In recent FDIC compliance examinations, examiners have criticized banks for allegedly treating joint applicants for residential mortgage loans differently based on their marital status in violation of the Equal Credit Opportunity Act (ECOA). The alleged violations arise from a common set of circumstances, and many more banks may be vulnerable to similar claimed violations which may affect compliance and CRA ratings. The alleged violations, raised during a number of compliance exams of banks in the region since the fourth quarter of 2009, result from apparent disparities among the fees for credit reports charged to married joint loan applicants as compared with credit report fees for unmarried joint applicants. It is common practice for many banks to charge an applicant the fee incurred by the bank to obtain a credit report during the residential mortgage loan application process. Although each loan applicant has a separate credit file, credit bureaus typically charge a lower fee or offer a discount to produce a joint credit report, which covers joint loan applicants on a single report, as compared with the total fees that would be charged for producing two separate credit reports. Because the credit bureaus will provide a joint credit report on any two individuals regardless of marital status, the FDIC believes it is a violation of ECOA for a bank to order joint credit reports for married joint applicants but separate credit reports for unmarried joint applicants where it causes unmarried joint applicants to be charged higher credit report fees.
Nutter Notes: Section 202.4(a) of the Federal Reserve’s Regulation B, which implements ECOA, prohibits a creditor from discriminating against an applicant on a prohibited basis including marital status. According to the Official Staff Interpretations of Regulation B, disparate treatment of loan applicants on a prohibited basis “is unlawful if the creditor lacks a legitimate nondiscriminatory reason for its action, or if the asserted reason is found to be a pretext for discrimination.” “Disparate treatment” occurs when a creditor treats applicants differently on a prohibited basis, such as marital status, according to the FDIC’s Policy Statement on Discrimination in Lending. The Policy Statement also recognizes that the “fact that a policy or practice creates a disparity on a prohibited basis is not alone proof of a violation.” The Policy Statement recognizes that a practice does not violate ECOA where the practice is justified by a business necessity and there is no less discriminatory alternative. If the FDIC makes a preliminary finding of an ECOA violation during a compliance exam, it will generally give the bank notice and an opportunity to respond to the claims. If the FDIC concludes that there is reason to believe that a bank engaged in a pattern or practice of discrimination that resulted in denial or discouragement of applications, ECOA generally requires the FDIC to refer the matter to the U.S. Attorney General, and it may be disclosed in the bank’s public CRA Exam Report.