The Board of Governors issued Regulation B pursuant to section 703 of the Equal Credit Opportunity Act. The regulation prohibits discrimination in any credit transaction—whether for consumer or business purposes— on the basis of race, color, religion, national origin, sex, marital status, age (except in limited circumstances), receipt of income from public assistance programs, and good faith exercise of any rights under the Consumer Credit Protection Act. Regulation B applies to everyone who, in the ordinary course of business, regularly participates in the decision of whether or not to extend credit or how much to extend.

Regulation B deals with the application process starting at a point before the application is even taken. Lending officers and employees must be careful to take no action that would, on a prohibited basis, discourage anyone from applying for a loan. A creditor may not, therefore, advertise in ways that would tend to encourage some types of borrowers or discourage others on a prohibited basis. For instance, newspaper advertisements aimed explicitly at people who speak certain languages has been found to violate the Fair Housing Act. Such ads are also unlawful under Regulation B. Further, the selective use of newspapers, magazines, or radio or TV stations with a well-defined audience that would tend not to include, as a class, members of one or more of the protected categories of potential customers, is also prohibited. A creditor’s advertising practices must be viewed as a coherent whole. It is the cumulative impact that is at issue, not the use or avoidance of any particular publication or broadcaster.

As a general rule, a creditor may not request information about an applicant’s spouse or former spouse. Such information may, however, be requested when—

A creditor may not ask an applicant’s marital status except—

When a creditor inquires about income, it must ask questions designed to solicit only specific information about income (for example, salary, wages, employment or retirement income) or must disclose that child support, alimony, or separate maintenance payments need not be revealed unless the applicant will rely on any of those sources of income to establish creditworthiness.

A creditor may not inquire about the sex of an applicant. An application may provide for the designation of a title, such as Ms., Miss, Mr., or Mrs., if it also contains a disclosure that the title designation is optional. An application must otherwise contain only terms that are neutral as to sex. For example, “wife,” “husband,” or any other terms indicating sex must not be used.

A creditor may never request or use information about an applicant’s birth control practices or childbearing intentions or capability. As a general rule, a creditor may request and consider information concerning the applicant’s ability to repay a debt, such as the probability of continuing employment, so long as this inquiry is made of all applicants who are similarly qualified. The number, ages, and expenses of present dependents may also be requested. Making the assumption, however, that childbearing, or the potential for it, always reduces ability to repay is prohibited in an evaluation of creditworthiness.

The regulation generally prohibits inquiries about race, national origin, color, or religion in connection with a credit transaction, except in limited circumstances as provided in sections 202.5(b)(2) and (3) of the regulation. A creditor may inquire about an applicant’s permanent residence and immigration status to determine creditworthiness.

The regulation requires that a creditor take an application in writing for some loans to purchase or refinance a dwelling. A creditor is required to write down the information it normally considers when making those loans. It is also required to ask applicants their race or national origin, sex, marital status, and age. This information is used by enforcement agencies to make certain that the creditor is not discriminating on a prohibited basis in making these loans. Written applications are not required for other types of credit.

When evaluating an application, a creditor may not use any information to discriminate on a basis prohibited under Regulation B. The regulation is designed, in part, to cause creditors to reflect on the need for certain information and to consider certain types of information when evaluating an application.

An applicant’s age may not be considered (provided the applicant is old enough, under state law, to enter into a contract) unless it is used in an appropriate credit scoring system to determine a pertinent element of creditworthiness. The age of an elderly applicant (62 years or older) may always be considered when used in the applicant’s favor.

A creditor may not consider whether the applicant receives income from a public assistance program. A creditor cannot deny credit or grant credit on more difficult terms because some or all of the applicant’s income is derived from public assistance. A creditor may, however, consider whether such income is likely to continue. Unemployment compensation, Social Security, and Aid to Families with Dependent Children are examples of the types of programs covered by this prohibition.

Regulation B neither requires nor endorses any particular method of credit analysis. Creditors may use traditional methods that rely on a credit officer’s subjective evaluation of an applicant’s creditworthiness, or they may use more objective, statistically developed techniques such as credit scoring. Section 202.2(p) of the regulation prescribes the standards that a credit scoring system must meet to qualify as a “demonstrably and statistically sound, empirically derived credit scoring system.” All forms of credit analysis that do not meet these standards are automatically classified as “judgmental” systems.

