[Federal Register Volume 86, Number 10 (Friday, January 15, 2021)]
[Rules and Regulations]
[Pages 3762-3766]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28596]


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BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1002


Equal Credit Opportunity (Regulation B); Special Purpose Credit 
Programs

AGENCY: Bureau of Consumer Financial Protection.

ACTION: Advisory opinion.

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SUMMARY: The Bureau of Consumer Financial Protection (Bureau) is 
issuing this Advisory Opinion (AO) to address regulatory uncertainty 
regarding Regulation B, which implements the Equal Credit Opportunity 
Act, as it applies to certain aspects of special purpose credit 
programs designed and implemented by for-profit organizations to meet 
special social needs. Specifically, this AO clarifies the content that 
a for-profit organization must include in a written plan that 
establishes and administers a special purpose credit program under 
Regulation B. In addition, this AO clarifies the type of research and 
data that may be appropriate to inform a for-profit organization's 
determination that a special purpose credit program is needed to 
benefit a certain class of persons.

DATES: This advisory opinion is effective on January 15, 2021.

FOR FURTHER INFORMATION CONTACT: Christopher Davis, Attorney-Advisor; 
Office of Fair Lending and Equal Opportunity, at 
<a href="/cdn-cgi/l/email-protection#95d6d3c5d7cad3f4fce7d9f0fbf1fcfbf2d5f6f3e5f7bbf2fae3"><span class="__cf_email__" data-cfemail="45060315071a03242c3709202b212c2b2205262335276b222a33">[email protected]</span></a> or 202-435-7000. If you require this document 
in an alternative electronic format, please contact 
<a href="/cdn-cgi/l/email-protection#83c0c5d3c1dcc2e0e0e6f0f0eae1eaefeaf7fac3e0e5f3e1ade4ecf5"><span class="__cf_email__" data-cfemail="7d3e3b2d3f223c1e1e180e0e141f14111409043d1e1b0d1f531a120b">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: The Bureau is issuing this AO through the 
procedures for its Advisory Opinions Policy.\1\ Refer to those 
procedures for more information.
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    \1\ 85 FR 77987 (Dec. 3, 2020).
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I. Advisory Opinion

A. Background

    Congress enacted the Equal Credit Opportunity Act (ECOA or the Act) 
in 1974, initially prohibiting discrimination in credit on the basis of

[[Page 3763]]

