Just When Does The Equal Credit Opportunity Act Apply?

May 11, 2022 at 9:45 am Leave a comment

The CFPB waded even further into a legal dispute which has direct implications for your day-to-day compliance obligations, by issuing an advisory opinion concluding that the Equal Credit Opportunity Act and its implementing Regulation B applies even after an applicant has been granted credit.  If the CFPB is right, you are all going to be sending out more notices. 

As I know most readers of this blog know, taken as a whole, the ECOA and Regulation B prohibit lending policies and practices which have the purpose or effect of discriminating against individuals on the basis of race, sex and other characteristics.  This is why an individual denied credit is entitled to a written explanation of the reasons for the denial.  Everything I just said is settled law.  In recent years, however, there has been an increase in litigation across the country seeking to sue lenders for actions taken after a loan has been approved. 

For example, in Tewinkle v. Capital One, N.A., 2019 WL 8918731 (W.D.N.Y., 2019), a Western New York resident, sued Capital One after it discontinued his line of credit.  Although he received notice of the closure as specified in his account agreement, he did not receive an explanation as to why the line was shut down.  Many financial institutions have taken similar steps in recent years, particularly following the Great Recession and Mortgage Meltdown.  The district court sided with the bank.  Similar cases are now being appealed.

Enter the CFPB.  In its advisory opinion, the Bureau stated the Tewinkle court as well as others that have reached similar conclusions have got it all wrong.  The Bureau argues as a matter of statutory history and (implicitly) the deference due to regulators interpreting ambiguous statutes that consumers like Mr. Tewinkle should receive full disclosures under Regulation B.  To be fair, other courts have agreed with the Bureau’s analysis, which means this is going to be a hotly debated issue in the federal courts, that could ultimately be decided by the Supremes.

This is an area where it is extremely important that people understand precisely what is being debated.  With or without the ECOA, lenders cannot discriminate against individuals at any point in the lending process.  For example, if a lending institution reduced credit just to African-American consumers, this would be a blatant violation of both state and federal law. 

In addition, as pointed out in Tewinkle the ECOA would have applied in this case had our disgruntled homeowner Tewinkle sought reconsideration or applied for renewal of the line of credit.  At this point, he would have been seeking new credit and been entitled to an explanation if he did not receive it;  but that is not what happened in this case. Capital One followed the terms of its account agreement in closing down a line of credit, something it and other lenders should be allowed to do in a fair, efficient manner. 

Stay tuned. This is a debate which is far from over. By the way, I hope to see some of you at tonight’s Southern Tier Chapter event at McGirk’s Irish Pub in Binghamton.

Entry filed under: Compliance, Legal Watch. Tags: , , , , .

Required Reading for the Compliance Geek

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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