate-impact claims. The commenter noted that the Americans
with Disabilities Act (ADA) and the Equal Pay Act (EPA) both use ``on
the basis of'' language and that both of these statutes authorize
disparate-impact claims.
A consumer advocate commenter also noted that in ECOA, Congress
used ``on the basis of'' in section 701(a)(1) of ECOA but different
language in section 701(a)(2) and (3), which prohibit discrimination
``because'' of certain characteristics or conduct. The commenter argued
that the choice by Congress to use ``on the basis of'' in section
701(a)(1), but different language in section (a)(2) and (3), suggests
Congress intended for section (a)(1) to reach broadly to include
disparate-impact liability.
Another consumer advocate commenter stated that certain exceptions
to ``discrimination'' support interpreting ECOA to authorize disparate-
impact liability. That commenter noted that the exceptions in section
701(b)(1) and (2) provide that inquiries about an applicant's marital
status, age, or income status can only be made for a specified purpose.
The commenter argued that this provision forbids the collection of data
for other purposes, including neutral purposes, and that the only
reason an antidiscrimination provision would forbid data collection for
neutral purposes is if such a neutral practice could lead to a
discriminatory effect that could be actionable under a disparate-impact
theory of liability.
However, a few commenters supporting the proposed rule expressed a
different understanding of the interplay between section 701(a) and the
exceptions in section 701(b). Those commenters noted that Congress
carved out specific conduct from the reach of section 701(a) of ECOA
and deemed such conduct not to constitute discrimination. One industry
commenter, a trade association, noted that conduct deemed not to
constitute discrimination under section 701(b) is conduct that, but for
those carve outs, would constitute disparate treatment; the commenter
stated that there are no exceptions for conduct that would otherwise
constitute disparate impact. This commenter also noted that actions
permissible under section 701(c) of ECOA include conduct that involves
directly considering an applicant's prohibited basis status. The
commenter contrasted these provisions with exceptions in the FHA that
the Inclusive Communities majority had relied on in support of its
holding, noting that those exceptions shielded covered persons from
liability for conduct that would have otherwise resulted in disparate-
impact liability.
Several consumer advocate commenters noted that ECOA provides that
one factor considered by courts when imposing punitive damages is
whether the violation was ``intentional.'' They argued that this
provision assumes that some violations are not intentional, indicating
that ECOA was intended to authorize disparate-impact claims. One
consumer advocate commenter noted that in the debate over this
language, some House members objected that limiting punitive damages to
intentional violations would mean that punitive damages would not be
available for disparate impact violations, indicating these House
members believed that disparate-impact liability was authorized. The
commenter stated that the Supreme Court has found that where a
provision limits only the scope of disparate-impact claims, Congress
must have assumed the existence of disparate-impact claims or the
provision would be superfluous.
Several consumer advocate commenters stated that the Supreme Court
has found that other antidiscrimination statutes authorize disparate-
impact liability and has not held that the absence of effects-based
language precludes a finding that a statute authorizes disparate-impact
liability. Some commenters noted that in Inclusive Communities, the
Supreme Court found that section 805(a) of the FHA authorizes
disparate-impact liability even though that provision does not include
effects-based language. Several commenters argued that the Supreme
Court has made clear the importance of determining the purpose of the
statute in determining whether it provides for disparate-impact
liability.
Although several consumer advocate commenters stated that the text
of ECOA supports disparate-impact liability,
[[Page 21627]]
some of these commenters noted that at the very least ECOA's language
in 15 U.S.C. 1691(a)(1) that makes it unlawful for a creditor to
``discriminate'' against an applicant ``on the basis of'' certain
prohibited characteristics is ambiguous as to whether it authorizes
disparate-impact liability. These commenters stated that the Supreme
Court has looked to other factors, including the statutory purpose and
legislative history, to determine whether an ambiguous statute
authorizes disparate-impact claims. These commenters maintained that
these other factors, including the statutory purpose and the
legislative history, support interpreting ECOA to authorize disparate-
impact claims.
Several consumer advocate commenters stated that interpreting ECOA
to permit disparate-impact claims is consistent with the statutory
purpose. They noted that the Supreme Court considered the statutory
purposes of title VII and the FHA to support finding that those
statutes authorized disparate-impact liability. The commenters
maintained that, similar to the broad remedial purposes of those other
statutes, ECOA was intended to achieve the objective of addressing
discrimination in obtaining credit. They stated that disparate-impact
liability is similarly consistent with ECOA's goal of ensuring that
creditors make credit available equally and impartially, without regard
to protected classes. These commenters stated that interpreting ECOA to
not permit disparate-impact liability would undermine the purpose of
making credit equally available.
Commenters supporting the removal of the ``effects test'' language
from Regulation B generally agreed with the Bureau that the evidence
from the legislative history is insufficient to support an effects test
concept under Regulation B given the statutory language and the absence
of any effects-based language in section 701 or anywhere else in ECOA.
Several commenters agreed with the Bureau's preliminary analysis that
the Board, when it inserted the ``effects test'' language into
Regulation B, relied solely on ECOA's legislative history. These
commenters stated that the Board's--and later the Bureau's--reliance on
ECOA's legislative history to the exclusion of ECOA's statutory text
was flawed.
Some commenters noted that the Board's and the Bureau's reliance on
legislative history in interpreting ECOA as authorizing disparate-
impact liability conflicts with Inclusive Communities' instruction that
statutory text controls when analyzing whether an antidiscrimination
statute such as ECOA encompasses disparate impact. An industry
commenter stated that Inclusive Communities instructs that the
statutory text is paramount, with legislative history serving as a
secondary consideration at most. Other commenters stated that resort to
extrinsic materials like legislative history is generally inappropriate
in the face of ECOA's authoritative text.
A few commenters also noted that the committee reports relied on by
the Board postdated by two years the original enactment of the
operative antidiscrimination language in ECOA. One industry commenter
explained that the Board relied on committee reports tied to the 1976
Act, which among other things expanded the list of prohibited bases
under ECOA. This commenter noted that although Congress in 1976
expanded the scope of ECOA's prohibition on discrimination, it did not
speak to the type of conduct (e.g., disparate treatment or disparate
impact) Congress proscribed in 1974. One policy group commenter
explained that the legislative history relied upon by the Board and
later the Bureau is not sufficient support for disparate-impact
liability because committee reports have not been passed by both houses
of Congress and presented to the President for his signature. An
industry commenter stated that even if legislative history should be
consulted, there are other statements found in the legislative history
that the commenter believed suggest Congress intended ECOA to reach
only disparate treatment.
Several consumer advocate commenters stated that the legislative
history of ECOA confirms that Congress intended to authorize disparate-
impact liability. A consumer advocate commenter noted that during a
hearing on legislation that eventually became the 1974 Act, a witness
testified that revising the bill to define the term ``discriminate'' as
``to make any invidious distinction''--as Congress was then
considering--could narrow the scope of prohibited discrimination. The
commenter noted that the witness pointed to the broad standard for
discrimination under Griggs and, stating that the term ``invidious''
does not appear in the Civil Rights Act of 1964, raised the concern
that using the term ``invidious'' could indicate that some degree of
intent is required. The commenter stated that the subcommittee removed
the proposed definition of ``discriminate,'' leaving in place language
that was generally understood to include disparate-impact liability.
Several consumer advocate commenters also stated that the
legislative history of the 1976 Act, which added race, color, national
origin, religion and age as prohibited bases, similarly supports
interpreting ECOA to authorize disparate-impact liability. These
commenters maintained that House and Senate reports supported
interpreting ECOA to permit disparate-impact claims. For example, one
consumer advocate commenter pointed to a Senate report stating that
courts or agencies could ``look at the effects of a creditor's
practices,'' consistent with cases such as Griggs and Albemarle. As
noted above, several commenters also stated that some House members
also raised concerns that punitive damages would only be available for
intentional discrimination and would not be allowed for disparate-
impact claims, supporting the assumption that disparate-impact
liability is authorized.
Several consumer advocate commenters maintained that later
congressional activity also supports interpreting ECOA to permit
disparate-impact claims. One consumer advocate noted that Congress
rejected bills in 1995 and 1997 that would have restricted ECOA
liability to intentional discrimination. That commenter stated that
Congress amended ECOA in 1996 to provide incentives for creditors to
engage in self-testing and self-correction. The commenter argued that
by declining to amend ECOA to eliminate disparate-impact liability,
Congress indicated an intent to maintain the statute's liability for
disparate-impact claims.
Several commenters noted that courts have consistently found that
ECOA authorizes disparate-impact liability. One commenter noted that
the Ninth Circuit has explicitly held that ECOA allows disparate-impact
claims while the D.C. and the Sixth Circuits have assumed without
deciding that disparate-impact claims are permissible under ECOA. One
consumer advocate commenter stated that no courts have diverged from a
consensus view that ECOA permits disparate-impact claims. Another
consumer advocate commenter noted that numerous courts have rejected
the argument that the absence of effects-based language in ECOA
precludes disparate-impact liability.
Several consumer advocate commenters also stated that Federal
agencies interpreting ECOA have uniformly found that ECOA permits
disparate-impact claims. One consumer advocate commenter noted that
shortly after ECOA was enacted, the Board interpreted ECOA as
authorizing disparate-impact liability. The
[[Page 21628]]
commenter argued that, under Loper Bright, such a contemporaneous
interpretation should be accorded great weight. Several commenters
stated that the Board, and later the Bureau, have consistently
confirmed in subsequent regulatory interpretations that ECOA authorizes
disparate-impact liability and these interpretations have pointed to
the legislative history to support those conclusions. Commenters also
stated that other Federal regulators and the DOJ also have uniformly
interpreted ECOA to permit disparate-impact claims.
One commenter supportive of the proposed rule noted that by the
time the Supreme Court decided Inclusive Communities, all Courts of
Appeals to have addressed the issue had concluded that the FHA
permitted disparate-impact claims. This commenter noted that when the
Board inserted the ``effects test'' language into Regulation B, there
was no such consensus among appellate courts. Moreover, a few
commenters noted that even today only some appellate courts have
concluded that ECOA authorizes disparate-impact liability, with most
merely assuming but not actually deciding the issue. A few commenters
stated that only one appellate court has squarely determined that ECOA
authorizes disparate-impact liability, and that court's analysis--like
the Board's--almost exclusively relied on the legislative history of
ECOA to reach that determination.
A few commenters supporting the proposal directly addressed the
topic of reliance interests. One industry commenter explained that any
reliance interests in the existing interpretation of Regulation B are
outweighed by the need to amend the regulation to bring it into harmony
with the statutory text of ECOA. This commenter, a trade association
representing credit unions, explained that although credit unions have
developed policies, procedures, and training to ensure their compliance
with the existing interpretation of ECOA, the association would
appreciate the greater flexibility offered by the proposed rule.
Several commenters stated that the proposed rule did not adequately
consider the reliance interests in the current rule's interpretation
that ECOA authorizes disparate-impact liability. One consumer advocate
noted that creditors have developed compliance systems designed to
ensure compliance with disparate-impact risks and that interpreting
ECOA not to permit disparate-impact liability would create confusion
and potential conflicting standards because creditors would still have
to ensure compliance with the FHA and State antidiscrimination laws
that recognize disparate-impact liability. State Attorneys General
commenters stated that the proposed rule failed to consider the
reliance interests of State and local governments in a strong Federal
enforcement mechanism to address discrimination in the credit market.
Some commenters agreed with the Bureau's preliminary determination
that consumers will still be protected from discrimination if the
proposed rule is finalized. These commenters believed ECOA's
prohibition on disparate treatment provides appropriate protection for
consumers against discrimination. An industry commenter stated that
disparate impact is unnecessary to prevent discriminatory lending
practices; this commenter explained that a creditor will remain liable
based on disparate treatment where the creditor makes a lending
decision or adopts a credit policy with discriminatory intent, even if
the lender characterizes its actions as facially neutral. Another
industry commenter noted that some aspects of a disparate-impact claim
could have evidentiary value in a disparate-treatment case; this
commenter described situations where a creditor uses or adopts a
neutral policy for a discriminatory reason or applies it inconsistently
on a prohibited basis. The commenter noted that creditors in these
situations would remain liable for disparate treatment.
