Use of max, minimum age as exception to automated underwriting violates ECOA, credit union regulator warns

Policies or practices that require manual underwriting as an exception to automated underwriting systems based on minimum or maximum ages violates federal law, credit unions were reminded by their regulator in a message Tuesday.

The National Credit Union Administration (NCUA) noted that, in February 2022, it issued a letter to credit unions (22-CU-04) that addressed the Equal Credit Opportunity Act (ECOA) nondiscrimination requirements. The letter, NCUA said, discussed violations the NCUA has observed involving credit unions, including the prohibited basis variable “age” in their automated underwriting systems.

“The NCUA is issuing this message as a reminder that having a policy or practice of requiring manual underwriting as an exception to automated underwriting systems based on a minimum or maximum age violates ECOA and its implementing regulation, Regulation B,” NCUA wrote.

The agency warned in the message that credit unions using automated underwriting systems “need to review their systems’ settings and related loan policies and practices to ensure they do not result in age, marital status, or other prohibited basis discrimination.”

The message adds that “ECOA violations can result in administrative enforcement and referral to the Department of Justice for potential prosecution.”

The agency’s example of prohibited age discrimination is a credit union using system parameters requiring applicants or co-applicants to be at least 25 years old, and no more than 70, at the time of application to receive an automatic approval.

“Applications that meet the system criteria for automatic approval are offered credit pending verification of income and review of collateral, as applicable,” NCUA wrote. “Applications that do not meet the system criteria for automatic approval are referred to an underwriter for a manual review.”

The agency also noted that marital status may not be used as an exception to automated underwriting systems. An example, NCUA said, is including system parameters that permit automatic approval of married joint applicants but require a manual review of applications submitted by unmarried joint applicants.

NCUA Letter to CUs 22-CU-04: Equal Credit Opportunity Act Nondiscrimination Requirements