Expanding access to credit to underserved communities

By Susan M. Bernard and Patrice Alexander Ficklin – JUL 31, 2020

The Equal Credit Opportunity Act (ECOA) and Regulation B prohibit discrimination on a prohibited basis in any aspect of a credit transaction. The Special Purpose Credit Program (SPCP) provisions of the Equal Credit Opportunity Act (ECOA) and Regulation B, however, provide targeted means by which creditors can meet special social needs and benefit economically disadvantaged groups. We wish to remind both for-profit and not-for-profit creditors of the availability under ECOA and Regulation B of SPCPs to meet the credit needs of underserved communities.

In particular, ECOA and Regulation B permit for-profit organizations to offer SPCPs or participate in SPCPs to meet special social needs, if:

The program is established and administered pursuant to a written plan that identifies the class of persons that the program is designed to benefit and sets forth the procedures and standards for extending credit pursuant to the program; and
The program is established and administered to extend credit to a class of persons who, under the organization’s customary standards of creditworthiness, probably would not receive such credit or would receive it on less favorable terms than are ordinarily available to other applicants applying to the organization for a similar type and amount of credit.

The Regulation B commentary clarifies that, in order to satisfy these requirements, “a for-profit organization must determine that the program will benefit a class of people who would otherwise be denied credit or would receive it on less favorable terms. This determination can be based on a broad analysis using the organization’s own research or data from outside sources, including governmental reports and studies.”

ECOA and Regulation B do not require this determination for special purpose credit offered under “[a]ny credit assistance program offered by a not-for-profit organization, as defined under section 501(c) of the Internal Revenue Code of 1954, as amended, for the benefit of its members or for the benefit of an economically disadvantaged class of persons.”

Regulation B also provides that a creditor may affirmatively solicit or encourage members of traditionally disadvantaged groups to apply for credit, especially groups that might not normally seek credit from that creditor.

The Bureau calls creditors’ attention to these opportunities to develop SPCPs and use affirmative advertising consistent with ECOA and Regulation B requirements.