ECOA requirements, prohibitions outlined in NCUA letter to credit unions

Nondiscrimination requirements under the Equal Credit Opportunity Act (ECOA) and fair lending risk areas related to marital status, age, income consideration, redlining, and indirect lending are the focus of a letter issued Wednesday to credit unions by their federal regulator.

In its Letter to Credit Unions 22-CU-04, the National Credit Union Administration (NCUA) notes that the ECOA prohibits creditor practices that discriminate on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to contract), income (all or in part) derived from a public assistance program, or the applicant’s good-faith exercise of any right under the Consumer Credit Protection Act.

The NCUA supervises for compliance with and enforces ECOA with respect to federal credit unions that have $10 billion or less in total assets and, the agency noted, is required by the ECOA to refer certain violations to the Department of Justice (DOJ).

Wednesday’s letter includes a section defining what are discriminatory practices under the statute and a fairly detailed discussion of the above-noted fair lending risk areas of which credit unions should be aware. Among the points noted:

  • Regarding marital status, the letter highlights a common discrimination violation involving risk-based pricing practices. “When two applicants or signers are involved in a lending transaction, a lending policy cannot provide for different pricing guidelines based solely on applicants’ or signers’ marital status, in violation of ECOA,” it states. It notes, for example, that when two applicants are involved, a credit union cannot price loans based on the higher of the two applicants’ credit scores when they are married but based on the primary applicant’s credit score when the applicants are unmarried.
  • Age discrimination violations in credit unions typically involve automatic loan approval systems and guidelines, the letter notes. “A credit union cannot disqualify a loan applicant for automatic loan approval based on the applicant’s age, provided the applicant is of legal age to enter into a binding contract, even if the credit union subsequently approves the application following a manual review of the application file,” it states. It says that credit unions using automated underwriting systems should ensure the system’s settings comply with ECOA’s requirements. It also addresses credit-scoring.
  • Creditors may not discount or exclude from consideration the income of an applicant or the spouse of an applicant because of a prohibited basis or because the income is derived from part-time employment or is an annuity, pension, or other retirement benefit.
  • “Redlining,” the letter notes, is defined by DOJ as an illegal practice in which lenders avoid providing services to individuals living in communities of color because of the race or national origin of the people who live in those communities. “Credit unions, especially those with fields of membership defined by, or partially defined by, geography, such as community charters and underserved areas, must ensure they provide equal access to credit in the areas defined by their fields of membership,” it states. Statistical analysis of lending within the service area, analyses of service locations, placement of mortgage loan officers, and analyses of marketing and advertising are among the things that can be reviewed to help determine if a credit union is providing equal access to credit, it notes.
  • For credit unions with indirect lending programs, allowing discretionary mark-ups by dealers presents fair lending risks not usually associated with flat fee or flat percentage compensation structures, it notes.

The agency noted two other resources on compliance risk managmeement: NCUA Letter 17-CU-02, Risk-Focused Examinations and Compliance Risk; and the Interagency Fair Lending Examination Procedures published by the umbrella Federal Financial Institutions Examination Council (FFIEC).

NCUA Letter to Credit Unions (22-CU-04)