United StatesEqual Credit Opportunity Act and Regulation B, notice of action taken and statement of specific reasons for adverse action
15 U.S.C. § 1691(d); 12 CFR § 1002.9
In force since .
An AI sector rules rule binding public and private bodies.
- Instrument type
- an act of a legislature
- Obligation class
- Disclosure
- Audit expectation
- none
As of .
What it requires
- It reaches you if you operate as a creditor: a person who regularly extends, renews, or continues credit, who regularly arranges for credit to be extended, renewed, or continued, or who, in the ordinary course of business, regularly participates in a credit decision, including setting the terms of the credit, but not a person whose only participation in a credit transaction involves honoring a credit card. The duty is triggered by adverse action, which does not include a refusal to extend additional credit under an existing credit arrangement where the applicant is delinquent or otherwise in default, or where the additional credit would exceed a previously established credit limit (15 U.S.C. 1691(d)(6)). A creditor must notify an applicant of the action taken within 30 days after receiving a completed application (15 U.S.C. 1691(d)(1); 12 CFR 1002.9(a)(1)(i)).
- Notify the applicant within 30 days after taking adverse action on an incomplete application (unless you send a notice of incompleteness), within 30 days after taking adverse action on an existing account, and within 90 days after notifying the applicant of a counteroffer that the applicant does not expressly accept or use (12 CFR 1002.9(a)(1)(ii) to (iv)).
- When you take adverse action (a denial or revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the terms requested), give the applicant a written notice that states the action taken, your name and address, the Equal Credit Opportunity Act (ECOA) notice substantially similar to the model text in Regulation B, and the name and address of the Federal agency that administers compliance with respect to you (15 U.S.C. 1691(d)(6); 12 CFR 1002.9(a)(2), (b)(1)).
- In that notice, either state the specific reasons for the action taken, or disclose the applicant's right to a statement of specific reasons within 30 days if the applicant requests it within 60 days of your notification, with the name, address and telephone number of the person or office from which the statement can be obtained (15 U.S.C. 1691(d)(2); 12 CFR 1002.9(a)(2)).
- State reasons that are specific and indicate the principal reasons for the adverse action; a statement that the action was based on your internal standards or policies, or that the applicant failed to achieve a qualifying score on your credit scoring system, is insufficient (15 U.S.C. 1691(d)(3); 12 CFR 1002.9(b)(2)).
- State only reasons that relate to and accurately describe the factors you actually considered or scored; where a credit scoring system produced the denial or other adverse action, the reasons must relate only to the factors actually scored in the system, and no factor that was a principal reason for the adverse action may be excluded from the disclosure (12 CFR 1002.9(b)(2) and its official interpretation).
- If you give the reasons orally, also disclose the applicant's right to have them confirmed in writing within 30 days of receiving the applicant's written request for confirmation (15 U.S.C. 1691(d)(2); 12 CFR 1002.9(a)(2)).
- For credit to a business with gross revenues in excess of $1 million in its preceding fiscal year, and for trade credit, credit incident to a factoring agreement and similar business credit, notify the applicant within a reasonable time, orally or in writing, and provide the written statement of reasons and the ECOA notice if the applicant makes a written request within 60 days of your notification (12 CFR 1002.9(a)(3)(ii)).
- If you did not act on more than 150 applications during the calendar year before the calendar year of the adverse action, you may give the statement of reasons by verbal statements or notifications (15 U.S.C. 1691(d)(5)).
If you get it wrong
Private right of actionYes
Statutory damages
No fixed per-person amount applies. A creditor is liable for actual damages without a stated cap, in an individual action or as a member of a class, and a creditor other than a government or governmental subdivision or agency is also liable for punitive damages of not greater than $10,000, with a class-action total not to exceed the lesser of $500,000 or 1 per centum of net worth.
- As of
- Class action available
- Yes
Who enforces it
Enforcement body
Consumer Financial Protection Bureau, which enforces the Act with respect to any person subject to it, with the Federal banking agencies, the National Credit Union Administration, the Securities and Exchange Commission and the Federal Trade Commission for the creditors section 1691c assigns to each
What this law does
Section 1691(d)(1) of title 15 requires a creditor to notify an applicant of its action on a completed application for credit within thirty days after receiving it, or within a longer reasonable time that the regulations of the Consumer Financial Protection Bureau specify for a class of credit transaction.
An applicant against whom adverse action is taken is entitled to a statement of reasons, which the creditor satisfies by providing statements of reasons in writing as a matter of course, or by giving written notification that discloses the applicant's right to a statement of reasons within thirty days after the creditor receives a request made within sixty days after the notification and the identity of the person or office from which the statement may be obtained.
