June 26, 2022

Volume XII, Number 177

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June 24, 2022

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CFPB Affirms that ECOA Protects Consumers After Receiving Credit

On May 9, the CFPB released an advisory opinion affirming that ECOA and its implementing rule, Regulation B, protect not only those persons actively seeking credit, but also those who have sought and received credit.  The CFPB stated in the opinion that “[d]espite this well-established interpretation, the Bureau is aware that some creditors fail to acknowledge that ECOA and Regulation B plainly apply to circumstances that take place after an extension of credit has been granted, including a revocation of credit or an unfavorable change in the terms of a credit arrangement.”  In addition, the Bureau states that it is “aware that some creditors fail to provide applicants with required notifications that include a statement of the specific reasons for the adverse action taken or disclose an applicant’s right to such a statement.”

The opinion also points out that ECOA protects applicants from discrimination “with respect to any aspect of a credit transaction,” not merely the application process, and that “applicant” is defined in ECOA to include persons who have applied for and received credit, not merely persons who are applying for credit.  The opinion also states that this issue has been considered in only a single United States Court of Appeals case, which agreed that the law protects existing borrowers.  While certain United States District Court opinions have interpreted ECOA more narrowly, the CFPB said it is not persuaded by those opinions.  “No court of appeals has endorsed these district courts’ narrow reading,” the opinion said. “These district court decisions read ‘applicant’ in isolation instead of reading this statutory term in context, as required by the [U.S.] Supreme Court.”

CFPB Director Rohit Chopra said in a related statement that “today’s advisory opinion and accompanying analysis makes clear that anti-discrimination protections do not vanish once a customer obtains a loan.”

Putting It Into Practice:  Loan servicers in particular must be aware that the anti-discrimination provisions in ECOA/Regulation B apply to actions they are taking or failing to take, which includes providing adverse action notices under appropriate circumstances.  Servicers should review their policies and procedures to determine that they are compliant with the advisory opinion.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 136
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About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm
Partner

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

213-617-4171
A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC
Associate

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...

202-747-2323
Sherwin Root Corporate Attorney Sheppard Mullin Los Angeles
Attorney

Mr. Root is a senior attorney in the Corporate Practice Group in the firm's Los Angeles office.

Practice Areas

Mr. Root handles transactions and regulatory issues for clients in the financial services industry, including banks, thrifts, and mortgage banking companies, and general corporate matters.  He is a former Senior Counsel at Home Savings of America, FSB, where he was the primary attorney responsible for legal matters relating to residential lending.

213-617-5465
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