sex or marital status.\2\ Two years later, Congress expanded the 
prohibition against discrimination in credit transactions to include 
age, race, color, religion, national origin, receipt of public 
assistance benefits, and exercise of rights under the Federal Consumer 
Credit Protection Act.\3\ At the same time, under section 701(c) of the 
ECOA, Congress clarified 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].'' \4\
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    \2\ See Public Law 93-495, sec. 701(a), 88 Stat. 1500, 1521 
(1974).
    \3\ See ECOA Amendments Act, Public Law 94-239, sec. 701(a), 90 
Stat. 251, 251 (1976).
    \4\ See Public Law 94-239, sec. 701(c)(3), 90 Stat. 251, 251 
(1976).
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    By permitting the consideration of a prohibited basis such as race, 
national origin, or sex in connection with a special purpose credit 
program, Congress protected a broad array of programs ``specifically 
designed to prefer members of economically disadvantaged classes'' and 
``to increase access to the credit market by persons previously 
foreclosed from it.'' \5\ Congress provided examples of such programs--
e.g., government sponsored housing credit subsidies for the aged or the 
poor and programs offering credit to a limited clientele such as credit 
union programs and educational loan programs.\6\
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    \5\ S. Rept. 94-589, 94th Cong., 2nd Sess., at 7, reprinted in 
1976 U.S.C.C.A.N. 403, 409.
    \6\ See id.
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    The Board of Governors of the Federal Reserve System (Board)--which 
exercised rulemaking authority under the ECOA at the time--promulgated 
regulations implementing the Act's special purpose credit program 
provision.\7\ In the Dodd-Frank Wall Street Reform and Consumer 
Protection Act of 2010, Congress transferred primary rulemaking 
authority over the ECOA to the Bureau,\8\ which subsequently 
republished the Board's existing regulations without material 
change.\9\ The Bureau has addressed special purpose credit programs in 
a previous edition of Supervisory Highlights \10\ and a blog,\11\ 
explaining that special purpose credit programs may be one tool 
available to creditors to ``meet the credit needs of underserved 
communities.'' \12\
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    \7\ See 42 FR 1242 (Jan. 6, 1977).
    \8\ See Public Law 111-203, tit. X, sec. 1085, 124 Stat. 1376, 
2084.
    \9\ 76 FR 79442 (Dec. 21, 2011) (promulgating 12 CFR pt. 1002 & 
supp. I).
    \10\ See 81 FR 46652, 46656 (July 18, 2016).
    \11\ See Susan M. Bernard and Patrice Alexander Ficklin, 
Expanding Access to Credit to Underserved Communities (July 31, 
2020), https://www.consumerfinance.gov/about-us/blog/expanding-access-credit-underserved-communities/.
    \12\ See id.
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    In recent months, stakeholders have expressed interest in 
developing special purpose credit programs but have also raised 
questions about how to do so in a manner consistent with Regulation B, 
indicating that regulatory uncertainty may inhibit broader creation of 
these programs by creditors. Many comments to the Bureau's recent 
Request for Information on the Equal Credit Opportunity Act and 
Regulation B \13\ from a variety of external stakeholders, including 
both consumer and civil rights advocates and industry representatives, 
indicate that special purpose credit programs may be one way to promote 
fair and responsible access to credit, but that there is a need for 
further guidance on compliant implementation of these programs.
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    \13\ 85 FR 46600 (Aug. 3, 2020).
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    The Bureau is issuing this AO to address this regulatory 
uncertainty in the hope that broader creation of special purpose credit 
programs by creditors will help expand access to credit among 
disadvantaged groups and will better address special social needs that 
exist today. Bureau stakeholders have called attention to the problem 
of unmet credit needs among minority communities and the role that 
