CFBP Issues Advice on Special Purpose Credit Programs

The Consumer Financial Protection Bureau (CPFB) issued an advisory opinion related to perceived regulatory uncertainties tied to Regulation B, which implements the Equal Credit Opportunity Act (ECOA) as it applies to certain aspects of special-purpose credit programs (SPCPs).

The ECOA and Regulation B are designed to prevent discrimination on certain prohibited bases in any aspect of a credit transaction. However, both policies it is not discriminatory when for-profit organizations provide SPCPs designed to meet special social needs.

As the current law stands, the CFPB does not determine if specific programs qualify for special purpose credit status, giving the onus to the creditor offering the SPCP to determine the status of its program. Under Regulation B, creditors are offered general guidance for developing SPCPs that are compliant with ECOA.

The new advisory opinion, which was issued after stakeholder feedback from a recent CFPB Request for Information on the ECOA and Regulation B, seeks input on clarifying the content on when a for-profit organization must include in a written plan that establishes and administers a SPCP under Regulation B. The advisory opinion also clarifies the type of research and data that can be used to support a for-profit organization’s argument that a SPCP would benefit a certain class of people.

“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,” said the advisory opinion. “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.

“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,” the advisory opinion added. “For example, the denial rates for conventional home-purchase loans were 16% for Black borrowers, 10.8% for Hispanic White borrowers, and 8.6% for Asian borrowers; in contrast, denial rates for such loans were 6.1% for non-Hispanic White borrowers ...White borrowers were also more likely to have higher-priced conventional and non-conventional loans in 2019.”

“The CFPB is committed to creating real and sustainable changes in our financial system so that all consumers have equal opportunities to build wealth and close the economic divide,” said CFPB Director Kathleen L. Kraninger. “Today’s advisory opinion is our first action since we issued a Request for Information on the Equal Credit Opportunity Act and sought public views on the topic. This action is an important step toward clarifying the regulations and ensuring that traditionally economically disadvantaged groups and communities have equitable access to credit.”