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CFPB Issues Advisory Opinion on Coverage of Fair Lending Laws

No matter where you look, the constant theme of Fair Lending prevails.

On May 9, 2022, the Consumer Financial Protection Bureau (CFPB) published an advisory opinion to affirm that the Equal Credit Opportunity Act (ECOA)—a landmark federal civil rights law protecting individuals and businesses against discrimination in accessing and using credit—bars lenders from discriminating against customers after they have received a loan, not just during the application process.

The CFPB issued this advisory opinion and accompanying analysis to clarify that ECOA protects people from discrimination in all aspects of a credit arrangement. The advisory opinion is consistent with a recent legal brief filed by the CFPB, the Federal Trade Commission, the Federal Reserve Board of Governors, and the U.S. Department of Justice. Among other things, the advisory opinion states that ECOA:

  • Continues to protect borrowers after they have applied for and received credit: Lenders are prohibited from discriminating against borrowers with existing credit. For example, ECOA prohibits lenders from lowering the credit limit of certain borrowers’ accounts or subjecting certain borrowers to more aggressive collections practices on a prohibited basis, such as race.

  • Requires lenders to provide “adverse action notices” to borrowers with existing credit: Adverse action notices explain why an unfavorable decision was made against a borrower. Credit applicants and borrowers receive these notices for reasons including that credit was denied, AN EXISTING ACCOUNT WAS TERMINATED, OR AN ACCOUNT’S TERMS WERE UNFAVORABLY CHANGED. “Adverse action notices” discourage discrimination, and they help applicants and borrowers learn the reasons for creditors’ decisions.

For some time now Examiner testing has included procedures to ensure all denials receive the proper denial notices (via a check to credit reports pulled where credit was denied). Expect continued examiner emphasis in this area as well as increased testing for denial notices for terminated accounts or where account terms were unfavorably changed.