Yesterday, eight federal agencies joined together to issue an “Interagency Statement on Special Purpose Credit Programs Under the Equal Credit Opportunity Act and Regulation B” (Interagency Statement). The agencies consist of the CFPB, FDIC, OCC, Federal Reserve Board, NCUA, HUD, DOJ, and FHFA. The Interagency Statement indicates that it is intended “to remind creditors of the ability under the Equal Credit Opportunity Act (ECOA) and Regulation B to establish special purpose credit programs to meet the credit needs of specified classes of persons” and to “call attention to the special purpose credit options under ECOA and Regulation B.”
Although the ECOA and Regulation B prohibit discrimination on certain prohibited bases in any aspect of a credit transaction, and indeed prohibit asking for most protected class information in a credit application, it is permissible for creditors to offer special purpose credit programs (SPCPs) designed to meet special social needs, and to ask for and use protected class information to qualify applicants to participate in the program. In the Interagency Statement, the agencies:
- Review the ECOA and Regulation B provisions that establish the ability of creditors to offer SPCPs;
- Describe the CFPB’s December 2020 Advisory Opinion on SPCPs which discussed the content that a for-profit organization must include in a written plan that establishes and administers a SPCP and the type of research and data that may be appropriate to inform a for-profit organization’s determination to establish a SPCP to benefit a specified class of persons;
- Describe HUD’s December 2021 guidance in which HUD concluded that SPCPs instituted in conformity with the ECOA and Regulation B generally do not violate the Fair Housing Act (FHA); and
- Encourage creditors to explore opportunities to develop SPCPs consistent with ECOA and Regulation B requirements as well as applicable sound lending principles (but also note that the agencies do not determine whether a program qualifies for special purpose credit and advise creditors that they can consult their appropriate regulatory agencies with questions about SPCPs).
Although the ECOA expressly provides for SPCPs, the FHA does not. In the December 2021 HUD guidance referenced in the Interagency Statement, HUD’s General Counsel stated that “a non-profit organization’s Special Purpose Credit Program established to serve an economically disadvantaged class of persons or a for-profit institution’s Special Purpose Credit Program designed and implemented in compliance with ECOA and Regulation B generally do not violate the [Fair Housing] Act.”
While the Interagency Statement does not plow new ground, it is noteworthy that these eight federal agencies are collaborating to actively promote the broader use of SPCPs for the very first time. Although SPCPs have been available under the ECOA and Regulation B for over 45 years, until the CFPB issued its Advisory Opinion in December 2020, financial institutions were historically reluctant to use SPCPs because of regulatory uncertainty concerning compliance and the potential for examination criticism.
In a blog post about the Interagency Statement, the CFPB noted that “[c]reating programs that work to serve disadvantaged individuals and small businesses can provide an important means of addressing unmet needs while strengthening communities.” Two leaders of the CFPB’s Fair Lending Office recently published an article advocating for broader use of SPCPs by creditors and calling SPCPs a “central priority” for the CFPB’s efforts to address racial equity.
Members of Ballard Spahr’s Consumer Financial Services Group have helped a number of clients structure and launch SPCPs. Last year, we held a webinar on SPCPs in which we provided an overview of ECOA and Regulation B requirements and discussed the CFPB Advisory Opinion as well as issues and challenges in developing SPCPs and required written plans. To request a recording of the webinar, send your request to email@example.com.