CFPB issues advisory opinion on fair-lending laws

WASHINGTON — The Consumer Financial Protection Bureau on Monday issued an advisory opinion affirming that the federal prohibition against discrimination in lending applies to all aspects of a credit decision — not just the application process. 

The CFPB’s advisory opinion provides more formal support for Regulation B, the implementing statute of the landmark Equal Credit Opportunity Act of 1974 that creditors are increasingly challenging in court. 

The advisory opinion reiterates the CFPB’s view that equal credit act applies not only to consumers and businesses applying for credit, but also to those with existing credit arrangements.

“Today’s advisory opinion and accompanying analysis makes clear that anti-discrimination protections do not vanish once a customer obtains a loan,” CFPB Director Rohit Chopra said in a press release. “The CFPB is ramping up its efforts to issue guidance and advisory opinions to assist entities with understanding their obligations under the law.”

Under the ECOA, a creditor is required to provide an applicant with a reason for revoking or changing the terms of an existing extension of credit, known as an adverse action notice.

In separate appeals court cases, both Bank of America and Capital One Financial have alleged that they are not required to provide adverse action notices unless a customer has actively applied for credit.

That interpretation is disputed by the CFPB and other federal regulators. As defined by Regulation B, an “applicant” includes “any person who requests or who has received an extension of credit from a creditor.” 

“From the beginning, Regulation B made clear that the new law’s protections against credit discrimination cover both those currently applying to receive credit and those who have already received it,” the CFPB said in its advisory opinion.

Congress tasked the Federal Reserve with crafting rules around ECOA and those rules, known as Regulation B, went into effect in 1976.  At the time, the Fed sought to address discrimination against women who routinely had to reapply for credit after getting married, despite having existing credit arrangements that had not changed. 

Federal regulators are defending the ECOA in two separate cases.

In December, four federal agencies responsible for the act — the CFPB, Department of Justice, Federal Reserve and Federal Trade Commission — filed an amicus brief in a case, John Fralish v. Bank of America, in which an Indiana resident sued his bank for closing a credit card account without providing a reason. 

Bank of America has alleged that its customer was not actively applying for credit when the bank revoked his credit card, and that he was not an “applicant,” as defined by the ECOA. A district court agreed and granted BofA’s motion to dismiss. The case is on appeal before the U.S. Court of Appeals for the Seventh Circuit. 

The CFPB and FTC also filed a brief in TeWinkle v. Capital One, a case before the U.S. Court of Appeals for the Second Circuit, in which a customer’s checking account and overdraft line of credit were closed but he did not receive an adverse action notice. 

Jean Noonan, a partner at Hudson Cook, said the CFPB’s advisory opinion provides “a compelling argument” that the equal credit act and Reg B apply to all aspects of a credit transaction.

“The interesting thing is that the CFPB thought this was important enough to issue an advisory opinion, which suggests the bureau is getting serious pushback from creditors,” she said.

BofA and Capital One did not respond immediately to a request for comment.