CFPB Reiterates ECOA Protections Apply to Post-Application Events
On May 9, 2022, the Consumer Financial Protection Bureau (CFPB) released an advisory opinion in which it reiterated its position that the Equal Credit Opportunity Act (ECOA) and its implementing Regulation B protect “applicants” throughout the lifecycle of an extension of credit, and not simply during the application stage. To support the need for its opinion, the CFPB cited the fact that some creditors have challenged the applicability of ECOA to post-application events such as account closure or adverse changes to terms, and that creditors were also declining to provide adverse action notices in such instances. In issuing the advisory opinion, the CFPB invoked its authority under the Dodd-Frank Act to issue “interpretive rules,” which, significantly, are not subject to the notice-and-comment process of the Administrative Procedures Act and thus can be issued unilaterally by the agency.
While arguably contrary to the normal understanding of the word “applicant” and its definition in ECOA itself, the CFPB’s position that an “applicant” includes borrowers who have already been granted credit is a longstanding one, having been adopted by the Federal Reserve over 40 years ago in Regulation B. As the advisory opinion notes, certain provisions of the ECOA could suggest that its protections may extend beyond the initial application process, and Congress has passed on opportunities to amend ECOA to clarify the point, suggesting legislative approval of, or at least non-objection to, the Federal Reserve’s (and now the CFPB’s) position. Further, while courts have been mixed on the question, some have upheld Regulation B’s broad application as consistent with the ECOA’s intent, as discussed in the CFPB’s release. The issue is currently pending in a Seventh Circuit case brought against a bank by a private litigant in which the CFPB, joined by the US Department of Justice, the Federal Reserve Board, and the Federal Trade Commission, filed an amicus brief last December making essentially the same arguments as in the advisory opinion.
Although the appropriate scope of the term “applicant” as used in ECOA is an interesting question that may one day be finally settled by the courts or further legislative action, for the time being lenders subject to ECOA and Regulation B—and particularly those under the supervision of the CFPB—should take note of the agency’s position and review their loan servicing policies, procedures, and practices accordingly, as examiners will undoubtedly do the same. And with the DOJ, Federal Reserve, and FTC (all of which wield ECOA enforcement authority) indicating their concurrence with the CFPB’s position in the recent amicus brief, other creditors subject to Regulation B should also take notice.
Financial institutions interested in how the position taken by the CFPB in its advisory opinion may impact their businesses may contact any of authors of this Advisory or their usual Arnold & Porter contact. The firm's Financial Services team would be pleased to assist with any questions about CFPB supervision or consumer finance more broadly.
*Howard Duan contributed to this Advisory. Mr. Duan is a graduate of Harvard Law School and is employed at Arnold & Porter's New York office. He is not admitted to the practice of law.
© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.