Regulation B defines “empirically derived credit systems” as systems that evaluate creditworthiness by assigning points to various attributes of the applicant (and perhaps also to attributes of the credit requested). The points assigned to the various attributes are derived from a statistical analysis of attributes of recent creditworthy and noncreditworthy applicants of the creditor.

Regulation B classifies any system other than a demonstrably and statistically sound, empirically derived credit system as a judgmental system. This includes any credit scoring system that does not meet the prescribed technical standards.

No creditor may refuse, on the grounds of sex, marital status, or any other prohibited basis, to grant an individual account to a creditworthy applicant. If a creditor offers individual accounts to unmarried applicants, it must offer individual accounts to creditworthy married applicants, regardless of sex. Laws preventing separate extensions of consumer credit to each spouse are preempted if a spouse voluntarily applies for separate credit. If spouses apply for separate extensions of credit, the accounts must not be aggregated to determine finance charges or loan ceilings under state or federal law.

No creditor may refuse to allow an applicant to open or maintain an account in the applicant’s birth-given first name and birth-given surname, the spouse’s surname, or a combined surname. However, a creditor may require that the applicant use one name consistently in doing business with the creditor. In addition, to determine the applicant’s credit history, the creditor may inquire whether the applicant has obtained credit in another name or is liable for accounts listed in another name.

A creditor may not take the following actions on an existing open-end account on the basis of the age or retirement, or a change in name or marital status of any person contractually liable for the account:

If a creditor learns of a change in the marital status of any person contractually liable on an existing account, it may require a reapplication if the decision to grant the credit was based in part on the income of that person’s spouse, and if the income of that person does not now support the current line of credit. However, the person may not be deprived of the use of the credit line while the reapplication is being evaluated. The creditor may evaluate the application based on its current credit standards but still must meet the requirements of Regulation B for evaluating and notifying the applicant of the action taken.

Among the key sections of Regulation B relating to sex and marital-status discrimination are the ones regarding the signatures a creditor may require when granting a loan. The purpose of these sections is to permit people (and particularly women) who are creditworthy in their own right to obtain credit on their own by removing, to the greatest extent possible, the need to depend on a spouse (or any other person).

A creditor may obtain the signature of all joint applicants, on both the note and the security instrument. It is irrelevant whether the applicants are married or not so long as the applicants intend that the application be joint, that is, if the assets of both borrowers support the debt and liability is shared. The only difficult aspect of this rule is in determining who are joint applicants. If two people come into the bank and voluntarily make joint application, there is no problem, of course, and the lender need not try to discourage this. However, if two people come in together but only one applies, the lender may not try to persuade the other to join, or require a joint application, if the individual applicant is creditworthy. If there is any doubt about the applicants’ intent, the loan officer should ask for clarification.

If, using objective, nondiscriminatory standards, a creditor determines that an applicant for individual credit cannot support the credit, the creditor may then request that the applicant obtain a cosigner, a guarantor, or the like. In all such cases, however—

In certain circumstances a creditor may request the spouse’s signature, even where a married applicant applies for individual credit.

Secured credit. When a loan is to be secured by a particular piece of property, a creditor may require any person (including the applicant’s spouse) who owns an interest in the property to sign any instrument the bank reasonably believes to be necessary under state law to make that property available to satisfy the debt in the event of default. In a non-community property state, this will normally not include the note itself.

Unsecured credit. When an applicant requests unsecured credit but relies in part on property to establish creditworthiness and the property relied on is necessary to satisfy the bank’s objective, nondiscriminatory standards of credit risk, the bank may require that the co-owner or any other person with an interest in the property sign any instrument necessary, or reasonably believed to be necessary, under state law to make the property relied on available to satisfy the debt in the event of default or the applicant’s death.

Community property states. Consistent with the general principles outlined previously, a separate set of rules applies if a married applicant requests individual unsecured credit and resides in a community property state or if the property upon which the applicant is relying is located in a community property state. In such circumstances, a bank may require the signature of the spouse on any instrument—including the note —necessary under the law of the state in which the applicant resides, or in which the property is located, to make the community property available to satisfy the debt in the event of default, only if—

Of course, even in a community property state a creditor may always require the spouse’s signature on any instrument necessary to reach the collateral for a secured loan, but it may not automatically require a spouse’s signature on the note, except in conformance with these rules.

