For the purposes of this regulation,
unless the context indicates otherwise, the following definitions
apply.
(a) Account means an extension of
credit. When employed in relation to an account, the word use refers only to open-end credit.
(b) Act means the Equal Credit Opportunity Act (title VII of the Consumer
Credit Protection Act).
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(c) Adverse
action.
(1) The term means—
(i) a refusal to grant credit in substantially the amount or on substantially
the terms requested in an application unless the creditor makes a
counteroffer (to grant credit in a different amount or on other terms)
and the applicant uses or expressly accepts the credit offered;
(ii) a termination
of an account or an unfavorable change in the terms of an account
that does not affect all or substantially all of a class of the creditor’s
accounts; or
(iii)
a refusal to increase the amount of credit available to an applicant
who has made an application for an increase.
(2) The term does not include—
(i) a change in the terms of an account expressly agreed to by an
applicant;
(ii)
any action or forbearance relating to an account taken in connection
with inactivity, default, or delinquency as to that account;
(iii) a refusal or failure
to authorize an account transaction at a point of sale or loan, except
when the refusal is a termination or an unfavorable change in the
terms of an account that does not affect all or substantially all
of a class of the creditor’s accounts, or when the refusal is a denial
of an application for an increase in the amount of credit available
under the account;
(iv) a refusal to extend credit because applicable law prohibits
the creditor from extending the credit requested; or
(v) a refusal to extend credit because
the creditor does not offer the type of credit or credit plan requested.
(3) An action
that falls within the definition of both paragraphs (c)(1) and (c)(2)
of this section is governed by paragraph (c)(2) of this section.
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(d) Age refers only to the age of natural
persons and means the number of fully elapsed years from the date
of an applicant’s birth.
(e) Applicant means
any person who requests or who has received an extension of credit
from a creditor, and includes any person who is or may become contractually
liable regarding an extension of credit. For purposes of section 202.7(d),
the term includes guarantors, sureties, endorsers and similar parties.
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(f) Application means an oral or written request
for an extension of credit that is made in accordance with procedures
used by a creditor for the type of credit requested. The term application does not include the use of an account or line of credit to obtain
an amount of credit that is within a previously established credit
limit. A completed application means an application in connection
with which a creditor has received all the information that the creditor
regularly obtains and considers in evaluating applications for the
amount and type of credit requested (including, but not limited to,
credit reports, any additional information requested from the applicant,
and any approvals or reports by governmental agencies or other persons
that are necessary to guarantee, insure, or provide security for the
credit or collateral). The creditor shall exercise reasonable diligence
in obtaining such information.
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(g) Business
credit refers to extensions of credit primarily for business or
commercial (including agricultural) purposes, but excluding extensions
of credit of the types described in section 202.3(a)-(d).
(h) Consumer credit means credit extended to a
natural person primarily for personal, family, or household purposes.
(i) Contractually liable means expressly
obligated to repay all debts arising on an account by reason of an
agreement to that effect.
(j) Credit means
the right granted by a creditor to an applicant to defer payment of
a debt, incur debt and defer its payment, or purchase property or
services and defer payment therefor.
(k) Credit
card means any card, plate, coupon book, or other single credit
device that may be used from time to time to obtain money, property,
or services on credit.
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(l) Creditor means a
person who, in the ordinary course of business, regularly participates
in a credit decision, including setting the terms of the credit. The
term includes a creditor’s assignee, transferee, or subrogee who so
participates. For purposes of sections 202.4(a) and (b), the term creditor also includes a person who, in the ordinary course of
business, regularly refers applicants or prospective applicants to
creditors, or selects or offers to select creditors to whom requests
for credit may be made. A person is not a creditor regarding any violation
of the act or this regulation committed by another creditor unless
the person knew or had reasonable notice of the act, policy, or practice
that constituted the violation before becoming involved in the credit
transaction. The term does not include a person whose only participation
in a credit transaction involves honoring a credit card.
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(m) Credit transaction means every aspect of an applicant’s
dealings with a creditor regarding an application for credit or an
existing extension of credit (including, but not limited to, information
requirements; investigation procedures; standards of creditworthiness;
terms of credit; furnishing of credit information; revocation, alteration,
or termination of credit; and collection procedures).