A statement of reasons meets the requirements of section 1691(d) only if it contains the specific reasons for the adverse action taken. Regulation B requires the statement of reasons for adverse action to be specific and to indicate the principal reasons for the adverse action, and says that a statement that the action was based on the creditor's internal standards or policies, or that the applicant failed to achieve a qualifying score on the creditor's credit scoring system, is insufficient.
Regulation B requires a notice of adverse action to be in writing and to contain a statement of the action taken, the name and address of the creditor, a statement of the provisions of section 701(a) of the Act, the name and address of the Federal agency that administers compliance with respect to the creditor, and either a statement of specific reasons or a disclosure of the applicant's right to a statement of specific reasons within 30 days if the statement is requested within 60 days of the creditor's notification.
Under the official interpretation of Regulation B, the specific reasons disclosed must relate to and accurately describe the factors actually considered or scored by a creditor. The official interpretation also says that where a creditor bases a denial or other adverse action on a credit scoring system, the reasons disclosed must relate only to the factors actually scored in the system, and no factor that was a principal reason for adverse action may be excluded from disclosure.
Regulation B requires notice of action taken within 30 days after receiving a completed application, within 30 days after taking adverse action on an incomplete application unless a notice of incompleteness is provided, within 30 days after taking adverse action on an existing account, and within 90 days after notifying the applicant of a counteroffer that the applicant does not expressly accept or use.
For a business with gross revenues in excess of $1 million in its preceding fiscal year, and for trade credit, credit incident to a factoring agreement and similar business credit, Regulation B requires a creditor to notify the applicant of the action taken within a reasonable time and to provide a written statement of the reasons and the Equal Credit Opportunity Act (ECOA) notice if the applicant makes a written request for the reasons within 60 days of the creditor's notification.
A creditor that did not act on more than one hundred and fifty applications during the calendar year before the calendar year of the adverse action may satisfy the requirements of paragraphs (2), (3) and (4) of section 1691(d) by verbal statements or notifications, as determined under regulations of the Bureau.
The Act defines a creditor as any person who regularly extends, renews, or continues credit, any person who regularly arranges for the extension, renewal, or continuation of credit, or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit. Regulation B defines a creditor as a person who, in the ordinary course of business, regularly participates in a credit decision, including setting the terms of the credit.
Regulation B excludes from the term creditor a person whose only participation in a credit transaction involves honoring a credit card.
The Act defines adverse action as a denial or revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the terms requested, and excludes a refusal to extend additional credit under an existing credit arrangement where the applicant is delinquent or otherwise in default, or where the additional credit would exceed a previously established credit limit.
A creditor that fails to comply with a requirement of the Act is liable to the aggrieved applicant for any actual damages sustained, whether the applicant acts in an individual capacity or as a member of a class. A creditor other than a government or governmental subdivision or agency is also liable for punitive damages of not more than $10,000, and in a class action the total recovery of punitive damages cannot exceed the lesser of $500,000 or 1 per centum of the net worth of the creditor.
A successful action carries the costs of the action and a reasonable attorney's fee as determined by the court. A civil action under the Act may not be brought later than 5 years after the date of the occurrence of the violation, except that an applicant who is a victim of the discrimination that is the subject of an agency enforcement proceeding or an Attorney General civil action begun within the five years may sue not later than one year after that proceeding or action begins.
No provision of the Act imposing liability applies to an act done or omitted in good faith in conformity with an official rule, regulation, or interpretation of the Bureau. Under Regulation B, a creditor's failure to comply with section 1002.9 is not a violation if it results from an inadvertent error, and on discovering the error the creditor shall correct it as soon as possible.
The official interpretation lists clerical mistake, calculation error, computer malfunction and printing error among inadvertent errors, and says an error of legal judgment is not an inadvertent error. The Consumer Financial Protection Bureau enforces the Act with respect to any person subject to it, under subtitle E of the Consumer Financial Protection Act of 2010.
Except to the extent that enforcement is specifically committed to another agency under paragraphs (1) through (8) of subsection (a) of the enforcement section, and subject to subtitle B of the Consumer Financial Protection Act of 2010, the Federal Trade Commission is authorized to enforce the Act's requirements.
The Consumer Financial Protection Bureau published Regulation B as part 1002 of title 12 of the Code of Federal Regulations by an interim final rule effective , and the rule imposed no new substantive obligations on persons subject to the earlier Regulation B published by the Board of Governors of the Federal Reserve System.
When LexLint raises it
When your app profile says your app provides financial services or makes high-risk automated decisions.