Several commenters supporting the proposed rule raised concerns
about the application of disparate-impact liability under ECOA. Some
commenters agreed with the Bureau's preliminary determination that
imposition of disparate-impact liability in the credit context may
undermine the purpose of ECOA. According to one industry commenter,
ECOA's purpose is to ensure that all creditworthy applicants receive
fair and equal access to credit without regard to protected
characteristics.
Many commenters, including consumer advocate commenters, the State
Attorneys General commenters, Members of Congress, and individual
commenters, stated that the proposed rule did not adequately consider
the importance of disparate-impact liability in addressing
discriminatory practices. They provided evidence and examples that, in
their view, showed that discrimination in credit markets remains a
significant problem. They maintained that disparate-treatment liability
is insufficient to address discrimination where intentional
discrimination is difficult to prove. They stated that disparate-impact
liability is particularly important in addressing discrimination in
certain circumstances, including automated credit models (specifically
AI-driven models), indirect auto lending, mortgage lending, and small
business lending. Several commenters provided examples of
discrimination cases that relied on disparate-impact liability theories
and raised concerns that proving discrimination would be impossible
without being able to advance disparate-impact claims.
A policy group commenter shared the Bureau's concern that
application of disparate-impact liability could lead some creditors to
consider prohibited basis characteristics in developing policies and
procedures, contrary to ECOA's purpose, to minimize potential
liability. One individual commenter stated that disparate-impact
liability discourages responsible lending and incentivizes overly
conservative credit policies, which reduces credit access and increases
costs to consumers. This commenter stated that Regulation B currently
discourages nuanced decision-making in favor of rigid compliance
standards and that this disproportionately burdens female borrowers. An
anonymous commenter noted that there is no clear empirical evidence
that disparate impact improves credit access or outcomes for specific
protected class groups; this commenter marshaled evidence and data
that, in the commenter's opinion, demonstrates that the application of
disparate-impact liability has the opposite effect. Other commenters
indicated that disparate-impact liability reduces innovation in credit
markets.
One policy group commenter stated that disparate impact is
incompatible with the Equal Protection Clause of the U.S. Constitution.
This commenter noted that the Supreme Court has condemned racial
balancing as unconstitutional but the threat of disparate-impact
liability, according to the commenter, requires creditors to engage in
that very conduct. An industry commenter stated that the proposed rule
is warranted because the existing regulation, in the commenter's view,
drives outcome balancing--raising reverse discrimination and equal
protection concerns. Another policy group commenter stated that
application of disparate-impact liability threatens fundamental
freedoms, such as free speech and free exercise of religion,
potentially chilling the speech and religious practices of businesses.
Several commenters opposed to the proposed rule stated that
interpreting ECOA to permit disparate-impact liability does not raise
constitutional
[[Page 21629]]
concerns. They argued that although the Bureau had raised concerns that
creditors might consider prohibited characteristics in developing
policies and procedures in order to avoid potential disparate-impact
liability, the proposed rule did not provide any examples of this
occurring. Commenters noted that the Supreme Court has allowed
disparate-impact liability in other statutory contexts and noted that,
properly applied, disparate-impact liability does not raise
constitutional concerns. Some commenters claimed that, unlike with
college admissions or employment, credit applications are not zero-sum
situations in which applicants are competing for a limited number of
opportunities and stated that disparate-impact liability under ECOA
does not disadvantage certain credit applicants compared to other
applicants or require creditors to achieve specific outcomes.
A few commenters raised concerns that application of disparate-
impact liability had led to abusive enforcement efforts and examiner
overreach. An industry commenter stated that disparate impact is prone
to abuse by government agencies and private plaintiffs, pointing to the
Bureau's allegations against indirect auto lenders as one example.
Another industry commenter stated that the Bureau used disparate impact
to impose a de facto national Community Reinvestment Act (CRA)
requirement on independent mortgage banks (IMBs), by pressuring IMBs to
do more lending to certain protected classes and to take actions such
as opening new branch locations; the commenter noted that ECOA does not
authorize or contemplate these remedies. This commenter further noted
that ECOA is an antidiscrimination statute and not a vehicle to force
IMBs to take affirmative actions to increase loans to certain classes
of borrowers. The commenter stated that ECOA should not be allowed to
morph into a backdoor Federal CRA requirement for IMBs. A different
industry commenter stated that disparate impact has been measured and
determined inconsistently by financial services regulators and
examiners, and credit unions have endured unpredictable and shifting
application and examination findings.
Commenters generally noted that the proposed rule, if finalized,
would address these concerns. One industry commenter explained that the
proposed rule will help avoid arbitrary ECOA enforcement in the future,
allowing creditors to focus on maintaining effective ECOA compliance
programs.
A few commenters responded to the Bureau's request for comment on
the potential benefits of the proposal. One industry commenter agreed
with the Bureau's observation in the proposed rule that the impact of
the amendments to Regulation B will be substantially limited by the
ongoing need to comply with other State and Federal fair lending laws,
such as the FHA. An anonymous commenter offered comments on the
anticipated practical consequences for the fair lending compliance
programs of banks. This commenter indicated that amending Regulation B
is unlikely to have any material impact on the organization or
structure of fair lending compliance programs maintained by banks;
according to the commenter, covered banks will remain subject to
disparate-impact claims that might be asserted in State enforcement
actions or by private parties in litigation, and therefore bank
compliance programs must continue to appropriately identify and
mitigate those risks. One industry commenter stated that ending
disparate-impact enforcement and returning ECOA to its statutory
standard of intent-based discrimination will promote clarity, reduce
unintended barriers to credit, and ultimately improve access to capital
for consumers and small businesses. This commenter noted that removing
disparate-impact enforcement will result in more product offerings,
more flexible lending standards and new market entrants, ultimately
expanding access to credit.
Some commenters supporting the proposed changes to Regulation B
requested that the Bureau provide clarification on certain discrete
issues. A few commenters requested that the Bureau clarify that
creditors may still use proxy analysis to assess the demographic makeup
of their applicant pool to evaluate compliance with ECOA. An industry
commenter explained that because creditors will remain subject to other
Federal and State laws imposing disparate-impact liability, creditors
will still be obligated to consider the impact of their facially
neutral policies and procedures and make appropriate adjustments based
on that evaluation. Another industry commenter explained that
creditors' obligations under the CRA and their business objectives may
include expanding access to credit or serving underserved communities.
Because creditors may wish to continue to evaluate the demographic
impact of their policies and procedures--both to help inform business
and community reinvestment strategies, and because of other laws
imposing disparate-impact liability--commenters requested that the
Bureau's final rule specifically acknowledge that creditors would
retain the flexibility to utilize such practices.
An individual commenter urged the Bureau to clarify that while ECOA
does not give rise to a standalone disparate-impact cause of action,
the Bureau may still prohibit practices that are intentionally designed
or applied as proxies for prohibited characteristics. An industry
commenter urged the Bureau to prevent circumventions of the regulation
by clarifying that statistical imbalances alone are not a sufficient
basis for establishing disparate treatment under ECOA. Similarly, an
industry commenter requested that the Bureau clarify that statistical
evidence that a creditor lags behind peers in applications or
originations does not, standing alone, support a disparate-treatment
claim.
Final Rule
The Bureau is making changes to Sec. 1002.6(a) and its
accompanying commentary. It is the Bureau's responsibility to correctly
interpret ECOA. The Supreme Court in Loper Bright Enterprises v.
Raimondo confirmed that ``statutes . . . have a single, best meaning''
that is `` `fixed at the time of enactment.' '' \52\ The Bureau has
examined Regulation B, considered comments, and determined that, under
the best reading of the statute, disparate-impact claims are not
cognizable under ECOA. As a result, the Bureau is deleting 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 adding language
stating that the Act does not recognize the ``effects test.'' The
Bureau is also deleting the language in comment 2(p)-4 referring to the
``effects test.''
---------------------------------------------------------------------------
\52\ 603 U.S. 369, 400 (2024) (quoting Wis. Cent. Ltd. v. United
States, 585 U.S. 274, 284 (2018)).
---------------------------------------------------------------------------
The Bureau has determined that the Board's--and later the
Bureau's--conclusion that disparate-impact claims may be cognizable
under ECOA is not the best interpretation of ECOA. In particular, 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 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
[[Page 21630]]
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.\53\
Further discussion of the effects test was later added to the
commentary to what is now Sec. 1002.6(a).\54\ Although there have been
minor revisions to what is now Sec. 1002.6(a), that provision has
continued to provide, based solely on legislative history, that
disparate-impact liability may apply to ECOA.
---------------------------------------------------------------------------
\53\ 42 FR 1242 at 1255 n.7. 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.
\54\ See 50 FR 48018.
---------------------------------------------------------------------------
Although Griggs is the foundational case for disparate-impact
theory, the Bureau recognizes that Griggs itself has been subject to
significant and extensive criticism. Justice Thomas has described
Griggs as ``poorly reasoned and vulnerable to the charge that it
represented a significant leap away from the expectations of the
enacting Congress,'' \55\ observing that the true ``author of
disparate-impact liability under Title VII was not Congress, but the
Equal Employment Opportunity Commission (EEOC).'' \56\ Griggs involved
virtually no analysis of the actual text of title VII; rather, Griggs
endorsed the EEOC's view mainly by deferring to the agency's view in
light of title VII's purpose.\57\ ``But statutory provisions--not
purposes--go through the process of bicameralism and presentment
mandated by our Constitution.'' \58\ Indeed, members of the Court--
including the author of the majority opinion in Inclusive Communities--
have expressed reservations about allowing the logic of Griggs to
extend into other areas of law.\59\
---------------------------------------------------------------------------
\55\ Inclusive Communities, 576 U.S. at 550 n.3 (Thomas, J.,
dissenting) (internal quotation marks omitted).
\56\ Id. at 547.
\57\ See id. at 552-53; see also id. at 577-78 (Alito, J.,
dissenting) (``The only reference [in Griggs] to Sec. 703(a)(2) of
the 1964 Civil Rights Act appears in a single footnote that
reproduces the statutory text but makes no effort to explain how it
encompasses a disparate-impact claim.'').
\58\ Id. at 553.
\59\ See id. at 556.
---------------------------------------------------------------------------
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 (but it
has not decided the question under ECOA). 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 of the
actor. For example, in Smith v. City of Jackson, the Supreme Court
noted that section 4(a)(1) of the ADEA does not authorize disparate-
impact liability.\60\ Section 4(a)(1) of the ADEA, like section 701(a)
of ECOA, is a straightforward prohibition on discrimination that does
not include effects-based language.\61\ However, a plurality of the
Supreme Court found in Smith that section 4(a)(2) of the ADEA does
authorize disparate-impact liability, emphasizing 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.'' \62\ 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.''
\63\ 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.\64\
---------------------------------------------------------------------------
\60\ 544 U.S. 228, 235 n.6, 249 (2005) (plurality and dissent
agreeing that section 4(a)(1) of the ADEA does not authorize
disparate-impact liability).
\61\ Section 4(a)(1) of the ADEA provides that it is unlawful to
fail or refuse to hire or to discharge any individual or otherwise
discriminate against any individual with respect to his
compensation, terms, conditions, or privileges of employment,
because of such individual's age. 29 U.S.C. 623(a)(1).
\62\ 544 U.S. 228, 235 (2005) (citation omitted).
\63\ 576 U.S. 519, 533 (2015).
\64\ 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).