(n) Discriminate against an applicant means to treat an applicant
less favorably than other applicants.
(o) Elderly means age 62 or older.
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(p) Empirically derived and other credit scoring
systems.
(1) A credit scoring system is a
system that evaluates an applicant’s creditworthiness mechanically,
based on key attributes of the applicant and aspects of the transaction,
and that determines, alone or in conjunction with an evaluation of
additional information about the applicant, whether an applicant is
deemed creditworthy. To qualify as an empirically derived, demonstrably
and statistically sound, credit scoring system, the system must
be—
(i) based on data that are derived from
an empirical comparison of sample groups or the population of creditworthy
and noncreditworthy applicants who applied for credit within a reasonable
preceding period of time;
(ii) developed for the purpose of evaluating
the creditworthiness of applicants with respect to the legitimate
business interests of the creditor utilizing the system (including,
but not limited to, minimizing bad debt losses and operating expenses
in accordance with the creditor’s business judgment);
(iii) developed and validated using
accepted statistical principles and methodology; and
(iv) periodically revalidated by the
use of appropriate statistical principles and methodology and adjusted
as necessary to maintain predictive ability.
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(2) A creditor may use an empirically derived,
demonstrably and statistically sound, credit scoring system obtained
from another person or may obtain credit experience from which to
develop such a system. Any such system must satisfy the criteria set
forth in paragraph (p)(1)(i) through (iv) of this section; if the
creditor is unable during the development process to validate the
system based on its own credit experience in accordance with paragraph
(p)(1) of this section, the system must be validated when sufficient
credit experience becomes available. A system that fails this validity
test is no longer an empirically derived, demonstrably and statistically
sound, credit scoring system for that creditor.
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(q) Extend credit and extension of credit mean the
granting of credit in any form (including, but not limited to, credit
granted in addition to any existing credit or credit limit; credit
granted pursuant to an open-end credit plan; the refinancing or other
renewal of credit, including the issuance of a new credit card in place of an
expiring credit card or in substitution for an existing credit card;
the consolidation of two or more obligations; or the continuance of
existing credit without any special effort to collect at or after
maturity).
(r) Good faith means honesty
in fact in the conduct or transaction.
(s) Inadvertent
error means a mechanical, electronic, or clerical error that a
creditor demonstrates was not intentional and occurred notwithstanding
the maintenance of procedures reasonably adapted to avoid such errors.
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(t) Judgmental system of evaluating applicants means any system for evaluating the creditworthiness of an applicant
other than an empirically derived, demonstrably and statistically
sound, credit scoring system.
(u) Marital status means the state of being unmarried, married, or separated, as defined
by applicable state law. The term unmarried includes persons
who are single, divorced, or widowed.
(v) Negative
factor or value, in relation to the age of elderly applicants,
means utilizing a factor, value, or weight that is less favorable
regarding elderly applicants than the creditor’s experience warrants
or is less favorable than the factor, value, or weight assigned to
the class of applicants that are not classified as elderly and are
most favored by a creditor on the basis of age.
(w) Open-end credit means credit extended under a plan in
which a creditor may permit an applicant to make purchases or obtain
loans from time to time directly from the creditor or indirectly by
use of a credit card, check, or other device.
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(x) Person means a natural person, corporation, government or governmental
subdivision or agency, trust, estate, partnership, cooperative, or
association.
(y) Pertinent element of creditworthiness, in relation to a judgmental system of evaluating applicants, means
any information about applicants that a creditor obtains and considers
and that has a demonstrable relationship to a determination of creditworthiness.
(z) Prohibited basis means race, color, religion,
national origin, sex, marital status, or age (provided that the applicant
has the capacity to enter into a binding contract); the fact that
all or part of the applicant’s income derives from any public assistance
program; or the fact that the applicant has in good faith exercised
any right under the Consumer Credit Protection Act or any state law
upon which an exemption has been granted by the Board.
(aa) State means any state, the District of Columbia,
the Commonwealth of Puerto Rico, or any territory or possession of
the United States.
