The Bank Policy Institute1 appreciates the opportunity to comment on the request for information issued2 by the Consumer Financial Protection Bureau seeking input on the Equal Credit Opportunity Act and Regulation B.
The Equal Credit Opportunity Act is the nation’s principal fair lending law and, with its implementing regulation, Regulation B, plays a vital role in protecting consumers against unlawful discrimination in any aspect of a credit transaction. ECOA and Regulation B use a variety of regulatory tools to prevent discrimination on the basis of race, national origin, sex, and other prohibited bases, including principles-based prohibitions on unlawful discrimination and discouragement, substantive restrictions on the collection and use of certain consumer information, and consumer disclosures. At the same time, ECOA and Regulation B seek to promote expanded credit availability to traditionally underserved populations through methods such as affirmative outreach and advertising (including to non-English speaking populations) and special purpose credit programs. The CFPB and other federal and state regulators exercise their supervisory and enforcement powers to monitor and enforce compliance with ECOA and Regulation B.
BPI and its members support the twin goals of ECOA and Regulation B to prevent unlawful credit discrimination and promote the availability of credit to all creditworthy applicants without regard to race, national origin, sex, or other prohibited bases. BPI believes the CFPB has an opportunity to modernize Regulation B and related guidance to better meet these goals. As outlined below, BPI strongly supports efforts to enhance the fairness and accuracy of credit decisions and to expand access to credit for traditionally underserved borrowers. Specifically, BPI urges the CFPB to take the steps set forth below to promote fairer, more inclusive, and more accurate credit markets:
- Serving limited English proficiency consumers. The CFPB should provide flexible standards and safe harbors to support the provision of in-language services to limited English proficiency (“LEP”) consumers. These flexible standards and safe harbors should clarify fair lending and unfair, deceptive, or abusive acts or practices (“UDAAP”) compliance expectations for in- language communications without imposing impractical or burdensome requirements on banks, such as obligations to service an entire loan in-language or to require identical treatment when providing in-language services (e.g., such as requiring an interpreter in all cases). In particular, the CFPB should adopt safe harbors for good faith efforts to provide in-language disclosures materially similar to English-language disclosures and translation services, and to document and disclose LEP policies, and should publish in-language model forms and disclosures. The CFPB also should clarify that verbatim translations of marketing and advertising are not required to ensure accuracy and should facilitate in-language consumer financial education to LEP consumers. Additional guidance or safe harbors could address third-party risk management, testing, the use of in-language across business lines and at different stages of the loan process, and consideration of relevant state law requirements.
- Adopt a pragmatic Small Business Data Collection Rule. The CFPB should take a pragmatic approach in proposing and finalizing its Small Business Data Collection Rule. As BPI will discuss in a separate comment letter, the CFPB should create a level playing field between large and small reporting institutions to equalize the burdens and avoid distortions in the data, adopt a streamlined definition of small business (gross revenues of $1 million or less in the preceding calendar year), and limit data collection to the data points mandated by Section 1071 of the Dodd-Frank Act.
- Provide additional clarity on special purpose credit programs to enhance their use. The CFPB should promote the enhanced use of special purpose credit programs (“SPCPs”) to foster a more inclusive credit system through programs targeted to reach traditionally disadvantaged groups, including minority borrowers. The CFPB should make SPCPs more useful by creating a safe harbor from liability for good faith efforts by creditors to establish and implement SPCPs designed to serve traditionally disadvantaged borrowers, publishing a model written plan or plans, and providing additional guidance to clarify what constitutes a business justification for a SPCP and the appropriate scope and limits for SPCPs.
- Provide additional guidance regarding affirmative advertising to promote constructive outreach. The CFPB should revise the currently sparse official commentary regarding affirmative marketing to provide greater clarity and guidance to promote such affirmative outreach to traditionally disadvantaged groups, including minorities. Additional guidance would assure creditors and other participants in the credit marketing ecosystem that affirmative advertising to disadvantaged and underserved borrowers is consistent with fair lending laws and regulations. The CFPB, among other things, should clarify how to determine the status of a “traditionally disadvantaged group,” provide guidance to distinguish affirmative advertising from prohibited steering, redlining, discouragement, or UDAAPs, and make clear that market research and the use of fictional personas do not raise fair lending issues.
- Provide more, and more frequent, determinations about whether state laws are “inconsistent” with ECOA and Regulation B. BPI recognizes that the preemption standard in ECOA and Regulation B set a high bar for determining whether state law prohibitions against credit discrimination are preempted. State anti-discrimination laws vary widely, however, and the multiplicity of state-law standards and the lack of clarity about whether they apply makes institutions’ compliance programs more costly and less efficient. A regular cadence of CFPB review and determination of state laws identified as potentially inconsistent would mitigate this uncertainty.
- Undertake a principled modernization of Regulation B and related guidance to foster the use of artificial intelligence (“AI”) and machine learning (“ML”) models in credit underwriting. The CFPB has an opportunity to advance fair lending objectives in a meaningful way through a principled modernization of the regulatory framework to accommodate AI/ML credit underwriting models. These models hold great promise for generating fairer, more inclusive, and more accurate credit underwriting decisions. This principled modernization should focus on: (i) coordination and consistency among the CFPB and the federal banking agencies; (ii) maintaining ECOA’s focus on preventing credit discrimination; (iii) updating model risk management standards to reflect the unique features of AI/ML models and to harmonize consumer protection and safety and soundness goals; (iv) transparency; and (v) reconsidering the methods and reasons provided in adverse action notices.
The rest of this letter elaborates on BPI’s views regarding each of these important issues.