CFPB Issues Advisory Opinion on Special Purpose Credit Programs

On December 21, 2020, the Bureau issued an advisory opinion (AO) on special purpose credit programs designed and implemented by for-profit organizations to meet special social needs. The AO was issued to address regulatory uncertainty regarding Regulation B, which implements the Equal Credit Opportunity Act (ECOA). The AO clarifies the content that a for-profit organization must include in a written plan that establishes and administers a special purpose credit program under Regulation B. In addition, it clarifies the type of research and data that may be appropriate to inform a for-profit organization’s determination that a special purpose credit program is needed to benefit a certain class of persons.

The ECOA prohibits discrimination in credit transactions based on sex, marital status, age, race, color, religion, national origin, receipt of public assistance benefits, and exercise of rights under the Federal Consumer Credit Protection Act. Congress has clarified that it does not constitute discrimination under the Act for a creditor to refuse to extend credit pursuant to a legally compliance special purpose credit program. Examples of special purpose credit programs include government sponsored housing credit subsidies for the aged or the poor and programs offering credit to a limited clientele such as credit union programs and educational loan programs.

Regulation B lays out compliance standards and general rules for special purpose credit programs.

A for-profit organization that offers or participates in a special purpose credit program to meet special social needs must establish and administer the program pursuant to a written plan. The plan must contain information that supports the need for the program, including:

• The class of persons that the program is designed to benefit (for example, a for-profit organization’s written plan might identify a class of persons as minority- or woman-owned small business owners, consumers with limited English proficiency, or residents living in tribal lands),
• The procedures and standards for extending credit pursuant to the program and how they will increase credit availability with respect to the identified class of persons,
• Either (i) the period during which the program will last or (ii) when the program will be reevaluated to determine if there is a continuing need for it, and
• A description of the analysis the organization conducted to determine the need for the program.

For-profit organizations that draft written plans containing the necessary elements as set forth in Regulation B and the AO will satisfy the requirement of Regulation B. The CFPB does not determine whether individual programs qualify for special purpose credit status. This means that a creditor may initiate a special purpose credit program without CFPB’s approval.

Contact us to learn more about how Compliance Core can help you design and implement the written plan for your special purpose credit program, including performing the research and analysis to support the need for your special purpose credit program.

Jacqueline Maduneme, CEO of Compliance Core and Compliance & Risk Management Consultant has 25+ years of experience in financial services compliance and risk management. She has designed and implemented numerous plans, policies, standards and procedures to support compliant programs, including, but not limited to, the Volcker Rule, HMDA Rule, Military Lending Act, Mortgage Servicing Rule, FDIC Recordkeeping Rule, DOL Fiduciary Rule, Treasury’s Qualified Financial Contract Recordkeeping Rule, AML Program, to name a few. With her experience and expertise, Compliance Core is well positioned to assist clients efficiently and effectively in managing compliance risk, so you can focus on running your business without worry.