CFPB Issues Advisory Opinion to Clarify Special Purpose Credit Program Requirements | Practical Law

CFPB Issues Advisory Opinion to Clarify Special Purpose Credit Program Requirements | Practical Law

The Consumer Financial Protection Bureau (CFPB) issued an advisory opinion to clarify certain requirements of Regulation B that apply to special purpose credit programs (SPCPs). Regulation B implements the Equal Credit Opportunity Act (ECOA).

CFPB Issues Advisory Opinion to Clarify Special Purpose Credit Program Requirements

Practical Law Legal Update w-029-1892 (Approx. 3 pages)

CFPB Issues Advisory Opinion to Clarify Special Purpose Credit Program Requirements

by Practical Law Finance
Published on 12 Jan 2021 • USA (National/Federal)
The Consumer Financial Protection Bureau (CFPB) issued an advisory opinion to clarify certain requirements of Regulation B that apply to special purpose credit programs (SPCPs). Regulation B implements the Equal Credit Opportunity Act (ECOA).
On December 21, 2020, the Consumer Financial Protection Bureau (CFPB) issued an advisory opinion (opinion) to clarify certain requirements of Regulation B (12 C.F.R. §§ 1002.1 to Pt. 1002, Supp. I) that apply to special purpose credit programs (SPCPs). Regulation B implements the Equal Credit Opportunity Act (ECOA).
The CFPB issued the opinion in response to comments from stakeholders who want to develop SPCPs but are unsure how to do so in a manner that complies with Regulation B. By issuing the opinion, the CFPB hopes that creating more SPCPs will expand credit access to disadvantaged groups and address special social needs.
ECOA prohibits discrimination in credit based on sex, marital status, age, race, color, religion, national origin, receipt of public assistance benefits, and the exercise of rights under the Consumer Credit Protection Act (15 U.S.C. §§ 1601 to 1693r). However, under Section 701(c) of ECOA (15 U.S.C. § 1691(c)), a creditor does not discriminate by refusing to extend credit under an SPCP of a profit-making organization (SPCP organization) to meet special social needs if the SPCP meets standards prescribed in CFPB regulations. Regulation B, in 12 C.F.R. § 1002.8, sets out the compliance standards and general rules for SPCPs.
The opinion clarifies the following regarding certain of Regulation B's requirements:
  • CFPB Approval of SPCPs. Since the CFPB does not determine whether an SPCP meets Regulation B's requirements and the creditor administering the SPCP must do so (12 C.F.R., Pt. 1002, Supp. I, ¶ 8(a)-1), a creditor may initiate an SPCP without CFPB approval.
  • SPCP's Procedures and Standards for Extending Credit (12 C.F.R. § 1002.8(a)(3)(i)). An SPCP's procedures and standards must be designed to increase the likelihood that the class of persons the SPCP is designed to benefit (SPCP class) will:
    • receive credit under the SPCP; or
    • receive credit under the SPCP on more favorable terms.
    In addition, the SPCP's written plan must explain how these procedures and standards will increase credit availability to the SPCP class.
  • SPCP Duration and Reevaluation (12 C.F.R., Pt. 1002, Supp. I, ¶ 8(a)-6). If an SPCP organization extends an SPCP beyond the duration set out in its written plan, the SPCP organization must document the terms of the extension. This ensures the continued administration of the SPCP under a written plan.
  • Determining Need for SPCP. To meet the requirement that:
    • an SPCP's written plan contain information that supports the need for the SPCP (12 C.F.R., Pt. 1002, Supp. I, ¶ 8(a)-6), the written plan must describe or incorporate the analysis that supports the need for the SPCP; and
    • the analysis show how the SPCP class would otherwise be denied credit or would receive credit on less favorable terms (12 C.F.R. § 1002.8(a)(3)(ii)), the SPCP organization must show a connection between the research or data that informed the analysis and the probability, under the SPCP organization's credit standards, that the SPCP class would not obtain credit or would obtain credit on less favorable terms.
    In doing its analysis, the SPCP organization may use statistical methods to estimate demographic characteristics, but it may not request demographic information it is prohibited from collecting, even to determine the need for the SPCP. The SPCP organization may only request and consider this information after establishment of the SPCP and to determine an applicant's eligibility for the SPCP.
The opinion is effective January 15, 2021.