discrimination may have played in creating and exacerbating those 
deficits. Research from the Federal Reserve Bank of New York has shown 
that inequities in credit availability and in the terms and conditions 
of credit appear to have led to income inequality.\14\ For consumers 
who own a home, moreover, home equity represents a significant share of 
household net worth,\15\ but Home Mortgage Disclosure Act (HMDA) data 
show that in 2019, Black, Hispanic White, and Asian borrowers had 
notably higher mortgage loan denial rates than non-Hispanic White 
borrowers, continuing a trend from years prior.\16\ For example, the 
denial rates for conventional home-purchase loans were 16.0 percent for 
Black borrowers, 10.8 percent for Hispanic White borrowers, and 8.6 
percent for Asian borrowers; in contrast, denial rates for such loans 
were 6.1 percent for non-Hispanic White borrowers.\17\ Black and 
Hispanic White borrowers were also more likely to have higher-priced 
conventional and nonconventional loans in 2019.\18\
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    \14\ Fed. Reserve Bank of N.Y., Credit, Income and Inequality 
(June 2020), at 1 https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr929.pdf (``[C]redit-constrained individuals 
often have limited wealth, and their exclusion from credit can 
hinder economic mobility and fuel persistent income inequality.'').
    \15\ U.S. Census Bureau, Gaps in the Wealth of Americans by 
Household Type (Aug. 27, 2019), https://www.census.gov/library/stories/2019/08/gaps-in-wealth-americans-by-household-type.html?utm_campaign=20190827msacos1ccstors&utm_medium=email&utm_source=govdelivery%.
    \16\ Consumer Fin. Prot. Bureau, Data Point: 2019 Mortgage 
Market Activity and Trends (June 2020), at 36, https://files.consumerfinance.gov/f/documents/cfpb_2019-mortgage-market-activity-trends_report.pdf.
    \17\ See id.
    \18\ See id. at 47.
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    According to some studies, these types of racial and ethnic 
differences in access to credit perpetuate wealth inequality.\19\ The 
Board's 2019 Survey of Consumer Finances, for example, indicates that 
the typical White family has $188,200 in median family wealth, which is 
eight times the wealth of the typical Black family ($24,100), and five 
times the wealth of the typical Hispanic family ($36,100).\20\ Other 
families--including Asian families--also ``have lower wealth than White 
families.'' \21\ The economic fallout from the ongoing COVID-19 
pandemic appears to be exacerbating these racial and ethnic disparities 
in wealth.\22\
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    \19\ See, e.g., Fed. Reserve Bank of N.Y., supra note 14.
    \20\ Board of Governors of the Fed. Reserve Sys., Disparities in 
Wealth by Race and Ethnicity in the 2019 Survey of Consumer Finances 
(Sept. 28, 2020), https://www.federalreserve.gov/econres/notes/feds-notes/disparities-in-wealth-by-race-and-ethnicity-in-the-2019-survey-of-consumer-finances-20200928.htm#fig1.
    \21\ Id.
    \22\ See, e.g., Fed. Reserve Bank of N.Y., Double Jeopardy: 
COVID-19's Concentrated Health and Wealth Effects in Black 
Communities (Aug. 2020), https://www.newyorkfed.org/medialibrary/media/smallbusiness/DoubleJeopardy_COVID19andBlackOwnedBusinesses 
(``Black businesses experienced the most acute decline, with a 41 
percent drop. Latinx business owners fell by 32 percent and Asian 
business owners dropped by 26 percent. In contrast, the number of 
white business owners fell by 17 percent.''); Fed. Reserve Bank of 
Minn., COVID-19 and Indian Country: Early snapshot reveals 
disproportionate economic exposure and uncertainty (Apr. 10, 2020), 
https://www.minneapolisfed.org/article/2020/covid-19-and-indian-country-early-snapshot-reveals-disproportionate-economic-exposure-and-uncertainty.
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    Bureau stakeholders have also noted that racial and ethnic 
disparities in access to credit extend beyond the mortgage market. For 
example, a report from the Board documented disparities in both 
mortgage and non-mortgage credit denials among White, Black, and 
Hispanic credit applicants.\23\