---------------------------------------------------------------------------
Several commenters disagreed with the proposed rule's preliminary
determination that ECOA does not include similar effects-based language
supporting disparate-impact liability. As noted above, 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 marital status, or age (provided the applicant has the capacity to
contract).\65\ Several commenters argued that the phrase ``on the basis
of'' is effects-based language and that Congress intended for section
701(a) of ECOA to authorize disparate-impact liability. They maintained
that the ``on the basis of'' language was used in Griggs to describe
disparate-impact liability under title VII and that Congress--acting
just a short time after Griggs--used the same language to demonstrate
its intent to authorize disparate-impact liability under ECOA. Some
commenters also stated that other statutes such as the ADA and the EPA
have used ``on the basis of'' language, and that these statutes have
been found to authorize disparate-impact liability. One consumer
advocate commenter also noted that section 701(a) makes it unlawful to
discriminate ``on the basis of'' certain protected classes, while
section 701(b) and (c) makes it unlawful for a creditor to discriminate
``because'' of certain characteristics or conduct, and this commenter
argued that this difference in language is significant and indicates
that Congress intended for section 701(a) to authorize disparate-impact
liability. However, a number of commenters disagreed, stating that ECOA
should not be interpreted to authorize disparate-impact liability
because it does not include effects-based language.
---------------------------------------------------------------------------
\65\ 15 U.S.C. 1691(a)(1).
---------------------------------------------------------------------------
The Bureau has determined that the best reading of the statute is
that section 701(a) of ECOA does not include effects-based language.
The Bureau concludes that ``on the basis of'' does not refer to the
effects of an action and notes that ECOA does not contain any language
like ``otherwise make unavailable'' or ``otherwise adversely affect''
that refers to the effects of actions and thereby suggests that
disparate-impact claims are cognizable.
Some commenters pointed to other statutes like the ADA and the EPA
that use ``on the basis of'' or similar language and claimed that they
have been interpreted to authorize disparate-impact liability. However,
as discussed in more detail below, those statutes have significant
differences and therefore are of limited value in interpreting ECOA's
language.
Several commenters maintained that the ADA has similar language to
ECOA and has been interpreted to authorize disparate-impact liability,
which they claimed supports construing ECOA to
[[Page 21631]]
authorize disparate-impact liability. Two commenters noted that both
title I and title III of the ADA, which apply to employment and public
accommodations, respectively, prohibit discrimination ``on the basis
of'' a disability and have been interpreted to authorize disparate-
impact liability. However, as those commenters acknowledged, both title
I and title III include effects-based language. For example, title I
provides that ``discriminat[ing] against a qualified individual on the
basis of disability'' includes utilizing standards ``that have the
effect of discrimination on the basis of disability.'' \66\ Among other
things, title III prohibits utilizing standards or criteria or methods
of administration ``that have the effect of discriminating on the basis
of disability.'' \67\ By contrast, ECOA does not have any effects-based
language.
---------------------------------------------------------------------------
\66\ See 42 U.S.C. 12112(b)(3)(A).
\67\ See 42 U.S.C. 12182(b)(1)(D).
---------------------------------------------------------------------------
Several commenters claimed that title II of the ADA, which covers
public services, uses similar language to ECOA and has been interpreted
to authorize disparate-impact liability. Title II provides that ``no
qualified individual with a disability shall, by reason of such
disability, be excluded from participation in or be denied the benefits
of the services, programs, or activities of a public entity, or be
subjected to discrimination by any such entity.'' \68\ The commenters
noted that title II specifies that the remedies, procedures, and rights
set forth in the Rehabilitation Act of 1973 are the remedies,
procedures, and rights for any person alleging discrimination ``on the
basis of disability'' in violation of title II of the ADA.\69\ The
commenters claimed that the Rehabilitation Act has been interpreted to
authorize disparate-impact liability and that title II therefore should
also be construed to authorize disparate-impact liability. They
maintain that, because title II, like ECOA, uses ``on the basis of''
language, ECOA should likewise be interpreted to authorize disparate-
impact liability. However, this argument suffers from significant
weaknesses. The Supreme Court has never held that the Rehabilitation
Act authorizes disparate-impact liability. Rather, the Supreme Court
``assume[d] without deciding'' that the Rehabilitation Act ``reaches at
least some conduct that has an unjustifiable impact upon the
handicapped.'' \70\ Later Supreme Court cases have raised serious
doubts about whether the Rehabilitation Act does in fact authorize
disparate-impact liability. The Rehabilitation Act was patterned after
title VI of the Civil Rights Act of 1964, which prohibits exclusion
from participation in, denial of benefits of, and discrimination under
federally assisted programs ``on ground of'' race, color, or national
origin.\71\ In Alexander v. Sandoval, the Supreme Court held that title
VI does not authorize disparate-impact liability, which raises serious
questions about whether the Rehabilitation Act--and title II of the
ADA--should be construed to authorize disparate-impact liability.\72\
Moreover, even if the Rehabilitation Act, and by extension, title II of
the ADA, were construed to authorize disparate-impact liability, title
II of the ADA specifically provides in its statutory text that its
remedies, procedures, and rights are the same as those of the
Rehabilitation Act.\73\ By contrast, the statutory text of ECOA does
not provide that it should be construed similarly to another statute
(like title VII of the Civil Rights Act of 1964) that authorizes
disparate-impact liability. Finally, as noted above, the ADA features
multiple examples of effects-based language in other provisions, while
ECOA does not have any such language.
---------------------------------------------------------------------------
\68\ 42 U.S.C. 12132.
\69\ 42 U.S.C. 12133.
\70\ Alexander v. Choate, 469 U.S. 287, 299 (1985).
\71\ 42 U.S.C. 2000d.
\72\ 532 U.S. 275, 280-81 (2001). Lower courts have reached
different conclusions about what Sandoval means for disparate-impact
liability under the Rehabilitation Act and title II of the ADA.
Compare Doe v. BlueCross BlueShield of Tenn., Inc., 926 F.3d 235,
241-242 (6th Cir. 2019) (holding that section 504 of Rehabilitation
Act does not authorize disparate-impact liability), with Payan v.
L.A. Cmty. Coll. Dist., 11 F.4th 729, 738 (9th Cir. 2021) (holding
that title II of the ADA authorizes disparate-impact liability).
\73\ See 42 U.S.C. 12133.
---------------------------------------------------------------------------
Claims that the EPA supports finding that ECOA authorizes
disparate-impact liability are similarly unpersuasive. The EPA has a
very different statutory structure from ECOA. The EPA specifies
precisely what it means under the statute to discriminate ``on the
basis of sex,'' i.e., paying wages at a rate less than those paid to
employees of the opposite sex for equal work on jobs which require
equal skill, effort and responsibility, and which are performed under
similar working conditions, unless one of the specific exceptions
applies.\74\
---------------------------------------------------------------------------
\74\ See 29 U.S.C. 206(d)(1).
---------------------------------------------------------------------------
The Bureau also concludes that the difference in language between
section 701(a)(1) and 701(a)(2) and (3) (``on the basis of'' compared
to ``because'') does not support interpreting section 701(a) to
authorize disparate-impact liability. While differences in statutory
language may suggest congressional intent that those provisions have
different meanings, the use of ``on the basis of'' as opposed to
``because'' in section 701 appears more likely to be based on
grammatical reasons rather than an intent to convey different meanings
about the scope of liability under ECOA.\75\ Moreover, in Griggs, which
preceded ECOA's drafting, the Supreme Court found that language
prohibiting discrimination ``because of'' certain characteristics
authorized disparate impact, using the phrases ``on the basis of'' and
``because of'' without apparent distinction. Thus, the argument that
section 701(a)(1) of ECOA should be interpreted to authorize disparate-
impact liability because it uses ``on the basis of'' rather than
``because'' (as in section 701(a)(2) and (3)) is not persuasive. As
discussed above, the Bureau concludes that the key consideration,
emphasized by the Supreme Court, is whether the statute includes
effects-based language. The Bureau concludes that, in the absence of
effects-based language, ECOA's prohibition on discrimination on the
basis of protected classes does not authorize disparate-impact
liability.
---------------------------------------------------------------------------
\75\ In particular, it would be awkward grammatically to use
``on the basis of'' in section 701(a)(2) and (a)(3) to describe
discrimination arising because the applicant's income derives from
any public assistance program or because the applicant has in good
faith exercised rights under ECOA.
---------------------------------------------------------------------------
Some commenters stated that the absence of effects-based language
in section 701(a) is not dispositive and maintained that ECOA should be
interpreted to reach disparate impact. Conversely, one industry
commenter noted that certain statutes containing language like that
found in section 701(a) have been construed by courts as reaching only
disparate treatment.
As the Bureau recognized in the proposed rule, the Supreme Court in
Inclusive Communities held that, like section 804(a), section 805(a) of
the FHA also authorizes disparate-impact claims, even though section
805(a) itself does not include any effects-based language.\76\ In the
proposed rule, the Bureau noted that the Supreme Court provided limited
explanation for concluding that section 805(a) authorizes disparate-
impact claims, noting only that it has construed statutory language
like section 805(a) to include disparate-impact liability, citing
[[Page 21632]]
Board of Education of City School District of New York v. Harris, 444
U.S. 130 (1979). The Bureau explained that because the Court provided
no meaningful analysis of the statutory language of section 805(a) in
Inclusive Communities, the case provides little insight into how that
holding should apply to ECOA, if at all. The Bureau therefore
determined that in the absence of such guidance it was necessary to
rely on the analysis in Harris to inform the Bureau's interpretation of
ECOA, consistent with the Court's approach in Inclusive Communities.
---------------------------------------------------------------------------
\76\ 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
U.S.C. 3605(a).
---------------------------------------------------------------------------
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.''
\77\ 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.'' \78\ 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.\79\ 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.
---------------------------------------------------------------------------
\77\ Emergency School Aid Act, Pub. L. 89-10, sec. 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 Pub. L.
95-561, tit. VI, sec. 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).
\78\ Harris, 444 U.S. at 138-39.
\79\ Id. at 138.
---------------------------------------------------------------------------
As the Bureau explained in the proposed rule, 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 Act's
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
based on certain characteristics. As a result, the Bureau has
determined that section 701(a) does not authorize disparate-impact
claims.
The Bureau explained in the proposed rule that 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 determined 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. The
Bureau preliminarily determined that when 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 such liability.
A policy group commenter opposed to the proposed rule stated that
the Bureau's preliminary conclusion rests on a misreading of Harris and
that the case is inapposite for interpreting ECOA. The Bureau does not
agree with this commenter for the reasons explained above, and more
generally does not agree with commenters who argued that because the
Court in Inclusive Communities held that FHA section 805(a) gives rise
to disparate-impact claims, it follows that ECOA section 701(a) must as
well. The Supreme Court has carefully evaluated whether
antidiscrimination laws encompass disparate-impact liability on a case-
by-case basis; the Court has never pronounced that every
antidiscrimination statute containing certain terminology authorizes
disparate-impact liability. While some commenters asserted that section
701(a) of ECOA and section 805(a) of the FHA feature similar language,
the Court in Inclusive Communities noted only that it has previously
construed (in Harris) statutory language like that found in section
805(a) to include disparate-impact liability. The Court in Harris, of
course, did not analyze ESAA in a vacuum; after finding the language
ambiguous, it evaluated additional factors such as structure and
context to inform its analysis of the pertinent language. And the
Bureau has determined that section 805, like ESAA, also contains
closely connected language suggesting disparate-impact liability lies
under that section--and this type of language is wholly absent from
ECOA.
When analyzing the relevance of exemptions to liability under the
FHA, the Court in Inclusive Communities noted a specific exemption for
real-estate appraisers--section 805(c) of the FHA. Earlier, in Smith v.
City of Jackson, a plurality of the Supreme Court had determined that
section 4(a)(2) of the ADEA \80\ also authorized disparate-impact
claims based in part on the presence of the ADEA's reasonable-factor-
other-than-age (RFOA) provision--section 4(f)(1) of the ADEA--which the
plurality explained ``plays its principal role by precluding liability
if the adverse impact was attributable to a nonage factor that was
`reasonable.' '' \81\ Inclusive Communities noted that in Smith ``the
RFOA provision would be simply unnecessary to avoid liability under the
ADEA if liability were limited to disparate-treatment claims,'' \82\
and explained that ``[a] similar logic applies [to section 805]. If a
real-estate appraiser took into account a neighborhood's schools, one
could not say the appraiser acted because of race. And by embedding
[805](c)'s exemption in the statutory text, Congress ensured that
disparate-impact liability would not be allowed either.'' \83\ As the
Court explained, ``the exemption from liability for real-estate
appraisers is in the same section as
[[Page 21633]]
Sec. 805(a)'s prohibition of discriminatory practices in real-estate
transactions, thus indicating Congress' recognition that disparate-
impact liability arose under Sec. 805(a).'' \84\
---------------------------------------------------------------------------
\80\ 29 U.S.C. 623(a)(2).