Integrated instruments. A creditor may not require the spouse to sign an integrated instrument that combines the note, security agreement, and other disclosures if the nonapplicant spouse’s signature would not be required on the note under the rules discussed under “Community Property States.” If a spouse’s signature is necessary to reach the property relied on and the creditor habitually uses an integrated form, the creditor should have the spouse sign a separate security agreement.

Establishment of a credit history. A bank may permit a nonapplicant spouse to sign a note, and thereby become obligated to repay the loan, if the spouse volunteers to do so. Some spouses may want to use this option to help create a credit history that would operate in their own favor.

Business credit. The signature rules apply to business as well as consumer credit. A spouse’s signature may be required for business loans only in the same circumstances that it may be required for other loans.

When the creditor offers casualty, credit life, health, accident, disability or other credit-related insurance in connection with an extension of credit, differences in cost, terms, or availability of the insurance will not constitute violations of the regulation. However, the creditor may not deny or terminate credit merely because the insurance is unavailable on account of the applicant’s age. When the applicant wants insurance, information regarding the applicant’s age, sex, or marital status may be requested. The rules regarding insurance may not be the same when dealing with housing credit, however (see the discussion of insurance in the Fair Housing Act section).

When a creditor informs an applicant of its credit decision, the content, timing, and form of notice may differ, depending on whether the applicant is seeking a consumer or business loan. A creditor must notify all applicants of its credit decision, whether favorable or adverse. A favorable decision can be communicated in a letter or conversation, or by issuing a requested credit card or loan proceeds. An adverse decision (“adverse action”) requires the creditor to provide information that helps the applicant understand why the application was denied and what the applicant’s rights are if the applicant believes the denial was based on a prohibited basis. Adverse action includes—

Adverse action does not include—

If the applicant is applying for consumer credit, a creditor must convey its credit decision within 30 days after receiving a completed written or oral application. There are two exceptions to the 30-day rule. First, if a creditor makes a counteroffer, for example, by offering less credit or less favorable terms than the applicant applied for, and the applicant doesn’t use the credit within 90 days after the creditor makes the counteroffer, the creditor must send an adverse action at that time. Second, if the applicant and the creditor agree that the applicant will inquire about the credit decision, when credit is approved and the applicant doesn’t contact the creditor within 30 days after application, the creditor may consider the application withdrawn.

If the creditor chooses to disclose specific reasons upon request only, the disclosure must include the name, address, and telephone number of the individual or office where the reasons may be obtained. When the creditor chooses to respond to an applicant’s request by disclosing the reasons for denial orally, the notice must also inform the applicant of the right to receive written confirmation of the reasons within 30 days of the applicant’s written request.

If an applicant is applying for business credit, a creditor may simply use the notification rules for consumer credit or follow rules specially designed for business credit. The rules for notifying business applicants that are just starting a business or have gross revenues of $1 million or less are very similar to the consumer notice rules. The rules for notifying business applicants with revenues of more than $1 million are more flexible. A creditor may use the stricter rules for all business credit applicants.

As with applications for consumer credit, a creditor must convey its credit decision within 30 days of receiving a completed application from a business-credit applicant with revenues of $1 million or less. Whenever a creditor takes adverse action involving such an applicant, it must supply the applicant with the same information it supplies a consumer-credit applicant. The credit decision may, however, be delivered orally or in writing. Also, as is the case with consumer credit, the bank may provide a notice telling the applicant of the right to request the reason for action taken rather than disclosing the reason itself. With this class of applicants, however, the bank may provide this notice at the time of application. However, if the bank uses this option, it must provide a disclosure with an ECOA notice that is in a retainable form and that gives the applicant all of the same information that must be provided to applicants for consumer credit when this option is used (see section 202.9(a)(2)(ii)).

A creditor must inform an applicant with revenues of more than $1 million of the credit decision within a reasonable time. (Thirty days is always considered “reasonable.”) When taking adverse action, the creditor must supply the applicant with the specific reasons for the credit denial if the applicant delivers a written request within 60 days of notification of the credit decision. The creditor must provide the reasons in writing within 30 days of receiving the request.