[[Page 3764]]

Specifically, White credit applicants reported being denied for 
credit--including, but not limited to, mortgage credit--at a rate of 
17.3 percent; Black credit applicants reported being denied for credit 
at a rate of 41.3 percent; and Hispanic credit applicants reported 
being denied for credit at a rate of 34.6 percent.\24\ In the small 
business lending context, a report by the Board showed that ``[o]n 
average, Black- and Hispanic-owned firm applicants received approval 
for smaller shares of the financing they sought compared to White-owned 
small businesses that applied for financing. This same report noted 
that larger shares of Black-, Hispanic-, and Asian-owned firm 
applicants did not receive any of the financing they applied for--38%, 
33%, and 24%, respectively--compared to 20% of White-owned business 
applicants.'' \25\
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    \23\ Board of Governors of the Fed. Reserve Sys., Report on the 
Economic Well-Being of U.S. Households in 2016, at 33-34 (May 2017), 
https://www.federalreserve.gov/publications/files/2016-report-economic-well-being-us-households-201705.pdf.
    \24\ See id. at 34.
    \25\ Fed. Reserve, Report on Minority-Owned Firms (Dec. 2019), 
https://www.fedsmallbusiness.org/medialibrary/fedsmallbusiness/files/2019/20191211-ced-minority-owned-firms-report.pdf.
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    In recent months, multiple financial institutions have publicly 
committed to making billions of dollars available to addressing racial 
wealth disparities.\26\ Bureau stakeholders have indicated that 
investments in special purpose credit programs may allow for better 
expansion of credit access to underserved communities.
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    \26\ See, e.g., Press Release, BMO, BMO Commits $5 Billion to 
Advance Inclusive Economic Recovery in the U.S. (Nov. 10, 2020), 
https://newsroom.bmo.com/2020-11-10-BMO-Commits-5-Billion-to-Advance-Inclusive-Economic-Recovery-in-the-U-S; Press Release, Am. 
Express, American Express Announces $1 Billion Action Plan to 
Promote Racial, Ethnic and Gender Equity for Colleagues, Customers 
and Communities (Oct. 29, 2020), https://about.americanexpress.com/all-news/news-details/2020/American-Express-Announces-1-Billion-Action-Plan-to-Promote-Racial-Ethnic-and-Gender-Equity-for-Colleagues-Customers-and-Communities/default.aspx; Press Release, 
JPMorgan Chase & Co., JPMorgan Chase Commits $30 Billion to Advance 
Racial Equity (Oct. 8, 2020), https://www.jpmorganchase.com/news-stories/jpmc-commits-30-billion-to-advance-racial-equity; Press 
Release, Citigroup Inc., Citi Launches More Than $1 Billion in 
Strategic Initiatives to Help Close the Racial Wealth Gap (Sept. 23, 
2020), https://www.citigroup.com/citi/news/2020/200923a.htm; Press 
Release, Huntington Bancshares, Huntington Announces $20 Billion 
Community Plan to Help Boost Economic Opportunity Throughout its 
Seven-state Footprint (Sept. 1, 2020), http://huntington-ir.com/ne/news/hban09012020.pdf; Press Release, PNC, PNC Commits More Than $1 
Billion To Help End Systemic Racism and Support Economic Empowerment 
of African Americans and Low- And Moderate-Income Communities (June 
18, 2020), https://pnc.mediaroom.com/2020-06-18-PNC-Commits-More-Than-1-Billion-To-Help-End-Systemic-Racism-And-Support-Economic-Empowerment-Of-African-Americans-And-Low-And-Moderate-Income-Communities; Press Release, U.S. Bank, U.S. Bank to rebuild in 
Minneapolis; Announces multiple investments and initiatives to 
address social and economic inequities (June 5, 2020), https://www.usbank.com/newsroom/stories/us-bank-to-rebuild-in-minneapolis-announces-multiple-investments-and-initiatives-to-address-social-and-economic-inequities.html; Press Release, Bank of Am., Bank of 
America Announces $1 Billion/4-Year Commitment to Support Economic 
Opportunity Initiatives (June 2, 2020), https://newsroom.bankofamerica.com/press-releases/bank-america-announces-four-year-1-billion-commitment-supporting-economic.
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B. Coverage

    This AO applies solely to certain aspects of special purpose credit 
programs (i.e., those described in part I.C below) designed and 
implemented by for-profit organizations to meet special social needs 
under the Regulation B requirements identified below. This AO does not 
apply to any credit assistance program expressly authorized by Federal 
or State law for the benefit of an economically disadvantaged class of 
persons, or to any credit assistance program offered by a not-for-
profit organization, as defined under section 501(c) of the Internal 
Revenue Code of 1954, as amended, for the benefit of its members or for 
the benefit of an economically disadvantaged class of persons.\27\ This 
AO has no application to any other circumstance and does not offer a 
legal interpretation of any other provisions of law.
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    \27\ See 12 CFR 1002.8(a)(2), (3).
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C. Applicable Regulatory Provisions

