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Changes in Monitoring Information Collection

by Mary Beth Guard, BOL Guru

You have a new option for collecting monitoring information about loan applicants as of April 15, 2003 under an amendment made to Regulation B. To understand why the amendment was necessary and what you'll need to do before you can begin collecting the information on an expanded range of applications, let's first take a look at a little history.

Since 1976, there has been a Federal Reserve Board prohibition against creditors inquiring about, or noting, applicant characteristics such as race or national origin, except where the creditor was required to request such information. Examples of where the information must be requested include: loans to finance or refinance the purchase of a dwelling to be occupied as a principal dwelling of the borrower and on which the lender is receiving a mortgage (Reg B, Section 202.13); as well as loans made by HMDA-covered banks that fall within the Reg C definition of home purchase, home improvement, or refinance.

Under the revision to Regulation B, you may now request monitoring information from applicants for other types of loans - nonmortgage credit - but you must satisfy several criteria:

  1. You must use the data in connection with an internal program wherein you are self-testing for compliance with the Equal Creditor Opportunity Act;
  2. The analysis of the data for self-testing purposes must be done in a timely manner;
  3. You must disclose, in writing, four things to applicants: a. that providing the information is optional;
    b. that the information is being collected to monitor for compliance with the Equal Credit Opportunity Act;
    c. that the information will not be used in making the credit decision; and
    d. where applicable (such as where the applicant applies in a face-to-face situation), the information may be noted based on visual observation or surname.
  4. You take corrective action if the results of the self-test indicate that "it is more likely than not" that a violation occurred;
  5. You retain records relating to the self-test for 25 months after a test has been completed, including the data on personal characteristics and all other written or recorded information about the self-test;
  6. You don't use or evaluate the personal characteristics data you collect for any purpose other than for self-testing. For example, the data may not be used or evaluated by persons involved in a credit transaction, except in connection with correcting a violation.

The sample notice language reads as follows:
We are requesting the following information to monitor our compliance with the federal Equal Credit Opportunity Act, which prohibits unlawful discrimination. You are not required to provide this information. We will not take this information (or your decision not to provide this information) into account in connection with your application or credit transaction.

The law provides that a creditor may not discriminate based on this information, or based on whether or not you choose to provide it. [If you choose not to provide the information, we will note it by visual observation or surname].

Use of a self-testing program such as this is not mandatory. If you choose to perform ECOA self-testing and request the monitoring information, you may do so beginning April 15, 2003.

If you do elect to gather the information and self-test, you'll want to make sure the model form for making the necessary disclosure to applicants is incorporated into your forms.

Also, keep in mind that if you carry out corrective action, where appropriate, you can make the results of a self-test privileged, so they will not be obtainable through discovery in an examination or investigation alleging a violation of Equal Credit.

The original version appeared in the March 2003 edition of the Oklahoma Bankers Association Compliance Informer.

First published on BankersOnline.com 7/28/03

First published on 07/28/2003

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