Trade credit involves a seller that provides financing to a buyer to purchase the seller’s goods. Sellers that provide trade credit involving purchases such as inventory or equipment are governed by the same notification rules as creditors who take applications from applicants with revenues of more than $1 million. Those rules apply to all trade-credit applicants, regardless of the applicant’s revenues.

When a creditor receives an incomplete application, it may send the applicant either a notice of action that complies with section 202.9(a) or a notice of incompleteness. A notice of incompleteness must be in writing and must specify the information the bank needs to consider the application. It must also provide a reasonable period of time for the applicant to furnish the missing information. Finally, the notice must advise the applicant that if the creditor does not receive the information within the designated time period no further consideration will be given to the application. If the applicant fails to respond, the creditor does not have to send a notice of action taken.

In the case of two or more joint applicants, notification need be given to only one of the primarily liable applicants.

If an applicant in an indirect credit transaction accepts an offer from the creditor within 30 days of application, no other notification is required from either the creditor or the dealer. If the creditor does not extend credit or the applicant does not accept the creditor’s offer of alternate terms, each creditor taking adverse action must notify the applicant. For example, if a dealer attempts to obtain financing at several banks and none agree to extend credit or the applicant does not accept any alternate terms offered, all the banks and any dealer acting as a creditor in the transaction must give the required notices of adverse action. Creditors may enter into contractual arrangements with dealers to provide all appropriate notices. When the dealer provides a joint notification, the creditor will not be liable for actions or omissions resulting in violations, if the creditor provided the dealer with the information necessary to comply with the notification requirements and the creditor was maintaining procedures to avoid any such violation. Any joint notification must identify each creditor.

One of the primary ways creditors determine creditworthiness is to examine the customer’s credit history as compiled and maintained by credit reporting agencies. Before the enactment of the ECOA, many women found it difficult to obtain credit because of the way in which these credit histories were developed and maintained. Frequently, accounts were reported only in the husband’s name, even when the wife was jointly liable or was the person primarily responsible for seeing to it that the debt was repaid. Also, women were sometimes denied credit because of their husbands’ bad credit histories, even when they were not responsible. In other words, women did not benefit from the good credit histories they participated in developing and were penalized for bad ones that were not of their doing. Regulation B took steps to rectify this situation.

A creditor may retain in its files information that is prohibited in evaluating applications. However, such information must have been obtained inadvertently or in accordance with federal or state law or regulation.

A creditor may extend special-purpose credit to applicants who meet certain requirements. The following types of credit programs meet the definition of special-purpose credit programs:

To enable regulatory agencies to monitor compliance with the regulation, creditors must request and maintain the following information about applicants who submit written applications for credit secured by a dwelling (a residential structure that contains one to four units, including individual units of condominiums, cooperatives, and mobile homes used for residential purposes):

The information may be requested on the application form or on a separate sheet of paper that refers to the application. The applicant must be informed that the disclosure of such information is optional and that the federal government requests the information to monitor compliance with federal antidiscrimination laws. If the applicant refuses to supply the requested information, that fact must be noted on the form containing the request. The creditor must also tell the applicant that if she or he chooses not to provide the information, the creditor is required to note the race, national origin, and sex of the applicant on the basis of visual observation or surname. Some forms may not ask marital status and age if the information was requested as part of the application process (see model residential application form in appendix B of the regulation). A creditor that fails to request monitoring information or that discourages applicants from supplying it is violating the regulation. Consequently, low response rates will be examined closely to determine their cause.

Regulation B alters, affects, or preempts only those state laws that are inconsistent with the ECOA or Regulation B, and then only to the extent of the inconsistency. To determine whether a state law is inconsistent, any person may apply for a formal Board interpretation. The regulation does not alter any provision of state property laws, laws relating to the disposition of a decedent’s property, or federal or state regulations aimed at ensuring the solvency of financial institutions. Creditors remain subject to the requirements of the ECOA and to administrative enforcement by the appropriate federal enforcement agency unless the state obtains an exemption from the Board.

In addition to actual damages, the ECOA provides for punitive damages of up to $10,000 in individual lawsuits and up to the lesser of $500,000 or 1 percent of the creditor’s net worth in class action suits. Successful complainants are also entitled to an award of court costs and attorney’s fees.