    It is not discrimination under the ECOA for a creditor to refuse to 
extend credit offered pursuant to a legally compliant special purpose 
credit program.\28\ Regulation B, which implements the ECOA, sets forth 
compliance standards and general rules for special purpose credit 
programs. A for-profit organization that offers or participates in a 
special purpose credit program to meet special social needs must 
establish and administer the special purpose credit program 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.\29\ In addition, a for-profit 
organization that offers or participates in a special purpose credit 
program to meet special social needs must establish and administer the 
special purpose credit program 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.\30\
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    \28\ 15 U.S.C. 1691(c).
    \29\ 12 CFR 1002.8(a)(3)(i).
    \30\ 12 CFR 1002.8(a)(3)(ii).
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    Regulation B is clear that a special purpose credit program 
qualifies as such only where the program was established and is 
administered so as not to discriminate against an applicant on any 
prohibited basis.\31\ All program participants may be required, 
however, to share one or more common characteristics (for example, 
race, national origin, or sex) so long as the program is not 
established and is not administered with the purpose of evading the 
requirements of the ECOA or Regulation B.\32\ If participants in a 
special purpose credit program are required to possess one or more 
common characteristics and if the program otherwise satisfies the 
applicable requirements of Regulation B, a creditor may request and 
consider information regarding the common characteristic(s) in 
determining the applicant's eligibility for the program.\33\
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    \31\ 12 CFR 1002.8(b)(2); see, e.g., United States v. Am. Future 
Sys., Inc., 743 F.2d 169, 180 (3d Cir. 1984) (explaining that a 
creditor is ``prohibited from discriminating on the basis of race, 
sex or marital status in a credit program designed to extend credit 
to the group of persons between the ages of 18 and 21'').
    \32\ 12 CFR 1002.8(b)(2).
    \33\ 12 CFR 1002.8(c).
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    The Bureau does not determine whether individual programs qualify 
for special purpose credit status.\34\ The creditor administering or 
offering the special purpose credit program must make these decisions 
regarding the status of its program.\35\ It follows that a creditor may 
initiate a special purpose credit program without the approval of the 
Bureau.
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    \34\ See Official Interpretations, 12 CFR pt. 1002 (supp. I), 
sec. 1002.8, ] 8(a)-1.
    \35\ See id.
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D. Legal Analysis

1. Written Plan
    A for-profit organization must establish and administer a special 
purpose credit program pursuant to a written plan.\36\ The plan must 
contain information that supports the need for the program, including:
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    \36\ See 12 CFR 1002.8(a)(3)(i).
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    <bullet> The class of persons that the program is designed to 
benefit;
    <bullet> The procedures and standards for extending credit pursuant 
to the program;
    <bullet> Either (i) the time period during which the program will 
last or (ii) when the program will be reevaluated to

[[Page 3765]]

