By Nicole D. Prysby, J.D.
The Bureau and FTC argued to the Second Circuit that the ECOA and Regulation B protect those who have received credit, not merely those who are seeking it.
The Consumer Financial Protection Bureau and Federal Trade Commission filed an amici curiae brief in a case presenting the question whether a person ceases to be an "applicant" under the Equal Credit Opportunity Act (ECOA) and its implementing regulation after receiving an extension of credit. A consumer sued Capital One, N.A., claiming that the bank’s email terminating his line of credit violated the adverse-action notice requirement in ECOA and Regulation B. The district court dismissed the claims, on the ground that the consumer was not an "applicant" entitled to protection under ECOA because he was not applying for credit at the time his account was closed. The Bureau and FTC argued that the protections of ECOA and Regulation B do not end the moment an extension of credit begins. Instead, ECOA and Regulation B establish that the "applicants" they protect include both those who are currently seeking credit and those who sought and have now received credit (Tewinkle v. Capital One, N.A., Case No. 20-2049).
Background. The consumer had a checking account and an overdraft line of credit with Capital One bank. Capital One sent him an email notifying him that it was terminating his checking account and line of credit. The consumer sued under ECOA, alleging that Capital One violated the adverse-action notice requirement in ECOA and Regulation B. Specifically, he alleged that the email he received from Capital One failed to include "the address of the creditor" and either a "statement of specific reasons for the action taken" or a disclosure of his "right to a statement of specific reasons." The district court dismissed the claims, on the ground that the consumer was not an "applicant" entitled to protection under ECOA because he was not applying for credit at the time his account was closed. The consumer appealed to the Second Circuit and the Bureau and FTC submitted a brief in support.
Bureau, FTC argument. ECOA prohibits creditors from discriminating against "applicants" with respect to any aspect of a credit transaction and these protections are best read to apply to those presently seeking credit as well as those who sought credit in the past and now have an existing credit arrangement with a creditor. According to the brief, there is no temporal qualifier in the definition of applicant that limits the definition to persons still applying for credit at the time of the discrimination. And other provisions in ECOA lead to the same conclusion, said the agencies. For example, ECOA’s adverse-action provision requires that creditors provide a statement of reasons to each applicant against whom they take adverse action and defines "adverse action" to include a "revocation of credit" as well as a "change in the terms of an existing credit arrangement"—actions that can be taken only with respect to persons who have already received an extension of credit. ECOA’s private right of action for applicants is clearly not limited to those currently applying for credit, argued the brief. If it were, those who were denied credit or had it revoked on a prohibited basis—the very problem the statute is aimed to remedy—would be unable to pursue the chief enforcement tool that Congress created for ensuring compliance with ECOA. And ECOA is explicit that its core prohibition on discrimination applies "to any aspect of a credit transaction," not merely to the initial application process. Under the district court’s interpretation, ECOA would apply not "to any aspect" of a credit transaction, but instead only to the process of requesting credit. This would dramatically curtail the reach of the statute, in contravention of its plain text and with far-reaching consequences. The agencies argued that the district court’s reading would undermine the law’s protections by opening obvious paths to evasion: a creditor that wished to deny credit applications on a prohibited basis, or to offer credit on less advantageous terms to certain borrowers, could in many instances achieve the same result by simply extending credit on the terms requested and then later revoking or changing the terms of the credit arrangement on a prohibited basis. By such or similar means a creditor could avoid ever having to explain the reasons for an adverse action.
Legislative history also supports this interpretation, said the brief. Statutory amendments such as the requirement that "applicants" be entitled to a statement of reasons when their credit is revoked or modified make sense only if "applicant" is understood to include existing borrowers. And if there were any uncertainty about ECOA’s protections for existing borrowers, it is dispelled by Regulation B, which for the entire time ECOA has been in effect has expressly provided that the term "applicant" includes those who have received credit from a creditor ("any person who requests or who has received an extension of credit from a creditor."). Regulation B is a reasonable implementation of ECOA and is entitled to deference. Regulation B’s definition serves effectuate the purposes of ECOA by making clear that its protections continue to apply after an applicant receives credit and its definition of applicant has remained unchanged in this respect since its promulgation in 1975.
Companies: Capital One, N.A.
MainStory: TopStory CFPB ConsumerCredit EqualCreditOpportunity
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