The ECOA Notice and State Law
Question/Issue
New York law prescribes additional criteria concerning prohibited discrimination than is found in the Federal Equal Credit Opportunity Act (“ECOA”). New York regulators have criticized banks for not including that criteria in the ECOA Notice of their adverse action notices. Is a New York bank allowed to incorporate those additional criteria prescribed by state law in the ECOA Notice?
Response Summary
Regulation B pre-empts state law only to the extent that state law is inconsistent with the ECOA. A state law which is more protective of the applicant is not considered inconsistent with the ECOA. Similarly, Regulation B only requires that a bank use language that is substantially similar to that prescribed by the regulation. A bank may add a reference to a similar state law or regulation. A New York bank, therefore, would be allowed to add the criteria prescribed by New York law, provided that it is identified as such.
Response Detail
Regulation B requires a notification of adverse action to include a statement of the provisions of section 701(a) of the Equal Credit Opportunity Act (“ECOA”). This requirement is satisfied by including a notice (the “ECOA Notice”) that is substantially similar to the following:
The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant's income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The Federal agency that administers compliance with this law concerning this creditor is [name and address as specified by the appropriate agency or agencies listed in Appendix A of this part]. [12 CFR §§1002.9(a)(2), (b)].
Under New York law, however, the prohibited basis for discrimination when credit is applied for the purchase, construction, repair, or maintenance of a dwelling also includes military service or sexual orientation. [NY Executive Law, Article 15, Section 296-a]. Should these criteria be added to the ECOA Notice?
Generally, Regulation B pre-empts state law, but only to the extent that the state law is inconsistent with the ECOA. “A State law is not inconsistent if it is more protective of an applicant.” [12 CFR §1002.11(a)].
In this case, New York law offers more protection than federal law. It is thus not inconsistent with the ECOA and not pre-empted by Regulation B. Since the ECOA Notice notifies the applicant of his right not to be discriminated against on a prohibited basis, and since military service or sexual orientation is a prohibited basis under state law, it would be appropriate to add these criteria to the notice.
An objection might be raised to adding state criteria to a Federal notice. The Official Interpretations to Regulation B, however, reiterate that the ECOA Notice must only be substantially similar to the notice prescribed by the regulation. “For example, a creditor may add a reference to the fact that the ECOA permits age to be considered in certain credit scoring systems, or add a reference to a similar state statute or regulation and to a state enforcement agency.” [Official Interpretations, ¶9(b)(1)-1].
An ECOA Notice which followed the prescribed wording of Regulation B would be in compliance with the requirements of the regulation. If a reference was added to the provisions of a similar state law, it would still be in compliance with the Federal regulation and would address the requirements of the state law as well, provided that the State law was identified. In this case, the ECOA Notice in the adverse action notice of a New York bank could appear as follows:
The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant's income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. In addition, the New York State Executive Law, Article 15, Section 296-a also prohibits discrimination on the basis of military service or sexual orientation in connection with credit applied for the purchase, construction, repair, or maintenance of a dwelling. The Federal agency that administers compliance with this law concerning this creditor is [name and address of Federal regulator].