GNYADA 2019 Membership Directory & Services Guide

hot topics / 2019 membership directory & services guide

The Equal Credit Opportunity Act (“ECOA”) and the Federal Reserve Board’s Regulation B ECOA and its implementing regulation, Regulation B, prohibit auto dealers from discriminating against applicants for credit on the basis of race, color, religion, national origin, sex, marital status, age, because an applicant receives income from a public assistance program, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act. Certain state laws include additional protected class categories. The BCFP has entered into consent orders with several finance sources over alleged violations of the ECOA’s antidiscrimination provisions. As a result, many finance sources require dealers to implement and maintain a fair lending compliance program. See Chapters 2 and 12 for more information. If gross income rather than net income is used in determining a consumer’s repayment ability, ECOA will generally require that nontaxable income be“grossed up”tomake it equivalent to taxable income in order to avoid allegations of a disparate impact on applicants, such as those with disabilities and the elderly, both of whom are more likely than the general applicant pool to receive substantial nontaxable income. ECOA has other considerations relating to income, e.g., a creditor may not discount part-time income in evaluating a consumer’s creditworthiness. The Federal Reserve Board (the agency responsible for Regulation B prior to such responsibility being transferred to the BCFP) staff has long held the view that ECOA does not apply to a lease transaction because it is not “credit” as defined by the ECOA. Some courts have taken the opposite—and in our view, incorrect—position, however, most lessors in the industry treat leases as though they are subject to the ECOA as a best practice. Given the uncertainty over whether the BCFP might choose to treat leases as subject to the ECOA, doing so might be an excellent practice. ECOA also requires that credit application forms (or scripts, as applicable) contain certain disclosures, such as the consumer’s right to not reveal income from alimony, child support, or separate maintenance if the consumer does not want such income to be considered as a basis for repaying the credit obligation. Certain state laws impose additional notice requirements in credit applications. Regulation B also requires that multiple consumer applicants affirmatively state on the credit application whether or not they want to apply for joint credit. There has been a recent increase in fair lending activity at the state level. New York is an example of a state with its own fair lending rules, and recently New York extended protected class coverage to two additional categories: military status and sexual orientation. The New York Department of Financial Institutions also issued a reminder to sales finance companies about compliance with New York’s Fair Lending Law, including the fact that financial institutions may be liable for pricing disparities or discrimination based on the dealer reserve amount. In another recent example, Connecticut imposed a new requirement for sales finance companies to acquire and maintain information about the ethnicity, race, and sex of applicants for motor vehicle retail installment contracts. However, a temporary“no action”memo was issued by the Connecticut Banking Commissioner indicating that Connecticut’s Department of Banking will not enforce that new law pending receipt of an advisory opinion it requested from the BCFP. Under ECOA, this type of data collection is authorized for mortgage, not auto transactions. Adverse Action Notice Obligations Under ECOA and FCRA Adverse action means a refusal to grant credit or a refusal to grant credit in substantially the amount or on substantially the terms requested by the consumer, unless the consumer accepts a counteroffer of credit. Adverse

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