\81\ 544 U.S. 228, 239 (2005).
\82\ 576 U.S. 519, 539 (2015) (internal quotation marks
omitted).
\83\ Id.
\84\ Id. at 538 (emphases added).
---------------------------------------------------------------------------
As explained above and as several commenters noted, section 701(a)
of ECOA lacks any effects-based language. In Inclusive Communities the
Court explained that the presence of this kind of language in the FHA
was of ``central importance'' to its analysis of that statute.\85\
Although section 805(a) of the FHA lacks such effects-based language,
the Court determined that both Harris and the presence of section
805(c) suggested that disparate impact should nevertheless apply under
section 805(a). Unlike the FHA, ECOA does not contain any effects-based
language nor any exemptions from liability for conduct that would
otherwise constitute disparate impact. Absent effects-based language or
any textual signal in section 701 suggesting that Congress contemplated
disparate-impact liability under ECOA, the Bureau has determined that
the reasons for the Court's construction of section 805(a) of the FHA
as authorizing disparate-impact liability are wholly absent here.
---------------------------------------------------------------------------
\85\ Id. at 534.
---------------------------------------------------------------------------
To be sure, section 701 contains several exemptions from liability.
But none of these exemptions, unlike the exemption in section 805 of
the FHA, support interpreting ECOA to authorize disparate-impact
liability. Section 701(b)'s exemptions protect a creditor from
liability for conduct that would otherwise constitute disparate
treatment (or, at most, possible evidence of disparate treatment). And
section 701(c)'s exemptions have been interpreted by the relevant
agencies in a manner consistent with a construction of ECOA that
prohibits only disparate treatment.
Section 701(b) of ECOA provides that it ``shall not constitute
discrimination'' for a creditor to engage in certain specified acts.
Section 701(b)(3), for instance, permits creditors ``to use any
empirically derived credit system which considers age if such system is
demonstrably and statistically sound . . . .'' \86\ Age is a prohibited
basis under ECOA, so if a creditor refuses to extend credit based on an
applicant's age, then there is disparate-treatment liability (provided
the applicant has the capacity to contract). Other provisions permit
creditors to make certain inquiries about an applicant's prohibited
basis characteristics without running afoul of ECOA. For instance,
section 701(b)(1) allows a creditor ``to make an inquiry of marital
status if such inquiry is for the purpose of ascertaining the
creditor's rights and remedies applicable to the particular extension
of credit and not to discriminate in a determination of credit-
worthiness.'' \87\ Marital status is also a prohibited basis under
ECOA, so if a creditor discriminates against an applicant based on the
applicant's marital status then there is disparate-treatment liability.
---------------------------------------------------------------------------
\86\ 15 U.S.C. 1691(b)(3).
\87\ 15 U.S.C. 1691(b)(1).
---------------------------------------------------------------------------
The exceptions in section 701(b) of ECOA shield creditors from
liability for intentional discrimination. Section 701(b) of ECOA is
thus unlike section 805(c) of the FHA, which provides that it is not a
violation of the FHA if a person engaged in the business of furnishing
appraisals of real property takes into consideration factors other than
race, color, religion, national origin, sex, handicap, or familial
status. If such a person were to take into consideration anything other
than a prohibited basis under the FHA, that could lead to liability
only if the statute allowed disparate-impact claims in the first
place.\88\ Thus, section 805(c) shields persons from liability for
conduct that could otherwise give rise to disparate-impact liability
under the FHA. If disparate-impact claims were not cognizable under the
FHA, section 805(c) would be meaningless. Section 701(b) of ECOA is
different. Section 701(b) provides, essentially, that a creditor may
consider or inquire about a prohibited basis under limited
circumstances. Without section 701(b), such conduct could give rise to
disparate-treatment liability only--not disparate impact. Even under an
interpretation of section 701(a) that provides for disparate-treatment
liability only, section 701(b) still plays a meaningful role.
---------------------------------------------------------------------------
\88\ To be sure, the exemption was added well after Congress
originally enacted section 805.
---------------------------------------------------------------------------
One policy group commenter argued that section 701(b)(1) and (2) of
ECOA are only consistent with an interpretation of section 701(a) that
allows for cognizability of both disparate-treatment and disparate-
impact claims. The commenter noted these provisions allow a creditor to
inquire about an applicant's marital status, age, or income, but only
for a specified purpose, without violating section 701(a). This
commenter stated that the provision forbids collecting this information
for any non-specified but ``neutral purposes'' and that the only reason
section 701(b) forbids such an inquiry is because it may result in a
discriminatory effect. This argument appears to rest on a
misunderstanding of how the exemptions in section 701(b) relate to
evidence of disparate treatment and evidence of disparate impact. A
policy or practice is considered facially neutral for purposes of
disparate-impact analysis because it does not involve treating
applicants differently on a prohibited basis--e.g., age--but it
nevertheless results in a disproportionately adverse impact on a
prohibited basis group (like the elderly). But if a creditor makes an
inquiry about an applicant's marital status, age, or income--even for a
non-specified purpose--then that is direct evidence the creditor may
have considered a prohibited basis.\89\ Typically, direct consideration
of a prohibited basis as part of evaluating a credit application would
violate section 701(a) as disparate treatment. Inquiring about and
considering marital status, age, or the receipt of public assistance
income is not facially neutral as to prohibited bases. But as section
701(b)(1) and (2) makes clear, there may be legitimate, non-
discriminatory reasons for creditors to collect and consider such
information. Thus, in order to ensure that creditors remain able to
gather and use certain information that directly implicates prohibited
bases, section 701(b)(1) and (2) expressly shields creditors from
disparate-treatment liability for doing so.
---------------------------------------------------------------------------
\89\ Cf. Venters v. City of Delphi, 123 F.3d 956, 973 (7th Cir.
1997) (``[R]emarks and other evidence that reflect a propensity by
the decisionmaker to evaluate employees based on illegal criteria
will suffice as direct evidence of discrimination even if the
evidence stops short of a virtual admission of illegality. Proof of
this nature supports the inference that a statutorily proscribed
factor--race, sex, age, or in this case, religion--was at least a
motivating factor in the adverse employment action at issue.'')
(citations omitted).
---------------------------------------------------------------------------
Section 701(c) provides that a creditor does not violate ECOA by
refusing to extend credit pursuant to certain kinds of credit programs.
For instance, section 701(c)(1) provides that ``[i]t is not a violation
of [section 701] for a creditor to refuse to extend credit offered
pursuant to'' ``any credit assistance program expressly authorized by
law for an economically disadvantaged class of persons.'' \90\ Section
701(c)(2) provides that ``[i]t is not a violation of [section 701] for
a creditor to refuse to extend credit offered pursuant to'' ``any
credit assistance program administered by a nonprofit organization for
its members or an economically disadvantaged class of persons.'' \91\
And section 701(c)(3) provides that ``[i]t is not a violation of
[section 701] for a creditor to refuse to
[[Page 21634]]
extend credit offered pursuant to'' ``any special purpose credit
program offered by a profit-making organization to meet special social
needs . . . .'' \92\
---------------------------------------------------------------------------
\90\ 15 U.S.C. 1691(c)(1).
\91\ 15 U.S.C. 1691(c)(2).
\92\ 15 U.S.C. 1691(c)(3). The Bureau is finalizing as proposed
changes to the Regulation B provisions implementing section
701(c)(3). See part III.D.
---------------------------------------------------------------------------
While the provisions in section 701(c) do not use prohibited basis
language themselves, both the Board and the Bureau have interpreted
this language in a manner consistent with disparate treatment. From the
start, the Board interpreted section 701(c) as ``allow[ing] a creditor
offering certain special credit assistance programs to refuse to extend
credit on a prohibited basis without violating'' ECOA.\93\ Refusing to
extend credit on a prohibited basis would, absent section 701(c), be
disparate treatment. The Bureau's rules under Regulation B have long
reflected this, expressly stating that ``program participants may be
required to share one or more common characteristics'' that are
otherwise prohibited bases under 701(a).\94\ Programs along those lines
would, absent an exemption, result in disparate-treatment liability.
Accordingly, section 701(c) is entirely consistent with interpreting
ECOA as authorizing only disparate-treatment claims and not disparate-
impact claims.
---------------------------------------------------------------------------
\93\ 41 FR 29870, 29875 (July 20, 1976) (emphasis added).
\94\ 12 CFR 1002.8(b)(2).
---------------------------------------------------------------------------
None of the exceptions in section 701(b) or (c) play any role in
shielding creditors from disparate-impact liability, so they do not
suggest that ECOA authorizes such liability in the first place. Given
that none of the exemptions in section 701 signal that disparate impact
should be available under the Act, the Bureau has determined that
Inclusive Communities and Harris do not suggest that ECOA must be
interpreted to reach disparate impact.
One commenter noted that section 701(a) of ECOA makes it unlawful
for a creditor to discriminate against any applicant on a prohibited
basis; this commenter stated that because similar language has been
found by the Supreme Court to give rise to disparate-impact liability,
the Bureau must conclude section 701(a) does as well. A policy group
commenter stated that the term ``discriminate'' is broad enough to be
understood as being compatible with both disparate treatment as well as
disparate impact. If the mere presence of the term ``discriminate'' in
an antidiscrimination statute, without more, suffices to authorize
disparate-impact claims, then virtually every antidiscrimination
statute would authorize disparate-impact liability and would not
require individualized review by the courts to determine whether
disparate impact is cognizable under a particular antidiscrimination
law. This would transform the legal landscape from one where Congress
deliberately and cautiously--using specific language--authorizes
disparate-impact liability under certain statutory regimes, to one
where disparate impact lies under virtually all antidiscrimination
statutes. Inclusive Communities demonstrates that, at least in some
contexts, an antidiscrimination statute lacking effects-based language
may be susceptible to a more capacious interpretation, such as where
either textual signals or closely related effects-based language
indicates the provision should be construed in such a fashion, and
where that construction is consistent with statutory purpose. But the
Bureau has determined that with respect to ECOA--which lacks any such
signals or closely related language--the best reading is that the Act
does not permit a disparate-impact claim. This interpretation, as
explained below, is also consistent with ECOA's purpose.
Some commenters noted that section 706(b) of ECOA specifically
provides that one factor in calculating punitive damages under the Act
is ``the extent to which the creditor's failure of compliance was
intentional.'' \95\ Commenters stated that this language could be read
as contemplating scenarios in which a creditor's noncompliance with
ECOA is unintentional. One commenter stated that if ECOA is interpreted
as reaching only disparate treatment then section 706(b) would be
superfluous. The Bureau does not agree with the commenters who stated
that section 706(b) requires interpreting ECOA to permit disparate-
impact liability. This language is entirely consistent with an
interpretation of ECOA that encompasses only a disparate-treatment
cause of action. The ``extent to which the creditor's failure of
compliance was intentional'' might simply cover varying degrees of
intentional conduct (e.g., purposeful, knowing). Indeed, courts have
interpreted section 706(b) as allowing for punitive damages ``if the
creditor's conduct is adjudged wanton, malicious or oppressive, or if
it is deemed to have acted in reckless disregard of the applicable
law.'' \96\ But even reckless disregard for the law is a form of
intentional behavior.\97\ The Bureau has determined that the best
interpretation of ECOA is that it does not authorize disparate-impact
claims, and the Bureau now determines that this interpretation is
entirely consonant with the Act's punitive damages provision.
---------------------------------------------------------------------------
\95\ 15 U.S.C. 1691e(b).
\96\ Fischl v. Gen. Motors Acceptance Corp., 708 F.2d 143, 148
(5th Cir. 1983).
\97\ Disregard, Black's Law Dictionary (9th ed. 2009)
(``Conscious indifference to the consequences of an act.'').
