This is our second post concerning fairness laws and regulations, with our continued focus on ECOA and Regulation B. Some historical background to provide context follows. First went into effect around 1972 through then Federal Reserve Regulation B (now Consumer Financial Protection Bureau aka CFPB holds rule-making authority over ECOA/Regulation B), it was intended to address inequalities in the lending sector for women, whose credibility was often tied to their husbands credit practices. Banks and other lenders were prohibited from discriminatory lending practices based upon gender or marital status. These 2, gender and marital status, were called prohibited bases. A few years later congress amended ECOA to add 7 other prohibited bases: age, race, national origin, religion, color, receipt of public income assistance, and prior exercise of a right of action under the Federal Consumer Credit Protection Act. In other words, lenders could not discriminate in ANY aspect of a lending transaction, from business strategy, to advertising, to the way you greet an applicant, loan pricing, collateral requirements, loan servicing etc on any one or more of these 9 Prohibited Bases, also known as Protected Classes. Discrimination in lending can be based only on pure financial factors, nothing more. An interesting note is that, while race is a protected class, meaning no race at all, negro, caucasian, asian, etc can be the basis of any lending criteria, federal banking regulators considered caucasian males to be the benchmark for best lending terms. Therefore all lending practices were measured against the prevalent terms provided to caucasian males. Rarely was a lender ever cited for adverse lending practices toward caucasian males compared to other racial groups and women. Sometimes, but rarely. In our next post, Ill go into the types of discrimination and some examples of them. Continue to keep in mind that we are examining this fairness law and its regulation in the context of a free market. Stay tuned!
Posted on: Fri, 11 Jul 2014 17:00:00 +0000
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