determine if there is a continuing need for it; and
    <bullet> A description of the analysis the organization conducted 
to determine the need for the program.\37\
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    \37\ 12 CFR 1002.8(a)(3)(i)-(ii); Official Interpretations, 12 
CFR pt. 1002 (supp. I), sec. 1002.8, ] 8(a)-6.
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    Each of these required components is discussed in further detail 
below. For-profit organizations that draft written plans containing the 
necessary elements as set forth in Regulation B and herein will satisfy 
the requirement of 12 CFR 1002.8(a)(3)(i).
a. Class of Persons
    The class of persons that a special purpose credit program is 
designed to benefit must consist of those ``who would otherwise be 
denied credit or would receive it on less favorable terms.'' \38\ A 
written plan must explain whether the class of persons will be required 
to demonstrate a financial need and/or share a common 
characteristic.\39\ Such a class could be defined with or without 
reference to a characteristic that is otherwise a prohibited basis 
under the ECOA. For example, if need is determined in accordance with 
part I.D.2 below, a for-profit organization's written plan might 
identify a class of persons as minority residents of low-to-moderate 
income census tracts, residents of majority-Black census tracts, 
operators of small farms in rural counties, minority- or woman-owned 
small business owners, consumers with limited English proficiency, or 
residents living on tribal lands.
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    \38\ Official Interpretations, 12 CFR pt. 1002 (supp. I), sec. 
1002.8, ] 8(a)-5.
    \39\ See 12 CFR 1002.8(b)(2), (d).
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b. Procedures and Standards
    A written plan must also set forth the procedures and standards for 
extending credit pursuant to the special purpose credit program.\40\ 
Those procedures and standards must be designed to increase the 
likelihood that a class of persons ``who would otherwise be denied 
credit'' will receive credit pursuant to the program, or that a class 
of persons who ``would receive [credit] on less favorable terms'' will 
receive credit on more favorable terms pursuant to the program.\41\ To 
accomplish these goals a creditor may, for example, introduce a new 
product or service, modify the terms and conditions or certain 
eligibility requirements for an existing product or service, or modify 
policies and procedures related to certain loss mitigation programs, 
such as loan modifications. For example, a creditor may offer a new 
small business loan product for woman-owned businesses by relaxing its 
customary standard of requiring three years of experience in the 
industry to one year, if the creditor has determined that this 
requirement would probably prevent woman-owned businesses from 
qualifying for small business financing. The written plan must describe 
the procedures and standards adopted and explain how they will increase 
credit availability with respect to the identified class of persons. If 
the class of persons the program is designed to benefit will be 
required to share a common characteristic, the written plan may also 
explain whether the organization will request and consider information 
that would otherwise be prohibited under the ECOA.\42\
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    \40\ 12 CFR 1002.8(a)(3)(i).
    \41\ See 12 CFR 1002.8(a)(3)(ii).
    \42\ See 12 CFR 1002.8(b)(2), (c).
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c. Program Duration/Reevaluation
    The written plan must provide ``a specific period of time for which 
the program will last'' or ``contain a statement regarding when the 
program will be reevaluated to determine if there is a continuing need 
for it.'' \43\ If an organization opts for the latter approach, 
reevaluation could be made contingent on a certain set of circumstances 
or simply a set date. The written plan could also adopt a combined 
approach--for example, the special purpose credit program could end on 
a set date, or when a pre-established origination volume has been 
reached, whichever occurs earlier. If an organization extends the 
program beyond what is set forth in its written plan, it must document 
the terms of that extension in order to ensure the program continues to 
be administered pursuant to a written plan.
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    \43\ Official Interpretations, 12 CFR pt. 1002 (supp. I), sec. 
1002.8, ] 8(a)-6.
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d. Description of Analysis
    A special purpose credit program must be ``established and 
administered'' \44\ to benefit a class of people who would otherwise be 
denied credit or would receive it on less favorable terms, as 
determined by a ``broad analysis,'' \45\ and it must be ``established 
and administered pursuant to a written plan.'' \46\ The Official 
Interpretations to Regulation B further provide that a written plan 
``must contain information that supports the need for the particular 
program.'' \47\ Thus, a for-profit organization's written plan must 
describe or incorporate the analysis that supports the need for the 
program.
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    \44\ 12 CFR 1002.8(a)(3)(ii).
    \45\ Official Interpretations, 12 CFR pt. 1002 (supp. I), sec. 
1002.8, ] 8(a)-5.
    \46\ 12 CFR 1002.8(a)(3)(i) (emphasis added).
    \47\ Official Interpretations, 12 CFR pt. 1002 (supp. I), sec. 
1002.8, ] 8(a)-6.
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2. Determination of Need for a Special Purpose Credit Program
a. Permissible Sources of Data and Research
    In designing a special purpose credit program, a for-profit 
organization must determine that the program will benefit a class of 
persons who would otherwise be denied credit or would receive it on 
less favorable terms. This determination can be based on a broad 
analysis using the organization's own research or data from outside 
sources, including governmental reports and studies.\48\ The Official 
Interpretations to Regulation B provide two examples: First, ``a 
creditor might design new products to reach consumers who would not 
meet, or have not met, its traditional standards of creditworthiness 
due to such factors as credit inexperience or the use of credit sources 
that may not report to consumer reporting agencies''; and second, ``a 
bank could review [HMDA] data along with demographic data for its 
assessment area and conclude that there is a need for a special purpose 
credit program for low-income minority borrowers.'' \49\
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    \48\ Official Interpretations, 12 CFR pt. 1002 (supp. I), sec. 
1002.8, ] 8(a)-5.
    \49\ Official Interpretations, 12 CFR pt. 1002 (supp. I), sec. 
1002.8, ] 8(a)-5.
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    For-profit organizations may rely on a wide range of research or 
data to analyze whether a special purpose credit program is needed to 
benefit a class of persons who would otherwise be denied credit or 
would receive it on less favorable terms.\50\ A for-profit 
organization's analysis might consider research or data that are 
already in the public domain. The Official Interpretations to 
Regulation B cite HMDA data as one example.\51\ In the case of small 
business lending, the Small Business Administration or the Board's 
Small Business Credit Surveys are possible sources of information. 
Other governmental or academic reports and studies exploring the 
historical and societal causes and effects of discrimination may also 
be considered. Finally, the for-profit organization's own data or 
research--if available--may be a helpful source for conducting an