---------------------------------------------------------------------------
As noted above, several commenters stated that even if ECOA does
not contain effects-based language, other factors, including the
statutory purpose, the legislative history, and longstanding judicial
and agency interpretations all support the conclusion that ECOA
authorizes disparate-impact liability. Some commenters maintained that
the Supreme Court has never held that effects-based language is
necessary to authorize disparate-impact liability and that the Supreme
Court has considered other factors, including the statutory purpose and
legislative history, to determine that antidiscrimination statutes
authorize disparate-impact liability. Other commenters, however, argued
that the Bureau need not consider the statutory purpose or legislative
history because ECOA does not contain effects-based language and
therefore does not authorize disparate-impact liability.
The Bureau concludes that the text is crucial for interpreting the
statute and, in the absence of effects-based language or other textual
signals indicating that disparate-impact liability is cognizable, the
Bureau determines that the best reading is that ECOA does not authorize
disparate-impact liability. As the Supreme Court found in Inclusive
Communities, effects-based language like ``otherwise make available''
in the FHA, is of ``central importance'' in analyzing whether
disparate-impact liability is authorized under a particular
antidiscrimination statute.\98\ ECOA does not contain any such
language.
---------------------------------------------------------------------------
\98\ 576 U.S. at 534.
---------------------------------------------------------------------------
Although the Bureau has determined that, in light of the statutory
language, it is not necessary to consider other factors, including the
statutory purpose of ECOA, the Bureau also concludes that interpreting
ECOA as not authorizing disparate-impact claims is consistent with the
statutory purposes of ECOA. As noted above in part II.A, ECOA was
adopted to ensure that various financial institutions and other firms
engaged in the extension of credit exercise their responsibility to
make credit available with fairness, impartiality, and without
discrimination on the basis of prohibited characteristics. One
[[Page 21635]]
commenter stated that this language indicates that Congress was
concerned with the effects of creditors' actions. Several commenters
maintained that the Supreme Court relied in part on the broad remedial
purposes of title VII and the FHA to find that those statutes
authorized disparate-impact liability, and they argued that ECOA has a
similarly broad remedial purpose that supports the conclusion that ECOA
authorizes disparate-impact liability. Other commenters, however,
argued that disparate-impact liability is not consistent with the
purposes of ECOA, maintaining that disparate-impact liability
incentivizes overly conservative credit policies and may cause some
creditors to consider prohibited basis characteristics in developing
policies and procedures in order to avoid potential disparate-impact
liability. The Bureau, in exercising its expertise, is concerned that
disparate-impact liability may lead some creditors to consider how
potential policies and procedures could affect protected classes and
avoid adopting certain policies and procedures, even if they may
generally expand access to credit because of prohibited
characteristics, because of concerns about potential disparate-impact
liability. Indeed, several commenters indicated that Regulation B's
current framework, which based on legislative history concludes that
ECOA authorizes disparate-impact liability, may deter creditors from
developing innovative policies because of concerns about how those
policies may affect protected classes.
As noted above, several commenters stated that the legislative
history of ECOA provides strong evidence that Congress intended ECOA to
authorize disparate-impact liability. The Board, when initially
promulgating Regulation B, solely relied on the legislative history of
ECOA for evidence of congressional intent that disparate-impact claims
may be cognizable under ECOA. As the Bureau noted in the proposed rule,
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.\99\ The Bureau determines,
therefore, that the evidence from the legislative history is
insufficient to support interpreting ECOA to authorize disparate-impact
liability, given the statutory language and the absence of effects-
based language in section 701 or anywhere else in ECOA.
---------------------------------------------------------------------------
\99\ 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.'').
---------------------------------------------------------------------------
Several commenters also stated that the Board, the Bureau, other
Federal agencies, and lower Federal courts have long interpreted ECOA
to authorize disparate-impact liability and that these longstanding
interpretations support construing ECOA as authorizing disparate-impact
claims. As noted above, the interpretations of the agencies with
primary authority to administer ECOA are based solely on the
legislative history of ECOA. The Supreme Court has never determined
that an anti-discrimination statute authorizes disparate-impact
liability based solely on the legislative history. Two Courts of
Appeals have assumed without deciding that ECOA authorizes disparate-
impact liability; \100\ two others have found that ECOA authorizes
disparate-impact liability, but the decisions provide only limited
discussion and do not analyze the statutory text.\101\ To the extent
they include any analysis, the district court decisions finding that
ECOA authorizes disparate-impact liability do not closely analyze the
text of the statute and do not fully consider Supreme Court decisions
emphasizing the importance of the presence or absence in the statute of
effects-based language or other textual signals indicating that
disparate-impact liability is authorized.\102\ In light of the
statutory language of ECOA, the Bureau concludes that these
interpretations are not sufficient to support construing ECOA as
authorizing disparate-impact liability, given the statutory language
and the absence of effects-based language in ECOA or other textual
signals indicating that ECOA authorizes disparate-impact liability.
---------------------------------------------------------------------------
\100\ See Garcia v. Johanns, 444 F.3d 625, 633 n.9 (D.C. Cir.
2006); Midkiff v. Adams Cnty. Reg'l Water Dist., 409 F.3d 758, 771-
72 (6th Cir. 2005). Notably, the D.C. Circuit underscored the
absence of effects-based language in ECOA. See Garcia, 444 F.3d at
633 n.9. The Sixth Circuit noted that it was not attempting to
``resolve complex statutory questions'' presented by construing
whether ECOA authorized disparate-impact liability. See Midkiff, 409
F.3d at 772.
\101\ See Bhandari v. First Nat'l Bank of Com., 808 F.2d 1082,
1101 (5th Cir. 1987), vacated and remanded on other grounds, 492
U.S. 901 (1989); Miller v. Am. Express Co., 688 F.2d 1235, 1239-40
(9th Cir. 1982).
\102\ See, e.g., Ramirez v. GreenPoint Mortg. Funding, Inc., 633
F.Supp.2d 922, 926-27 (N.D. Cal. 2008) (finding that Smith does not
itself bar disparate impact claims under ECOA).
---------------------------------------------------------------------------
Several commenters also claimed that Congress was aware of judicial
interpretations that ECOA authorized disparate-impact liability when it
later amended ECOA and that, by electing not to amend ECOA to alter
that understanding, Congress effectively ratified judicial
interpretations that ECOA authorizes disparate-impact liability. In
Inclusive Communities, the Supreme Court noted that the existence of
disparate-impact liability under the FHA is supported by the fact that,
at the time the FHA was amended, all nine Courts of Appeals to have
addressed the question had concluded that the FHA authorized disparate-
impact liability.\103\ However, as noted above, with respect to ECOA,
fewer Courts of Appeals have addressed the issue and those that have
either assumed without deciding that ECOA authorized disparate-impact
liability or provided only limited analysis. Moreover, subsequent
amendments to ECOA provide little, if any, evidence that Congress's
failure to amend ECOA to include a provision specifically stating that
it does not authorize disparate-impact liability means that Congress
approves of lower courts' statutory interpretation.\104\ The Bureau
concludes that the statutory language should be the primary basis for
interpreting the statute. Arguments about how a later Congress may have
viewed the statutory meaning in light of lower court decisions are
insufficient to overcome the best reading of the statutory language.
---------------------------------------------------------------------------
\103\ 576 U.S. at 536-37.
\104\ See AMG Cap. Mgmt. v. Fed. Trade Comm'n, 593 U.S. 67, 81
(2021) (noting that ``when Congress has not comprehensively revised
a statutory scheme but has made only isolated amendments, it is
impossible to assert with any degree of assurance that congressional
failure to act represents affirmative congressional approval of a
court's statutory interpretation'') (citation and internal quotation
marks omitted).
---------------------------------------------------------------------------
The Bureau concludes that any reliance interests in the existing
regulatory interpretation permitting disparate-impact liability do not
outweigh revising Regulation B to bring it into alignment with the
statutory text. Several commenters argued that the
[[Page 21636]]
Bureau did not adequately consider the reliance interests in Regulation
B's current interpretation authorizing disparate-impact claims. They
maintained that consumers have reliance interests in a regime that
deters facially neutral policies that have disparate effects and that
creditors have reliance interests in their compliance systems and
policies and procedures, which have been adopted consistent with
longstanding regulatory interpretations. State Attorneys General
commenters also stated that State and local governments have reliance
interests in a strong Federal enforcement mechanism to address
discrimination in credit markets. Another commenter, however, stated
that any reliance interests in the existing interpretation of
Regulation B are outweighed by the need to revise the rule to make it
consistent with the statutory text of ECOA. The Bureau concludes that
the need to align Regulation B with ECOA's statutory language is
paramount and that any reliance interests in the Regulation B
interpretation of ECOA---impact claims are insufficient compared with
the importance of conforming Regulation B to the statutory language.
Consumers will remain protected under ECOA from disparate treatment,
including facially neutral policies and procedures that creditors adopt
as proxies for intentional discrimination. State and local governments
will continue to be able to rely on ECOA's disparate treatment
protections and other antidiscrimination protections. Although
creditors may have to revise their policies and procedures, they will
have greater flexibility to adopt facially neutral policies and
procedures.
Several commenters maintained that disparate-impact liability under
ECOA is crucial for addressing discrimination in the credit markets.
They stated that disparate-impact is particularly important in
addressing discrimination in certain circumstances where establishing
intentional discrimination is especially challenging, including for
automated credit models (specifically AI-driven models), indirect auto
lending, and mortgage lending. The Bureau notes that ECOA will continue
to provide important protections against discrimination in the credit
markets and that, under disparate-treatment claims, facially neutral
policies may still violate the law if they are proxies or pretexts for
discrimination on a prohibited basis. In addition, the Bureau notes
that disparate-impact liability may have the effect of increasing the
burdens on AI developers and users, which could impair the use of AI-
driven models to expand credit access. Nevertheless, to the extent that
the best reading of the statutory language means that ECOA does not
authorize disparate-impact liability, the fact that neutral policies
and procedures resulting in a disparate impact on a prohibited basis
will not give rise to liability under the Act is a choice of Congress
and a necessary result of aligning Regulation B with the language of
the statute.
In the proposed rule, the Bureau noted concerns about the
constitutionality of disparate-impact liability as to certain ECOA-
protected classes. Several consumer advocate commenters and State
Attorneys General commenters stated that interpreting ECOA to authorize
disparate-impact liability does not raise constitutional concerns.
These commenters noted that the Supreme Court has found that several
antidiscrimination statutes authorize disparate-impact liability and do
not present constitutional issues. Some of these commenters noted that
the case cited by the Bureau, Students for Fair Admissions, Inc. v.
President & Fellows of Harvard College, 600 U.S. 181 (2023), involves
race-based university admissions and does not address disparate-impact
liability. Some of these commenters stated that credit application is
not a zero-sum situation and that disparate-impact liability does not
require creditors to prefer certain members of protected classes over
other applicants. However, other commenters, including some policy
group and industry commenters, maintained that disparate-impact
liability pressures creditors to consider race and other factors in
their decision-making. They maintained that concerns about disparate-
impact liability incentivize creditors to engage in balancing of race
and other factors to minimize disparities, raising equal protection
concerns.
The Bureau remains concerned that disparate-impact liability raises
constitutional concerns to the extent it requires creditors to engage
in balancing of race and other constitutionally suspect factors in
order to minimize the risk of disparate-impact liability. As a general
matter, members of the Supreme Court, as well as other commentators,
have identified serious infirmities in the very assumptions upon which
disparate-impact theory rests.\105\ The Supreme Court recently
emphasized that ``the Equal Protection Clause . . . applies without
regard to any differences of race, of color, or of nationality--it is
universal in its application'' and the ``guarantee of equal protection
cannot mean one thing when applied to one individual and something else
when applied to [another].'' \106\ But where a facially neutral, even-
handedly applied policy ``would have a disparate impact, a decision-
maker is often compelled to act intentionally on the basis of
[protected class status] to avoid the disparate impact, thus disparate
impact regulations require decision makers `to evaluate the [ ]
outcomes of their policies, and to make decisions based on (because of)
those [ ] outcomes.' '' \107\ With respect to ECOA, creditors looking
to avoid the risk of disparate-impact liability are compelled to
conduct fair lending analyses with respect to their policies,
underwriting, pricing, and marketing to consider an applicant's
protected class status and potentially change unintended disparate
outcomes. Disparate-impact liability encourages and, in some cases, may
require covered entities to engage in the intentional use of balancing
to eliminate disparate outcomes by treating individuals based on
constitutionally implicated characteristics (such as race, national
origin, or sex) differently from others similarly situated--the exact
conduct the Equal Protection Clause forbids.\108\ The Bureau's finding
that the statutory language of ECOA does not encompass disparate-impact
liability appropriately avoids such constitutional concerns.
