Maryland Legal Alert for Financial Services
CFPB Issues Proposed Amendments to Regulation B Under ECOA
The Consumer Financial Protection Bureau (CFPB) has issued a proposed rule that would revise Regulation B under the Equal Credit Opportunity Act (ECOA). The proposal includes amendments addressing the availability of disparate-impact liability under ECOA, revisions to the regulatory provisions governing discouragement of applicants or prospective applicants, and changes to the standards for special-purpose credit programs (SPCPs) offered by for-profit entities.
First, CFPB proposes to amend Regulation B to expressly state that ECOA does not authorize disparate-impact liability. CFPB explained that ECOA’s statutory text lacks the effects-based language that courts have relied upon when interpreting other civil rights laws, and that maintaining disparate-impact liability in credit markets could incentivize lenders to make decisions based on protected characteristics (e.g., race or gender) in an effort to manage statistical outcomes—an approach the CFPB warns may conflict with ECOA’s core purpose of prohibiting discrimination.
Second, CFPB proposes to substantially revise the standard governing discouragement of prospective applicants. Under the proposed rule, a lender would only be liable for discouragement only where it knows or should know that its statements would cause a reasonable person to believe that a credit application would be denied or offered on less favorable terms because of a prohibited characteristic. The proposed rule also seeks to eliminate “disparate-impact-like” discouragement claims, clarifying that marketing or outreach directed to particular groups is not, by itself, discouraging to those who were not the intended audience. CFPB explains that the discouragement provision was designed to prevent lenders from deterring applicants through overtly discriminatory messages and its recent application has expanded beyond what is necessary to prevent circumvention of ECOA.
Finally, CFPB proposes new limits on SPCPs offered by for-profit organizations. CFPB states that current standards have become too broad and may conflict with constitutional constraints on the use of protected characteristics. Under the proposal, for-profit lenders would be prohibited from using race, sex, national origin, or color as eligibility criteria for SPCPs. Even where a program uses other characteristics that would ordinarily be prohibited bases—such as age, marital status, religion, or receipt of public assistance—the lender would be required to satisfy several new restrictions. These include demonstrating that applicants sharing the characteristic would not receive credit under the lender’s existing standards and that the credit could not be provided through a program that does not rely on the characteristic.
The CFPB is accepting public comments on the proposed rule until December 15, 2025.
For more information concerning this topic, please contact Tamia J. Morris