[[Page 3766]]

analysis to determine if there is a need for a special purpose credit 
program.
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    \50\ The Official Interpretations to Regulation B expressly 
provide that a for-profit organization is permitted to conduct a 
``broad analysis.'' 12 CFR pt. 1002 (supp. I), sec. 1002.8, ] 8(a)-5 
(emphasis added).
    \51\ Official Interpretations, 12 CFR pt. 1002 (supp. I), sec. 
1002.8, ] 8(a)-5.
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b. Nexus to the Organization's Customary Credit Standards
    While a for-profit organization may permissibly rely on a broad 
range of research or data--including historical and societal 
information--in determining whether a special purpose credit program is 
needed, the organization's analysis must show how ``a class of people 
[] would otherwise be denied credit or would receive it on less 
favorable terms'' under the organization's customary credit 
standards.\52\ The for-profit organization must be able to show a 
connection between the research or data informing its analysis and the 
fact that, under the organization's customary standards of 
creditworthiness, a class of persons probably would not receive 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. For example, a creditor who 
identifies a class of certain applicants who do not have sufficient 
savings to meet mortgage loan requirements (or who receive such loans 
on less favorable terms) could offer such applicants down payment 
assistance funds pursuant to a special purpose credit program. In this 
example, the creditor could demonstrate that under its own standards of 
creditworthiness, e.g., either (1) ``insufficient cash'' is listed as a 
principal reason for the denial of similar mortgage loan applications 
among the identified class of applicants frequently enough to indicate 
that they probably would not receive credit; or (2) requirements 
regarding minimum amounts of cash to close or liquid assets will 
probably impair credit access for the identified class of 
applicants.\53\
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    \52\ 12 CFR 1002.8(a)(3)(ii).
    \53\ The fact that a for-profit organization identifies a need 
for a special purpose credit program based on an analysis of its own 
data does not, by itself, create an inference or presumption that 
the organization has engaged in unlawful credit discrimination. Of 
course, the adoption of a special purpose credit program does not 
absolve a creditor of its ordinary obligations under the ECOA and 
Regulation B; the Bureau strongly encourages creditors to evaluate 
their fair lending risk using an effective compliance management 
system. Finally, Regulation B does not require a creditor to show 
that a special purpose credit program is established and 
administered to extend credit to a class of persons who definitely 
would not receive such credit or would receive it on less favorable 
terms than other applicants--the regulation only requires a showing 
that the class of persons ``probably'' would not receive such credit 
or would receive it on less favorable terms. 12 CFR 1002.8(a)(3)(ii) 
(emphasis added).
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c. Requests For and Use of Information
    Lastly, the Bureau notes that pursuant to Regulation B, ``[i]f 
participants in a special purpose credit program . . . are required to 
possess one or more common characteristics (for example, race, national 
origin, or sex) and if the program otherwise satisfies the requirements 
of [Regulation B], a creditor may request and consider information 
regarding the common characteristic(s) in determining the applicant's 
eligibility for the program.'' \54\ If no special purpose credit 
program has yet been established, however, a creditor may use 
statistical methods to estimate demographic characteristics but it 
cannot request demographic information that it is otherwise prohibited 
from collecting, even to determine whether there is a need for such a 
program. Moreover, while a for-profit organization may rely on a broad 
swath of research and data to determine the need for a special purpose 
credit program--including the organization's own lending data--it may 
not violate Regulation B's prohibitions on the collection of 
demographic information exclusively to conduct this preliminary 
analysis before establishing a special purpose credit program.\55\
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    \54\ 12 CFR 1002.8(c); see also Official Interpretations, 12 CFR 
pt. 1002 (supp. I), sec. 1002.6, ] 6(b)-1 (``In a special purpose 
credit program, a creditor may consider a prohibited basis to 
determine whether the applicant possesses a characteristic needed 
for eligibility.'').
    \55\ See 12 CFR 1002.5(b), 1002.6(b).
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    Once a special purpose credit program has been established, a 
creditor may then request and consider information regarding common 
characteristic(s) if needed to determine the applicant's eligibility 
for the program. For example, if a creditor establishes a special 
purpose credit program that requires that an applicant resides in an 
area that is designated as a low-to-moderate income census tract and is 
Black, Hispanic, or Asian, a creditor could request race or ethnicity 
information from applicants to confirm eligibility for the program.

