ECOA, Equal Credit Opportunity Act

Under 15 U.S.C. § 1691a(e), a creditor for purposes of the Equal Credit Opportunity Act include entities that extend credit or that arrange credit, and assignees of a creditor who participate in the credit decision. See also, Regulation B, 12 C.F.R. § 202.(l). The Official Staff Commentary is equally clear: “1. Assignees. The term creditor includes all persons participating in the credit decision. This may include an assignee or potential purchaser of the obligation who influences the credit decision by indicating whether or not it will purchase the obligation if the transaction is consummated.” Official Staff Commentary to Regulation B, 12 C.F.R. § 202, Supplement I, Comm. 202.2(c)(2)(v)-2l. When a creditor violates this statute, the creditor is liable for actual damages and statutory damages and a court my grant equitable and declaratory relief. 15 U.S.C. § 1691(e). Like other federal consumer statutes, the protective posture of this legislation is also shown in its enforcement through a system of private attorneys general. See Edwards v. Your Credit, Inc., 148 F.3d 427, 432 (5th Cir. 1998)(regarding Truth in Lending Act claims but equally applicable to the Equal Credit Opportunity Act.)

As part of the ECOA’s comprehensive regulation, a creditor must inform a consumer of the action taken on a credit application within thirty days. 15 U.S.C. § 1691(d). Like other consumer protection statutes, attempted compliance is not sufficient. See Jochum v. Pico Credit Corp., 730 F.2d 1041 (5th Cir. 1984)(untimely notice through a third-party not sufficient); Pierce v. Citibank, 843 F. Supp. 646 (D. Or. 1994)(notice to spouse not sufficient).

Pursuant to 15 U.S.C. § 1691(d), within thirty days of taking an adverse action against a credit application, a creditor must provide a written notice of the action. The written notice must state the reasons for the denial or identify the person or office from which a statement of the reasons for the denial may be obtained. 15 U.S.C. § 1691(d)(2). Under the provisions of Regulation B, adverse action includes “[a] refusal to grant credit in substantially the amount or on substantially the terms requested in an application,” and “[a] termination of an account or an unfavorable change in the terms of an account that does not affect all or a substantial portion of a class of the creditor’s accounts.” 12 C.F.R. § 202.2(c)(1)(i) and(ii).

Requiring this adverse action notice was perhaps the most significant of the 1976 amendments to the ECOA, and was designed to fulfill the twin goals of consumer protection and education. Fischl v. General Motors Acceptance Corp., 708 F.2d 143, 146 (5th Cir. 1983). The Senate report for these ECOA amendments stated that a strict notice provision was a strong and necessary adjunct to the anti-discrimination purpose of the legislation, for only if creditors know they must explain their decisions will they effectively be discouraged from discriminatory practices. Yet this requirement fulfills a broader need: rejected credit applicants will now be able to learn where and how their credit status is deficient and this information should have a pervasive and valuable educational benefit. Instead of being told only that they do not meet a particular creditor's standards, consumers particularly should benefit from knowing, for example, that the reason for the denial is their short residence in the area, or their recent change of employment, or their already overextended financial situation. In those cases where the creditor may have acted on misinformation or inadequate information, the statement of reasons gives the applicant a chance to rectify the mistake. S. Rep. No. 94 589, 94th Cong., 2d Sess., reprinted in 1976 U.S.Code Cong. & Admin. News, pp. 403, 406. n3.

The Federal Reserve Board has informed creditors that they must specify exactly why an adverse action was taken. For instance, creditors who use a credit scoring system must be ready to disclose “those factors actually scored in the system. Moreover, no factor that was a principal reason for adverse action may be excluded from disclosure. The creditor must disclose the actual reasons for denial (for example, “age of automobile”) even if the relationship of that factor to predicting creditworthiness may not be clear to the applicant.” Official Staff Commentary to Regulation B, 12 C.F.R. § 202, Supplement I, Comm. 202.9(b)(2)-4. As with a notice of approval, the adverse action notices must be truthful about the facts which they express. Fischl., 708 F.2d at 148 (finding notice was “manifestly inappropriate” because it stated denial was based on insufficient credit references when the real reason was the brevity of the history). If a consumer cannot learn the creditor’s minimum standards for accepting credit, the consumer can neither “improve his credit application, correct any misinformation in his credit record, or guard against discrimination, thus thwarting both the protective and educational objectives of the ECOA.” Id.

The complete definition of “adverse action” includes:

(i) A refusal to grant credit in substantially the amount or on substantially substantially the terms requested in an application unless the creditor makes a counteroffer (to grant credit in a different amount or on other terms) and the applicant uses or expressly accepts the credit offered;

(ii) A termination of an account or an unfavorable change in terms of an account that does not affect all or a substantial portion of a class of the creditor’s accounts; or

(iii) A refusal to increase the amount of credit available to an applicant who has made an application for an increase. 12 C.F.R. §202.2(c)(i-iii) emphasis added.