As all of us are aware, or should be,
mandatory compliance became effective for the changes made to the Equal
Credit Opportunity Act last year on April 15, 2004, just a little over a
Some of us still are of the opinion that
the Equal Credit Opportunity Act only applies to consumer transactions.
Although, the ECOA is part of the Consumer Protection Act in 1999 the
Congress enacted Regulation B. Regulation B includes the definition of
credit, identifies who is a creditor, defines rules pertaining to credit
applications and adverse action, record retention and other areas related
to credit practices. Business creditors including trade creditors are
governed by the rules of Regulation B.
Congress delegated to the Federal Reserve
Board the responsibility for reviewing and amending Regulation B. Since
1999 the Federal Reserve Board reviews Regulation B every year and
periodically they revise it. Every April 15 amendments made by the Federal
Reserve Board at their first meeting of each year become effective and
mandatory compliance goes into effect the following April 15. At their
first meeting in 2003 they made revisions that became effective April 15,
2003 and mandatory compliance went into effect this year.
Although there were minor changes, the
changes made are noteworthy.
§202.9 deals with notification to the
applicant of action taken on requests for credit.
Notification of actions taken may now be
transmitted by electronic means (fax and email) as long as they meet the
minimum standards as outlined in Regulation B and the Electronic
Signatures in Global and National Commerce Act (Title 15 U.S.C. §7001).
Statements of reason of adverse action must
be specific and indicate the principal reasons for the adverse action.
Statements that adverse action was taken due to internal standards or
policies or that the applicant failed to meet creditor credit score
requirements are considered insufficient.
The business credit grantor will be most
affected by the changes to §202.2(c), adverse action. Under the revised
rules, adverse action is now defined as a refusal to grant credit, to a
large extent, in the amount requested or the terms requested on the credit
Many credit applications today contain a
section for the applicant to request the amount of credit or terms
desired. In light of the new amendment, creditors should review their
credit approval process and determine if it is still prudent to include
this section on their applications for credit.
A refusal to increase the amount of credit
to an existing customer who has made an application for increase is still
considered to be an adverse action. However, any action taken relating to
account inactivity, default or delinquency is not considered to be an
adverse action under §202.2(c).
Although Regulation B provides for the
creditor to require the signature of a spouse for the purpose of acquiring
unsecured credit in a community property state or for the purpose of
securing property as collateral in a community property state, Regulation
B does not supercede state law.
Thus, if creditors are seeking the
signatures of others for the purpose of extending credit they must follow
the guidelines of the state laws where the applicant resides. §202.9.
For more information go to
In the box located on the left side of the web page marked advanced search
type “regulation B” and click “go”.
I wish you well.
information is provided as information only and not legal advice.
Legal advice should be obtained from a competent, licensed attorney,
in good standing with the state bar association.