II. Regulatory Matters

    This advisory opinion is an interpretive rule issued under the 
Bureau's authority to interpret the ECOA and Regulation B, including 
under section 1022(b)(1) of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, which authorized guidance as may be necessary 
or appropriate to enable the Bureau to administer and carry out the 
purposes and objectives of Federal consumer financial laws.\56\
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    \56\ 12 U.S.C. 5512(b)(1). The relevant provisions of the ECOA 
and Regulation B form part of Federal consumer financial law. 12 
U.S.C. 5481(12)(D), (14).
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    By operation of the ECOA section 706(e), no provision of the ECOA 
imposing any liability applies to any act done or omitted in good faith 
in conformity with this interpretive rule, notwithstanding that after 
such act or omission has occurred, the interpretive rule is amended, 
rescinded, or determined by judicial or other authority to be invalid 
for any reason.\57\
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    \57\ 15 U.S.C. 1691e(e).
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    As an interpretive rule, this advisory opinion is exempt from the 
notice-and-comment rulemaking requirements of the Administrative 
Procedure Act.\58\ Because no notice of proposed rulemaking is 
required, the Regulatory Flexibility Act does not require an initial or 
final regulatory flexibility analysis.\59\ The Bureau also has 
determined that this interpretive rule does not impose any new or 
revise any existing recordkeeping, reporting, or disclosure 
requirements on covered entities or members of the public that would be 
collections of information requiring approval by the Office of 
Management and Budget under the Paperwork Reduction Act.\60\
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    \58\ 5 U.S.C. 553(b).
    \59\ 5 U.S.C. 603(a), 604(a).
    \60\ 44 U.S.C. 3501-3521.
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    Pursuant to the Congressional Review Act,\61\ the Bureau will 
submit a report containing this interpretive rule and other required 
information to the U.S. Senate, the U.S. House of Representatives, and 
the Comptroller General of the United States prior to the rule's 
published effective date. The Office of Information and Regulatory 
Affairs has designated this interpretive rule as not a ``major rule'' 
as defined by 5 U.S.C. 804(2).
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    \61\ 5 U.S.C. 801 et seq.
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III. Signing Authority

    The Director of the Bureau, Kathleen L. Kraninger, having reviewed 
and approved this document, is delegating the authority to 
electronically sign this document to Grace Feola, a Bureau Federal 
Register Liaison, for purposes of publication in the Federal Register.

    Dated: December 21, 2020.
Grace Feola,
Federal Register Liaison, Bureau of Consumer Financial Protection.
[FR Doc. 2020-28596 Filed 1-14-21; 8:45 am]
BILLING CODE 4810-AM-P


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