FTC and Other Federal Agencies File Joint Comments With Federal Reserve Board about Credit-related Regulations

The Federal Trade Commission joined with other federal agencies and filed comments on May 29, 1998, with the Federal Reserve Board (Board) advocating changes in its Regulation B and Regulation C. The Board is presently reviewing these regulations under its regulatory review program.

Regulation B

In addition to the FTC, the Department of Treasury (Treasury), the Department of Justice (DOJ), the Department of Housing and Urban Development (HUD), the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the Small Business Administration submitted a joint comment about Regulation B, which implements the Equal Credit Opportunity Act (ECOA). In their comment, these agencies urged the Board to amend Regulation B to permit lenders voluntarily to collect information about the race and gender of applicants for non-mortgage credit. The comment noted: "The current regulatory prohibition needlessly inhibits the ability of financial service providers to learn about and respond to market opportunities to better serve underserved communities. The prohibition makes it difficult for institutions to know whether products intended to expand access to credit, including to minorities, reach their intended customer base." The comment also urged the Board to clarify that creditors may not discriminate on a prohibited basis in their preapplication marketing practices.

The Commission vote to file the comment about Regulation B was 3-1, with Commissioner Mary L. Azcuenaga not participating and Commissioner Orson Swindle dissenting and issuing a statement concurring in part and dissenting in part.

Commissioner Swindle agreed with the Commission that the proposed amendment to Regulation B to give non-mortgage lenders the option of collecting prohibited basis information was "worthy of consideration" because it "would give lenders the flexibility to decide whether it is in their own interest to collect prohibited basis information, while at the same time not limiting the legal protections that are intended to combat the discrimination that continues to plague our society." He dissented to the extent that the joint comment relies on experience with mandatory data collection requirements under the Home Mortgage Disclosure Act to justify the proposed amendment on the grounds that data collection causes a significant increase in minority lending. He observed that "[t]he United States economy has experienced unprecedented growth and low unemployment rates since the early 1980s. This robust economy has been instrumental in improving the lot of the poorest of Americans, which include a disproportionate number of minorities. As the creditworthiness of minorities has improved because of their increased income and wealth, they naturally have become better candidates for the extension of credit, which far more likely [than data collection requirements] accounts for recent increases in lending to them." Commissioner Swindle emphasized his concern that reliance on the theory that data collection regulations, rather than strong economic growth and wealth expansion, result in increased minority lending lays the "groundwork for the future imposition of mandatory collection requirements that may be burdensome and intrusive."

Regulation C

The FTC joined Treasury, DOJ, HUD, OCC, and OTS in filing a separate comment with the Board about Regulation C, which implements the Home Mortgage Disclosure Act (HMDA). HMDA requires certain mortgage lenders to report data to the public and federal agencies about mortgage loan applications, including information on the race and gender of applicants, and whether the application was approved or denied. In this comment, these agencies recommended that the Board amend Regulation C to require creditors to report the reasons for loan denials. In addition, these agencies suggested that the Board revise Regulation C to take account of the growth in pre-approval credit evaluations, because of the increasing number of mortgage applicants that are denied access to credit at this stage and concern about potential discrimination at this stage. The comment also suggested that Regulation C be changed to require the separate identification of mobile home transactions because of significant differences between the underwriting, denial rates and other features of these loans compared to traditional home loan transactions.

The Commission vote to file the comment about Regulation C was 4-0, with Commissioner Mary L. Azcuenaga not participating.

Copies of the full text of the comment are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(FTC File No. P984808)