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 application.

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 www.federalreserve.gov. 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.  

This 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.