Letter to Credit Unions on ECOA

Last month, the NCUA issued a letter to credit unions 22-CU-04 (“Letter”) highlighting prohibited practices under the Equal Credit Opportunity Act (ECOA). The NCUA prepared this Letter as a general refresher of the nondiscrimination requirements found in the ECOA and to signal fair lending risk areas that credit unions should be aware of.

The Letter reminds federally insured credit unions that the ECOA promotes the availability of credit to all creditworthy applicants without regard to race, color, religion, national origin, sex, marital status, or age; the fact that an applicant’s income may come from public assistance; or the fact that the applicant has exercised any rights under the Consumer Credit Protection Act. The ECOA prohibits any discrimination based on these factors and requires the NCUA to refer certain violations to the US Department of Justice.
The Letter defines discriminatory credit practices and gives examples including:
– Fail to provide information or services or provide different information or services about any aspect of the lending process, including credit availability, application procedures, or lending standards;
-Discourage or selectively encourage applicants with respect to inquiries about or applications for credit;
-Treat a borrower differently in servicing a loan or invoking default remedies; or
-Use different standards for pooling or packaging a loan in the secondary market.

In addition, lenders may not express a preference based on prohibited factors or indicate they will treat applicants differently on a prohibited basis. This includes discriminating because of the characteristics of an applicant; a person associated with an applicant or prospective applicant; or the characteristics of the neighborhood where the property to be financed is located.  The Letter reminds credit unions that disparate treatment occurs when an applicant or prospective applicant is treated differently by the lender based on one of the prohibited bases.

The NCUA reminds credit unions that disparate treatment does not require “showing the treatment was motivated by prejudice or a conscious intention to discriminate” and can be an unintentional consequence of credit union policies.  The Letter highlights certain areas of fair lending risk that credit unions should be aware of:
-Applicant Marital Status
– Applicant Age
– Income Consideration
-Indirect Lending
For more information on fair lending risk factor, the Letter directs credit unions to the Interagency Fair Lending Examination Procedures.