On January 26, 2021, the FTC sent its annual letter to the CFPB reporting on the FTC’s activities related to the Equal Credit Opportunity Act (“ECOA”) and Regulation B. The Bureau leverages the FTC’s annual letter for its own Annual Report to Congress on ECOA.
The FTC has authority to enforce the ECOA and Regulation B with respect to nonbank financial service providers within its jurisdiction. The letter notes that, consistent with the Dodd-Frank Act, the FTC continues to coordinate certain ECOA enforcement, rulemaking, and other activities with the CFPB pursuant to a memorandum of understanding with the Bureau.
Unlike several of the FTC’s prior letters on its ECOA activities in recent years, the letter describes the Commission’s 2020 ECOA enforcement activities. As usual, the letter contains sections on research and policy developments, as well as educational efforts.
With regard to fair lending enforcement, the letter highlights two developments:
- The FTC brought one fair lending enforcement action in 2020 in federal court against a New York City car dealer and its general manager. In the FTC’s complaint, the Commission alleged that defendants violated ECOA and Regulation B by discriminating against African American and Hispanic consumers who financed vehicle purchases by charging them higher dealer mark-ups and fees than similarly situated non-Hispanic white consumers. In May 2020, the defendants agreed to pay $1.5 million to settle the charges, which the FTC issued as refunds to affected individuals. Defendants were also required to establish a fair lending program that will place a cap on the amount of any interest mark-up the dealer may charge to consumers, among other things.
- During 2020, the FTC and CFPB jointly filed an amici curiae brief with the U.S. Court of Appeals for the Second Circuit in Tewinkle v. Capital One, N.A., which urged the court to reverse a district court ruling that an individual who had already received credit from the defendant and who was not currently applying to the defendant for credit was not an “applicant” for purposes of the ECOA’s adverse action notice requirement. The plaintiff had alleged that a notice sent to him by the bank that it was terminating his checking account and overdraft line did not comply with the adverse action notice requirement in ECOA and Regulation B. The district court adopted the magistrate’s recommendation that the complaint should be dismissed because the plaintiff was not applying for credit and therefore was not an “applicant” entitled to notice under the ECOA. The agencies argue that an individual does not cease to be an ”applicant” under ECOA and Regulation B after receiving (or being denied) an extension of credit and that ECOA’s protections apply to any aspect of credit transaction, including those pertaining to an existing arrangement with a creditor, noting there is “no temporal qualifier in the statute.” The brief also argues that Regulation B has for nearly 50 years expressly provided that the term “applicant” includes those who have received credit from a creditor. The matter remains pending in the Second Circuit.
With respect to research and policy development, the initiatives described in the letter include the following:
- The FTC submitted a comment letter in response to the CFPB’s request for information concerning ECOA and Regulation B. The comment addressed two topics related to agency discretion and highlighted the FTC’s work in disparate impact analysis and small business lending.
- In 2020, the FTC hosted the 13th Annual FTC Microeconomics Conference, which included a paper session and discussion on “Un”Fair Machine Learning Algorithms. The issues addressed were that financial institutions increasingly use machine learning algorithms in making decisions in areas such as access to credit, and several studies have shown that enforcing equal treatment in algorithms often leads to disparate outcomes across demographic groups if systemic differences exist in the groups.
- The FTC’s Military Task Force continued its work on military consumer protection issues. The letter also notes that the FTC staff serves as a liaison to the American Bar Association’s Standing Committee on Legal Assistance for Military Personnel (“ABA LAMP”), which supports initiatives to deliver legal assistance and services to servicemembers, veterans, and their families.
- The FTC continues to be a member of the Interagency Task Force on Fair Lending along with the CFPB, DOJ, HUD and the federal banking agencies. Interestingly, the letter notes that “[s]tarting in 2020, the FTC also began participating in the newly-formed Interagency Fair Lending Methodologies Working Group.” The Working Group consists of staff members from the FTC, CFPB, DOJ, HUD, federal banking agencies, and the Federal Housing Finance Agency. The Working Group’s purpose is to “coordinate and share information on analytical methodologies used in enforcement of and supervision for compliance with fair lending laws, including ECOA, among others.” Currently, no information is publicly available about this new group.
- With regard to the FTC’s consumer and business educational initiatives, the FTC states that in 2020, it “conducted efforts to provide education on significant issues, including those related to credit transactions to which Regulation B pertains.” As an illustration, the FTC references two blog posts – one related to the New York City auto dealer case (consumer tips to avoid discriminatory practices and fees and tips to avoid paying too much for a new car), and another related to the risk of unfair or discriminatory outcomes in businesses’ use of artificial intelligence technology.