The Consumer Financial Protection Bureau (CFPB) has replaced its rule requiring lenders to adhere to the 1974 Equal Credit Opportunity Act (ECOA).
The ECOA was designed to prohibit disparate impact discrimination by lenders who create policies that inadvertently prevented protected demographics from accessing credit and loans.
Beginning July 21, the CFPB will enact a new rule that revises the prohibition on discouragement cases where the lender either knows or should be aware that its statements could discourage a credit applicant. It also clarifies that marketing statements directed at one group should not be considered as discouraging other groups who were not targeted in the marketing endeavor.
Furthermore, the CFPB will now prohibit for-profit lenders from using race, sex or national origin as criteria for credit and loan qualifications while redefining the common characteristics for determining eligibility.
“Among these new restrictions are additional requirements that a for-profit organization establish the fact that applicants with common characteristics that would otherwise be a prohibited basis would not receive credit under the organization’s current standards due to the common characteristic and that providing credit of the type and amount sought could not be accomplished through a program that does not use an otherwise prohibited basis as eligibility criteria,” the rule stated.
Acting CFPB Director Russ Vought, who also serves as director of the White House’s Office of Management and Budget, argued that the ECOA encouraged “new forms of discrimination.”
The new CFPB rule that ends ECOA’s legal standing was proposed last November. The National Fair Housing Alliance (NFHA) issued a statement claiming the “rule was finalized despite widespread public opposition, including objections raised by everyday people, civil rights and consumer protection organizations, industry players, state attorneys general, and members of Congress—opposition the CFPB itself acknowledged constituted a majority of comments submitted in response to the changes when first proposed.”
On the flip side, the American Bankers Association supported the CFPB’s action, stating, “Such a framework will advance the purposes of the ECOA, encourage prudent, risk-based underwriting, and discourage arbitrary government enforcement.”
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