Equal Credit Opportunity Act (ECOA) update.(Special Legislative Update)

The Federal Reserve Board (FRB), has finally published its new rules amending Regulation B of the ECOA. These new rules are consistent with the FRB's policy of periodically reviewing and updating its regulations. While these new regulations became effective on April 15, 2003, the mandatory compliance date was April 15, 2004. Among the specific provisions of the ECOA of immediate interest to unsecured business credit grantors are: the treatment for noticing of adverse actions, timeliness of noticing, record retention requirements, and signature of spouses or other persons.

The ECOA makes it unlawful for a creditor to discriminate against an applicant in any aspect of a credit transaction on the basis of an applicant's national origin, marital status, religion, sex, color, race, age, receipt of public assistance benefits, or the good faith exercise of a right under the Consumer Credit Protection Act. Technically, the ECOA is implemented by the FRB's Regulation B. In August of 1999, the FRB issued proposed rules for the ECOA that covered all elements of the Act from definitions of a "credit application" to the definition of a "creditor" to consideration of the term "adverse action." In all, the FRB received over 750 comments on the proposed new rules--"a response that delayed publication and implementation of the new rules until 2003 and 2004.

Discussion and Summary of Relevant Revisions to Regulation B

Adverse Action (Section 202.2 (c)) "Under the new regulations, adverse action is defined as a refusal to grant credit in substantially the amount, or on substantially the terms requested in an application, unless the creditor makes a counteroffer (to grant credit in a different amount or on other terms) and the applicant uses or expressly accepts the credit offered. It also means a termination of an account or an unfavorable change in the terms of an account that does not affect all, or substantially all, of a class of the creditor's accounts. It could also include a refusal to increase the amount of credit available to an applicant who has made an application for an increase.

It does not mean a change in the terms of an account expressly agreed to by an applicant, nor does it include any action relating to an account taken in connection with inactivity, default, or delinquency.

Business Credit (Section 202.2 (g)) "The FRB has essentially retained the existing consideration of business credit as an extension of credit primarily for business or commercial (including agricultural) purposes. The recommendation that NACM made to the FRB was that the definition of "incidental credit" should be expanded to include "incidental business credit." However, many commenters to the FRB opposed this proposal out of concern about possible discrimination against minority-owned businesses. Consequently, the FRB decided that incidental credit would not be expanded to include business credit but would refer only to consumer credit that is extended by a local merchant who does not normally extend credit, for example, to a long-standing customer; or by a doctor or lawyer as an accommodation to a patient or client.

Signature of Spouse or Other Person (Section 202.7)