---------------------------------------------------------------------------
\105\ E.g., Ricci v. DeStefano, 557 U.S. 557, 594-96 (2009)
(Scalia, J., concurring) (``Title VII's disparate-impact provisions
place a racial thumb on the scales, often requiring employers to
evaluate the racial outcomes of their policies, and to make
decisions based on (because of) those racial outcomes.''); Inclusive
Communities, 576 U.S. at 554 (Thomas, J., dissenting) (``We should
not automatically presume that any institution with a neutral
practice that happens to produce a racial disparity is guilty of
discrimination until proved innocent.''); Alison Somin, Disparate
Impact as a Non-Delegation Violation and Major Question, 2024
Harvard J. Pub. Pol'y Per Curium 18.
\106\ Students for Fair Admissions, Inc., 600 U.S. at 206
(internal quotation marks omitted) (first quoting Yick Wo v.
Hopkins, 118 U.S. 356, 369 (1886); and then quoting Regents of the
Univ. of Cal. v. Bakke, 438 U.S. 265, 289-90 (1978) (Powell, J.)).
\107\ Louisiana v. EPA, 712 F. Supp. 3d 820, 843 (W.D. La. 2024)
(quoting Ricci, 557 U.S. at 595-96 (Scalia, J., concurring))
(citation omitted).
\108\ Students for Fair Admissions, Inc., 600 U.S. at 206.
---------------------------------------------------------------------------
The Bureau is finalizing as proposed changes to Regulation B
reflecting its determination that, pursuant to the best reading of
section 701(a) of ECOA, disparate-impact claims are not cognizable
under the Act. Several commenters supported the proposed rule but
requested that the Bureau provide clarification on certain issues. A
few commenters requested that the Bureau, if it finalized the proposed
[[Page 21637]]
rule's changes to Regulation B regarding disparate impact, also clarify
that creditors may continue to use proxy analysis to assess the
demographic makeup of their applicant pool to evaluate their compliance
with ECOA. Other commenters requested that the Bureau, if it finalized
the proposed rule, clarify that creditors will retain flexibility to
evaluate the demographic impact of their policies and procedures, both
to help inform business and community reinvestment strategies and
because of other Federal and State laws that impose disparate-impact
liability.
The Bureau has determined that the commenters' requests for
clarification do not warrant making modifications to the proposed
rule's amendments to Regulation B. First, several of the requests for
clarification speak to creditors' processes and procedures for ensuring
compliance with either ECOA or other Federal and State laws imposing
disparate-impact liability. The Bureau has determined that, with
respect to addressing concerns related to ECOA compliance, the level of
guidance that would be required to respond to these concerns would
likely be too nuanced and detailed to be appropriate for inclusion in a
regulation. In any event, the Bureau has primary authority for
administering ECOA, but not other Federal or State laws that include a
disparate-impact component. Thus, the Bureau has neither the authority
nor expertise to instruct regulated entities on how to comply with
those other laws.
An industry commenter urged the Bureau, if it finalized the
proposed rule, to prevent circumventions of the regulation by
clarifying that statistical imbalances alone are not a sufficient basis
for establishing disparate treatment under ECOA. Similarly, an industry
commenter requested that the Bureau, if it finalized the proposed rule,
clarify that statistical evidence that a creditor lags peers in
applications or originations does not, standing alone, support a
disparate-treatment claim. Finally, an individual commenter urged the
Bureau, if it finalized the proposed rule, to clarify that while ECOA
does not give rise to a standalone disparate-impact cause of action,
the Bureau may still prohibit practices that are intentionally designed
or applied as proxies for prohibited characteristics.
With respect to these commenters' requests, the Bureau has
determined that it is not necessary to modify the proposed rule's
amendments to Regulation B. These commenters are essentially requesting
that the Bureau opine on the legal sufficiency of a prima facie case of
discrimination under ECOA. Courts are best positioned to render an
opinion on whether certain evidence suffices to establish a prima facie
case of discrimination. Finally, changes to the commentary that the
Bureau is finalizing will make clear that practices that are
intentionally designed or applied as proxies for prohibited
characteristics will remain subject to disparate-treatment liability.
The Bureau has determined that the commenters' various requests for
clarification do not require modifying the proposed amendments to
Regulation B, which the Bureau is now finalizing in this rule.
Finally, one commenter that supported deleting the ``effects test''
language from the existing regulation argued that the Bureau should not
replace it with new text clarifying that section 701(a) does not
support an interpretation of ECOA allowing for disparate-impact
liability. The Bureau disagrees with this commenter with respect to the
need to add new text to Regulation B clarifying that ECOA does not
permit recovery under a disparate-impact theory. While courts are the
ultimate arbiters of statutory interpretation, particularly as to
whether a statute like ECOA authorizes disparate-impact claims, the
Bureau has been charged by Congress with responsibility for prescribing
regulations to carry out the purposes of the Act. Moreover, because
Regulation B contained a contrary interpretation, the Bureau believes
that it is necessary and appropriate to now clarify in Regulation B
that under the best reading of ECOA disparate-impact claims are not
available.
The specific 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 deleting the second sentence and
adding 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
deleting the current text of comment 6(a)-2 for the reasons explained
above and adding 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. For the reasons discussed above, the Bureau is deleting
``effects test'' from the title and deleting the sentence discussing
the effects test and the reference to comment 6(a)-2.
C. Discouragement
Proposed Rule
The Bureau proposed changes to Sec. 1002.4(b) and its accompanying
commentary. These Regulation B provisions proposed to 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
[[Page 21638]]
protect applicants against discriminatory acts occurring before an
application is initiated.'' \109\ Indeed, ECOA section 701(a) prohibits
creditors from discriminating on a prohibited basis against applicants
for credit,\110\ a term the statute defines as a ``person who applies
to a creditor'' for credit.\111\ 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.
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\109\ 40 FR 49298 at 49299.
\110\ 15 U.S.C. 1691(a).
\111\ 15 U.S.C. 1691a(b) (emphasis added).
---------------------------------------------------------------------------
However, as explained in the proposal, the Bureau 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 is not necessary or proper to
prohibit in order 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 finds is necessary and proper given the
purposes of ECOA and facilitating compliance therewith, the Bureau
proposed to revise Sec. 1002.4(b) and its commentary as described
below.\112\
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\112\ In addition to the revisions discussed below, the Bureau
proposed to make two non-substantive changes to comment 4(b)-1. The
Bureau proposed 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 proposed 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 was 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 also preliminarily determined
that, given this potential impact, and in consideration of its
expertise as a regulator in the marketplace, the revisions would
continue to prohibit illegal discouragement of potential applicants
without exceeding that purpose in ways that would impose unnecessary
constraints in the marketplace.
The Bureau's proposal addressed 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. The Bureau
requested comment on the merits of an alternative approach, such as
revising only one or two of these three aspects of Sec. 1002.4(b).
Oral or Written Statement
Section 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.'' Current comment 4(b)-1, the substance of which the
Board added to Regulation B in 1985 as comment 5(a)-1 without
substantive explanation,\113\ states, in part, that the discouragement
prohibition covers ``acts or practices'' by creditors that could
discourage on a prohibited basis a reasonable person from applying for
credit.
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\113\ 50 FR 48018 at 48050.
---------------------------------------------------------------------------
The Bureau proposed to clarify, in Sec. 1002.4(b), that ``oral or
written statement'' means spoken or written words, or visual images
such as symbols, photographs, or videos. That would include any visual
images used in advertising or marketing campaigns. The Bureau also
proposed 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. As a result,
certain business practices, such as business decisions about where to
locate branch offices, where to advertise, or where to engage with the
community through open houses or similar events, would not constitute
prohibited discouragement even if they had some communicative effect
that some consumers could arguably find discouraging. The Bureau
requested comment on the proposed revisions.
Statement to Applicants or Prospective Applicants
Section 1002.4(b) currently 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. 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 proposed to revise Sec. 1002.4(b) to 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. The Bureau proposed to revise comment 4(b)-1 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 the Bureau proposed to redesignate as
comment 4(b)-1.i.B) \114\ would be narrowed to provide an example of a
statement that would constitute prohibited discouragement under the
limitation. As proposed, the revised example provided 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.
---------------------------------------------------------------------------
\114\ The Bureau also proposed to redesignate the other two
examples in current comment 4(b)-1 as comments 4(b)-1.i.A and 4(b)-
1.i.C, without substantive change.
---------------------------------------------------------------------------
The Bureau also proposed to add new comment 4(b)-1.ii.A to provide
an example of a statement that would not constitute prohibited
discouragement. The proposed example provided that statements directed
at a particular group of consumers, encouraging that group of consumers
to apply for credit, do not constitute prohibited discouragement.
Standard for Discouragement
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 determined
in the proposal that Sec. 1002.4(b) had been
[[Page 21639]]
interpreted to apply to scenarios that should not be characterized as
prohibited discouragement under ECOA. These were 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. The Bureau drew a distinction 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 proposed 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.
The Bureau also proposed 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,'' as provided in existing Sec. 1002.4(b), 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 proposed 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 proposed 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 that proposed revision, the Bureau also proposed to
narrow current comment 4(b)-1.ii (proposed comment 4(b)-1.i.B) \115\ to
refer only to statements that express a discriminatory preference or
policy of exclusion.\116\
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\115\ The Bureau mistakenly referred to this as proposed comment
4(b)-1.i.A in the proposal. See 90 FR 50901 at 50908.
\116\ The Bureau discusses other proposed changes to the text of
current comment 4(b)-1.ii above in part III.C, Statement to
applicants or prospective applicants.
---------------------------------------------------------------------------
To facilitate compliance, the Bureau also proposed to add three
examples to the commentary, in new comments 4(b)-1.ii.B through D, 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 were illustrative 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 requested comment on the revisions, including on
whether additional or different examples would be helpful in clarifying
the types of statements that would be permissible under the final rule.
Comment 4(b)-2
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 proposed to strike this comment as unnecessary; no
substantive change was intended. The Bureau requested comment on the
revision.
Technical Revision Related to Prospective Applicants
Consistent with ECOA section 704A, Sec. 1002.15 sets forth
incentives for creditors to self-test for compliance with ECOA and
Regulation B and to correct any issues found.\117\ 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
proposed to strike from Sec. 1002.15(d)(1)(ii) the previous reference
to prospective applicants. This proposed revision would conform the
language of Sec. 1002.15(d)(1)(ii) with the statutory language of ECOA
sections 704A(a)(2) and 706.\118\ No substantive change was intended.
The Bureau requested comment on the revision.
---------------------------------------------------------------------------
\117\ 15 U.S.C. 1691c-1 (Incentives for self-testing and self-
correction).
\118\ 15 U.S.C. 1691c-1(a)(2), 1691e.
---------------------------------------------------------------------------
Comments Received
Generally. Many comments that addressed the proposed revisions to
the definition of discouragement in Sec. 1002.4(b) and its
accompanying commentary, particularly from consumer advocates and
Members of Congress, stated that the proposed revisions would permit
discriminatory lender conduct. Commenters identified populations that
may be most impacted by the amendments to the definition of
discouragement, including minorities, low-income consumers, women,
consumers with disabilities, small business owners, rural consumers,
older adults, and so-called justice-involved individuals. Some
commenters noted that the amendments will cause individuals to self-
select out of applying for credit. Many comments raised concerns that
the proposed revisions will remove tools to prevent and redress
discrimination in particular industries, including mortgage lending,
small business lending, credit cards, small dollar loans, and other
forms of small dollar lending.
