Using special purpose credit programs to serve unmet credit needs

Far too many minority households and businesses continue to lack fair and equitable access to credit. This critical unmet need, coupled with historic and ongoing discrimination such as redlining, has exacerbated the racial wealth divide and continues to leave many communities shut out from and underserved by lenders.

In February, the CFPB joined seven other federal agencies in issuing a statement encouraging lenders to explore opportunities available to them to increase credit access through special purpose credit programs (SPCPs) to better serve historically disadvantaged individuals and communities.

Responding to the credit needs of individuals and communities

Under Federal law, lenders are permitted to design and implement SPCPs to extend credit to a class of persons who would otherwise be denied credit or would receive it on less favorable terms, under certain conditions.

In particular, the Equal Credit Opportunity Act (ECOA) and Regulation B permit creditors to offer or participate in SPCPs to meet special social needs through:

1. Any credit assistance program authorized by federal or state law for the benefit of an economically disadvantaged class of persons;
2. Any credit assistance program offered by a non-for-profit organization for the benefit of its members or an economically disadvantaged class of persons; or
3. Any SPCP offered by a for-profit organization, or in which such an organization participates to meet special social needs, if it meets certain standards prescribed in regulation by the Bureau.

Previously, the CFPB issued guidance that helped to explain how lenders can offer or participate in a SPCP. In addition, the Department of Housing and Urban Development recently issued guidance confirming SPCPs for real estate loans or credit assistance, that are compliant with ECOA and Regulation B, generally would not violate the Fair Housing Act.

While the CFPB and other federal agencies don’t determine whether a specific program qualifies for special purpose credit status, lenders may consult their appropriate regulatory agencies with questions about any aspect of ECOA and Regulation B’s special purpose credit provisions.

Joint SPCP initiative

The interagency statement calls attention to these programs as one way to expand access to critical financial services, including mortgage lending.

Recent research has shown that the average white family has eight times more wealth than the average Black family. Research also indicates that Black and Hispanic credit applicants are often denied at higher rates, and minority small business owners are often approved for smaller amounts of financing than their white counterparts.

A fair and well-regulated financial system serves as a critical engine for growth and economic mobility. Creating programs that work to serve disadvantaged individuals and small businesses can provide an important means of addressing unmet needs while strengthening communities.

Working with our agency partners, the CFPB is committed to exploring incentives that better serve those who have been historically shut out of the mainstream credit markets.

Read the full interagency statement

Contacting the CFPB regarding SPCPs

Interested stakeholders should contact the CFPB with questions or requests for consultations about SPCPs. Below is more information on how specific stakeholders can reach out.

• Institutions under the CFPB’s supervisory jurisdiction should direct their questions and requests for meetings and consultations about SPCPs to their CFPB supervisory contact. Institutions outside the CFPB’s supervisory jurisdiction (like banks with less than $10 billion in assets) should contact their primary bank supervisor.
• Consumer, community, civil rights, and nonprofit advocacy groups should direct their questions and requests for meetings and consultations regarding SPCPs to the CFPB’s Public Engagement and Community Liaison at PublicEngagement@cfpb.gov.
• Bank and nonbank trade associations should direct their questions and requests for meetings and consultations regarding SPCPs to the CFPB’s Financial Institutions and Business Liaison at CFPB_FinancialInstitutions@cfpb.gov.

The CFPB’s Office of Regulations also provides informal staff responses to questions about the regulations the CFPB implements, including Regulation B. All stakeholders can submit their questions about the CFPB’s regulations using this form. Responses provided by CFPB staff are not official interpretations and are not a substitute for legal counsel or other compliance advice.

Prior to contacting the CFPB, we recommend reviewing the SPCP provisions of Regulation B and the CFPB’s guidance that helps explain how institutions can offer or participate in a SPCP.

The CFPB looks forward to staying engaged with all stakeholders to advance the use of SPCPs on behalf of economically disadvantaged groups and in the broader struggle to address wealth inequity. .