One commenter noted an interaction between the discouragement
prohibition and the Home Mortgage Disclosure Act of 1975 (HMDA),\119\
explaining that creditors who want to discriminate illegally will be
incentivized to keep certain types of consumers from applying for
credit because under HMDA, if individuals never apply for credit, the
creditor is not required to report the individual as being denied
credit. State Attorneys General commenters also asserted that the
proposed changes would limit the power of States, which, under the
Dodd-Frank Act, have authority to enforce ECOA and Regulation B.
---------------------------------------------------------------------------
\119\ Public Law 94-200, tit. III, 89 Stat. 1125 (12 U.S.C. 2801
et seq.).
---------------------------------------------------------------------------
As discussed in the proposal, the Bureau preliminarily determined
in its expertise that, in the years since the Board first adopted the
discouragement prohibition, the prohibition has been interpreted to
prohibit conduct that it is not necessary or proper to prohibit in
order to prevent the circumvention or evasion of ECOA's purposes.\120\
The Bureau expressed concern that this, in turn, has had an
unnecessarily chilling effect on creditors' business practices and
exercise of their rights to speak
[[Page 21640]]
about matters of public interest.\121\ The Bureau was also concerned
that the overbroad coverage of the regulation and its potential
interpretations may constrain free speech and commercial activity in
ways that are unwarranted.\122\
---------------------------------------------------------------------------
\120\ 90 FR 50901 at 50907.
\121\ Id.
\122\ Id.
---------------------------------------------------------------------------
Industry commenters agreed that the existing discouragement
regulations are overbroad and have had a chilling effect on lawful
expression by creditors. The comments supported the proposed revisions,
stating that the amendments will achieve the statutory purposes without
prohibiting lawful, non-discriminatory conduct. One commenter noted
that the Bureau's proposed amendments substantially reduce the
potential for the rule to violate creditors' First Amendment rights.
Consumer advocate and State Attorneys General commenters disagreed,
stating that the Bureau's concern that the overly broad and improper
application of the discouragement provision has had a chilling effect
on creditors and may constrain free speech and commercial activity is
unjustified.
Consumer advocate and State Attorneys General commenters stated
that the proposed changes to the discouragement regulations are
inconsistent with the text and purposes of ECOA, and contrary to
congressional intent. One commenter stated that if creditors could
discourage prospective applicants from applying, they could frustrate
the statutory purpose of requiring that financial institutions and
other firms engaged in the extension of credit make that credit equally
available to all creditworthy consumers without regard to prohibited
characteristics. Some commenters pointed to the 1991 amendment of ECOA
and its legislative history as evidence that Congress intended to
prohibit the discouragement of applicants on a prohibited basis and
advertising which implies a discriminatory preference.\123\ The 1991
amendment requires agencies to refer matters to the Attorney General
whenever the agencies have reason to believe that one or more creditors
has engaged in a pattern or practice of discouraging or denying
applications for credit in violation of 15 U.S.C. 1691(a).\124\
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\123\ S. Rep. No. 102-167, at 86 (1991).
\124\ FDIC Improvement Act of 1991, Public Law 102-242, sec.223,
105 Stat. 2236, 2306 (1991) (codified at 15 U.S.C. 1691e(g)).
---------------------------------------------------------------------------
Individuals and consumer advocate commenters also asserted that the
proposed revisions to Sec. 1002.4(b) would not facilitate compliance
with ECOA. Commenters stated that the changes would render ECOA
unworkable and make it unreasonably difficult for anyone to pursue a
claim of discouragement. Consumer advocate and State Attorneys General
commenters claimed that the Bureau did not provide a reasoned analysis
to justify the changes. They stated that the Bureau's preliminary
determination in the proposal that the discouragement provision has
been interpreted to prohibit conduct that it is not necessary or proper
to prohibit is not supported by data, case law, statutory text, or
other legal or factual evidence. One consumer advocate commenter
claimed that the Bureau's use of rulemaking authority limited consumer
rights under ECOA, exceeding the Bureau's statutory rulemaking
authority. Some commenters claimed that the proposed rule was
inconsistent with the Bureau's consumer protection mandate.
Consumer advocate and State Attorneys General commenters also
stated that the proposed changes to the discouragement regulations are
inconsistent with decades of precedent and enforcement history and
cited to cases that found discouragement. Most discussed was the 2024
decision from the U.S. Court of Appeals for the Seventh Circuit in
which the court held that Regulation B's prohibition against
discouragement is consistent with the plain text of the ECOA.\125\ One
commenter referenced dozens of court-approved settlements to resolve
allegations of redlining that relied in part on Regulation B's
definition of discouragement. Some commenters claimed that the proposed
changes to the discouragement provision would explicitly permit
statements similar to those that were at issue in that case.
---------------------------------------------------------------------------
\125\ Consumer Fin. Prot. Bureau v. Townstone Fin., Inc., 107
F.4th 768, 774, 777 (7th Cir. 2024).
---------------------------------------------------------------------------
An individual commenter asked the Bureau to define ``prospective
applicant'' and suggested the term should mean either a person who has
made a substantive pre-application inquiry to the creditor or a person
who is an intended recipient of a targeted communication based on the
creditor's distribution or targeting settings.
Oral or written statements. Several industry commenters supported
the Bureau's proposal to clarify that certain acts or practices do not
reflect the circumvention or evasion of ECOA's prohibition against
discrimination. Industry commenters agreed that the proposal would
tailor an overbroad reading of the statute. An industry trade commenter
stated that banks have existing obligations under the CRA, and ECOA was
not intended to impose similar obligations.
Many commenters, including consumer advocate and State Attorneys
General commenters, stated that the Bureau failed to provide sufficient
legal or factual data to support the proposed elimination of references
to ``acts or practices'' in comment 4(b)-1. A few commenters stated
that the proposal did not provide evidence that clarifying the Bureau's
interpretation of discouragement would alleviate any purported chilling
effect on creditors. Commenters also stated that the change is
inconsistent with ECOA's remedial purpose and congressional intent to
prevent discrimination before it occurs. In addition, many commenters
stated that the proposed narrow definition of discouragement would
create enforcement gaps.
Several consumer advocate commenters asserted that limiting
discouragement to oral or written statements would permit pre-
application discouragement conduct. Commenters were concerned that the
proposal would allow creditors to deter protected groups from applying
without making an explicitly discouraging statement. The commenters
noted that the proposed changes focus only on explicit statements which
they claim largely ignores how discrimination functions. Many consumer
advocate commenters stated that the proposed amendments would allow
geographic targeting. Commenters explained that, as a result of the
amendments, financial institutions may locate or advertise in certain
communities and avoid other communities. Commenters noted that pre-
application interactions, marketing practices, and informal guidance
influence whether a consumer applies for credit. These commenters
stated that the proposal would allow creditors to comply formally with
the rule while continuing to discourage applications through nonverbal,
design or other practices.
Members of Congress, consumer advocate commenters, and policy group
commenters raised concerns that the proposal would curtail efforts to
address redlining. Some commenters stated that lender decisions, such
as decisions on branch locations and communities to target for
business, can demonstrate discouragement. Commenters noted the recent
reliance by the DOJ, the Bureau, and other Federal financial regulators
on the definition of discouragement in Regulation B to challenge
redlining across the country. One commenter stated that the Bureau,
through its exam manual, has adopted the Federal
[[Page 21641]]
Financial Institutions Examination Council (FFIEC) agencies' indicators
of discriminatory redlining risk.
Industry commenters disagreed and stated that routine business
decisions, including those about where to locate branch offices, where
to advertise, or where to engage with the community through open houses
or similar events, have been incorrectly construed to constitute
discouragement. The commenters stated that these practices are routine
business decisions. A credit union stated that branch location and
outreach strategies are already constrained by statutory and charter
requirements and that treating those location decisions as
``statements'' has generated substantial uncertainty and litigation
risk without improving protection for consumers.
Statements to applicants or prospective applicants. Several
industry commenters supported the proposal's approach to clarify that
affirmatively encouraging one particular group of consumers to apply
for credit does not constitute prohibited discouragement of another
group. These commenters agreed that encouraging statements directed at
one group do not discourage other consumer applicants, particularly
where the other consumers are not the intended recipients. Industry
commenters also supported the proposal's approach to targeted
marketing, including geographic targeting, and asserted that targeted
marketing is not intended to discourage non-targeted consumers.
Commenters stated that using different marketing methods to reach
different sets of audiences is not intended to discourage other
consumers. One industry commenter explained that its members' efforts
to encourage applications from traditionally underserved communities or
use of targeted marketing to prospective applicants are routine lender
practices to generate applications from creditworthy individuals or
businesses.
Several consumer advocates and policy group commenters expressed
concern that the proposal does not account for discouragement in
current credit markets. These commenters asserted that discouragement
in today's credit markets occurs through digital channels and that the
proposal risks legitimizing digital redlining and algorithmic risk. The
commenters were concerned that treating affirmative encouragement as
non-discouragement overlooks how targeted marketing can exclude
creditworthy prospective applicants. For example, the commenters
claimed that tools for targeted marketing are largely exclusionary. The
commenters also claimed that encouraging certain consumers to apply for
credit, while excluding others, can be discouragement because it
exposes certain consumers to credit opportunities while excluding
others from awareness and therefore access. One commenter stated that
the proposal would establish a safe harbor for creditors sending credit
offers to a particular group of consumers, even if the creditor seeks
to discriminatorily exclude others from such credit offers.
Consumer advocate commenters and State Attorneys General commenters
stated that the proposal would create enforcement gaps by shielding
exclusionary conduct framed as discouragement. These commenters noted
that limiting discouragement to conduct directed at ``intended
recipients'' would allow creditors to avoid liability by defining the
audience narrowly. For example, commenters claimed that creditors could
avoid discouragement liability by hanging signs such as ``Whites
encouraged to apply,'' or ``We Love White People, Come Apply for a
Mortgage!'' to communicate to prospective applicants who are not
members of those groups that their business is not wanted. State
Attorneys General commenters also stated that the Bureau did not
provide a definition of ``intended recipients'' in the proposed
regulation text or commentary itself and according to the commenters
the narrative definition in the rule's preamble would arguably not
cabin the proposed rule.
Several commenters, including several consumer advocates, rejected
the idea that encouragement directed at one group can be evaluated
separately from its effect to exclude another group. These commenters
stated that encouraging certain commenters while excluding others is
functionally the same as discouragement. A commenter noted that the
proposal would eliminate pre-application comparative treatment because
discouragement often involves a comparison of whether one group of
prospective applicants receives better pre-application treatment than
another based on their protected characteristics.
A few commenters, including consumer advocates and a trade group,
asserted that the proposed amendments do not reflect the limitations
applied to the rest of the housing market through the FHA. Commenters
asserted that the proposed amendments would create inconsistencies
regarding pre-application conduct. The trade group commenter stated
that both the FHA and the commenter's code of ethics prohibit any
statement or advertisement with respect to selling or renting of a
property that indicates any preference, limitations, or discrimination.
The commenter also stated that the best way to expand housing
opportunities is to indicate in all statements related to buying
property that no one is unwelcome. Another commenter asserted that the
Bureau did not acknowledge or explain why it is creating a split
between the FHA and ECOA considering the overlap between the FHA and
ECOA regarding mortgage lending. The commenter noted that the Bureau's
position on selective encouragement is at odds with HUD's regulations
concerning discriminatory statements under the FHA.
Standard for discouragement. Several commenters, including State
Attorneys General and consumer advocates, expressed concern that the
Bureau's proposal would raise the standard to prove discouragement such
that it would be unreasonably difficult to pursue a claim. These
commenters also asserted that even applicants with legitimate
discouragement claims would likely be deterred from pursuing them. A
consumer advocate commenter stated that the standard is inconsistent
with the standard of proof courts apply to similar claims and has not
been applied by any court considering an ECOA discouragement claim.
This commenter recommended that the Bureau adopt, similar to the FHA, a
reasonable person test that would determine whether a reasonable person
would perceive that a protected group would be disfavored in an
application. A consumer advocate commenter stated that the Bureau did
not explain why the new standard is needed or how to prove it.
Consumer advocate commenters and State Attorneys General commenters
opposing the rule stated that the proposed reasonable person standard
would allow creditors to make harmful statements that could discourage
applicants. The State Attorneys General commenters stated that the rule
would allow creditors to make statements mocking or mistreating
prospective applicants based on a prohibited basis characteristic, or
indicate that mistreatment would occur if the applicant applied as long
as the statements did not specifically concern the credit decision or
credit terms. A consumer advocate commenter stated that, in the housing
context, courts have historically recognized that discriminatory
preferences, rather than explicit bans, can form the basis for a
discriminatory statement's violation. According to the commenter, a
discriminatory statement only needs to indicate that a prospective
applicant
[[Page 21642]]
would be disfavored on a prohibited basis.
Consumer advocate commenters stated that pre-application
discouragement protections are necessary given the increased use of
digital advertising and marketing. Commenters asserted that digital
advertising and marketing, including algorithmic targeting, can allow
lenders to target or steer certain groups towards specific products or
discourage applications from protected classes. One consumer advocate
commenter stated that discouragement occurs through selective steering,
coded language, or marketing practices that systematically dissuade
certain groups from applying.
A few industry commenters recommended that the Bureau eliminate any
potential liability for statements that the creditor does not know
would discourage an applicant or prospective applicant from applying
for credit. These commenters recommended that the Bureau limit Sec.
1002.4(b) to statements made with actual knowledge that would
communicate discriminatory outcomes on a prohibited basis by deleting
the proposed ``or should know'' language. The commenters asserted that
the proposal would reach innocent conduct that is not undertaken on the
basis of or because of a protected characteristic. An industry
commenter was concerned that creditors would face unnecessary
litigation based on disputes about whether a creditor should know how
an innocent statement is interpreted by a prospective applicant. The
commenter stated that the Bureau cannot reliably predict which
statements made today without discriminatory intent, could later
support that the creditor ``should know'' would discourage
applications. Another commenter asserted extending Regulation B's
discouragement prohibition to cover statements that a creditor did not
intend to discourage applicants would exceed the Bureau's rulemaking
authority under ECOA section 703(a).
Many consumer advocate commenters claimed that the proposed
revision to narrow current comment 4(b)-1.ii (proposed comment 4(b)-
1.i.B) to refer only to statements that ``express'' a discriminatory
preference or policy of exclusion would limit discouragement liability
to the most overt discriminatory statements. Commenters asserted that
discouragement often occurs though implication or suggestion and
therefore context is relevant in determining whether a statement is
discouraging. A commenter stated that the Bureau failed to explain how
the standard is consistent with the legislative history, which notes
that ``advertising which implies a discriminatory preference [is] also
prohibited'' under ECOA.\126\
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\126\ See S. Rep. No. 102-167, at 86 (1991).
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Industry commenters expressed support for the Bureau's proposal to
clarify the standard for discouragement claims. Commenters were
supportive of the proposal to narrow comment 4(b)-1.ii to refer only to
statements that express a discriminatory preference or policy of
exclusion. Commenters stated that the proposed standard correctly
prohibits only those 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). These
commenters indicated that discouragement has been interpreted to
capture speech that is not based on any explicit exclusionary message,
but on how certain listeners might respond. One commenter stated that
the language is undefined and has been used in ways that do not align
with the intent and purpose of ECOA. Another commenter recommended that
the Bureau also update examination and enforcement guidance to reflect
that evidence of discriminatory purpose is required for discouragement
liability.
Industry commenters stated that the proposal would reduce
unnecessary compliance burdens and ultimately mortgage costs and fees
for borrowers. An industry commenter supported a bright line
interpretation of the prohibition.
Some commenters supported the Bureau's proposal to add examples of
statements that would not constitute prohibited discouragement under
the rule. An industry commenter stated that examples were helpful
towards providing creditors regulatory certainty. Another commenter
encouraged the Bureau to include illustrative examples confirming that
statements of moral or religious belief do not violate ECOA. Other
commenters expressed concern with the Bureau's proposal to add examples
of statements that would not constitute prohibited discouragement under
the proposed rule. An industry commenter stated that examples of
permitted speech were unnecessary and may confuse rather than elucidate
the test. The commenter also recommended that if the Bureau proceeds
with the examples, the Bureau should make it clear that the examples
are not the complete list of permissible statements and note the
statements may raise risks under other antidiscrimination laws. Another
commenter stated that the Bureau should not adopt examples because
context matters and even messages framed as encouragement can in some
circumstances convey exclusionary messaging or discourage borrowers.
A nonprofit consumer advocate recommended that the Bureau not adopt
its proposed examples of practices that would not constitute
discouragement. The commenter expressed that a statement supporting law
enforcement, combined with a ``police lives matter'' flag, displayed in
a town that had recently experienced extreme police violence against a
community member of color, or where there was an ongoing dispute about
such violence, could convey exclusion or discouragement to a potential
credit applicant of color. Another commenter stated that references to
certain language in the proposed rule's examples of non-discriminatory
statements may, depending on the facts, provide evidence of
discrimination.
A few commenters noted that the categories of ``non-prohibited
statements'' under the proposed rule closely track the statements made
by a mortgage lender that were ultimately cited in an ECOA enforcement
action. These commenters stated that the proposal explicitly
contradicts circuit court precedent arising out of that enforcement
action. Another commenter noted that the Bureau's proposal does not
explain why, instead of taking measures to prevent evasions as affirmed
by the Seventh Circuit, it proposes to restrict ECOA's coverage.
Comment 4(b)-2. Several commenters, including consumer advocates
and trade organizations, supported retaining the existing comment 4(b)-
2, which provides that creditors may affirmatively solicit or encourage
members of traditionally disadvantaged groups to apply for credit.
Commenters stated that comment 4(b)-2 clarifies targeted outreach to
certain communities is permissible; will not be flagged as
discouragement; and allows creditors to expand their applicant pools.
Some commenters asserted that retaining the comment would encourage
creditors to purposefully expand their outreach to communities they may
not have previously reached. A credit union trade group stated that the
comment is important for credit unions that serve military communities.
According to the commenter, credit unions often engage in outreach to
populations that may be reluctant to seek credit. State Attorneys
General commenters expressed concern that, read together with the
Bureau's proposal to permit encouraging statements, the proposal to
delete
[[Page 21643]]
comment 4(b)-2 would allow discriminatory practices and harm consumers
and creditors.
Commenters also stated that comment 4(b)-2 provides regulatory
clarity. These commenters asserted that removing the comment without
providing a replacement would introduce regulatory uncertainty and
increase compliance costs to creditors seeking to expand their
applicant pools. For example, one industry commenter expressed concern
that without comment 4(b)-2 creditors could face significant regulatory
risks if they expressly consider prohibited-basis related information
or proxies in developing and deploying marketing strategies. This
commenter requested that if the Bureau moved forward with the proposal,
the Bureau also provide guidance explaining when such affirmative
marketing might become prohibited disparate treatment based on
protected characteristics. Another commenter requested that the comment
be retained as an example of a statement that the Bureau would not
consider discouragement of a potential applicant.
Technical revision related to prospective applicants. A few
commenters opposed the technical correction to strike from Sec.
1002.15(d)(1)(ii) the current reference to prospective applicants. In
the proposal, the Bureau explained that 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,\127\ and no substantive change was
intended. State Attorneys General commenters stated that the revision
would disincentivize creditors from self-testing for Regulation B
violations against prospective applicants, as creditors would know that
the results of such a test now could be used against them. The
commenters also said that the proposal does not explain why this change
is needed.
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\127\ 15 U.S.C. 1691c-1(a)(2), 1691e.
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An industry trade commenter expressed concern that eliminating the
existing reference to prospective applicants could be interpreted as a
change in the regulation. The commenter was concerned that the proposed
revision could trigger private litigants to make requests for protected
self-tests in ECOA lawsuits and the resulting discovery disputes over
production would needlessly increase the costs of defense.
Alternatives. The Bureau requested comment on the merits of an
alternative approach in which the Bureau would revise only one or two
aspects of Sec. 1002.4(b), instead of the proposed three, and, if such
an approach were adopted, which aspects of Sec. 1002.4(b) should be
revised.\128\ Commenters did not appear to directly address this
request. Yet at least one commenter claimed the Bureau has not
considered alternatives to accomplish ECOA's objectives.
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\128\ 90 FR 50901 at 50907.
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An industry commenter recommended expanding the discouragement
amendments to include lender fraud prevention efforts. The commenter
requested that the Bureau allow lenders to identify and target
geographical regions that warrant increased due diligence requirements
for loan applicants and protect these lenders from discrimination
claims when engaging in legitimate fraud protection efforts. The
commenter also requested that the Bureau review related vulnerabilities
with respect to the Fair Credit Reporting Act (FCRA) to ensure that
financial institutions are provided clear regulatory protection to
implement fraud prevention programs that may result in increased
scrutiny of applications from certain geographic regions.
An academic research organization recommended the creation of a
Federal agency, the U.S. Department of Valuation, to ensure
administrative conformity across valuation activities, considering the
proposed narrowing of the protections provided by the discouragement
prohibition.
Final Rule
The Bureau is finalizing, as proposed, the amendments to Sec.
1002.4(b) and its accompanying commentary. ECOA section 703(a)
authorizes the Bureau to make adjustments in Regulation B that, in its
judgment, are necessary or proper to effectuate ECOA's purposes.\129\
Specifically, ECOA section 703(a) provides that the Bureau ``shall
prescribe regulations to carry out the purposes of [ECOA],'' and that
such regulations:
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\129\ 15 U.S.C. 1691b(a).
[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
to facilitate or substantiate compliance therewith.\130\
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\130\ Id.
When the discouragement provision was promulgated in 1975, the
Board, using its adjustment authority under ECOA section 703(a),
determined in its judgment that prohibiting discouragement was
``necessary to protect applicants against discriminatory acts occurring
before an application is initiated.'' \131\ The U.S. Court of Appeals
for the Seventh Circuit, in 2024, affirmed the Bureau's broad,
discretionary authority over the discouragement prohibition. 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 judgment of the Bureau
are necessary or proper to effectuate the purposes of [ECOA], to
prevent circumvention or evasion thereof, or to facilitate or
substantiate compliance therewith.'' \132\
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\131\ 40 FR 49298 at 49299.
\132\ Consumer Fin. Prot. Bureau v. Townstone Fin., Inc., 107
F.4th 768, 774, 777 (7th Cir. 2024).
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Pursuant to its adjustment authority under ECOA section
703(a),\133\ and in consideration of what the Bureau, using its
expertise and experience as a regulator in the marketplace, finds
necessary and proper given the purposes of ECOA and facilitating
compliance therewith, the Bureau has reconsidered various aspects of
the discouragement provision. The finalized revisions 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. These revisions continue to prohibit illegal
discouragement of applicants and prospective applicants but no longer
exceed that purpose in ways that may impose unnecessary constraints in
the marketplace.
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\133\ 15 U.S.C. 1691b(a).
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In the 50 years since the discouragement prohibition was first
implemented at the Board's discretion, the provision has been
interpreted to prohibit conduct that, in the Bureau's judgment, is not
necessary or proper to prohibit or to prevent the circumvention or
evasion of ECOA's purposes. For example, the inclusion of the phrase
``acts or practices'' in current 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
[[Page 21644]]
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.
In addition, current Sec. 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. This
interpretation, too, 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. Encouraging
statements are not 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.
Current Sec. 1002.4(b) has also 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. 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.
Constraints on these types of business practices and statements, as
currently exist, harm the marketplace by unnecessarily regulating
business practices and limiting expression. Industry commenters
confirmed that their ability to make important business decisions and
speak freely has been constrained by broad interpretations of the
existing discouragement provision. The Bureau concludes that Sec.
1002.4(b), as amended, will not infringe on anyone's First Amendment
rights.
The revisions to the discouragement prohibition, as finalized, are
not inconsistent with the Bureau's consumer protection mandate, as
alleged by at least one commenter. The Bureau is an agency that
implements and enforces consumer financ
[…truncated; see source link]Indexed from Federal Register on April 22, 2026.
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