How It Works

Regulation B and the Equal Credit Opportunity Act (ECOA) prohibit discrimination against any credit applicant on the basis of race, color, religion, national origin, sex, marital status, receipt of public assistance, or the exercise of a right under the Consumer Credit Protection Act. However, ECOA expressly permits creditors to favorably consider such prohibited factors as part of a Special Purpose Credit Program that meets regulatory requirements.

In order to establish a Special Purpose Credit Program, a lender must:

• Determine the market need for a program; market need can be supported by internal or external data, including publicly available research;
• Create a written plan that identifies:
  • Who the program is intended to benefit, and supporting data to evidence the market need
  • Procedures and standards for extending credit, which can include collection of information about prohibited bases to establish eligibility for the program
  • The intended duration of the program and/or timeline for reevaluation to determine continuing need for the program
• Ensure that the program does not discriminate against applicants on a prohibited basis, i.e., the program must not involve discrimination on other prohibited bases. For example, if a SPCP is designed to relax underwriting requirements for minority-owned small businesses, the creditor cannot operate the program to discriminate against business owners based on gender, age or other prohibited bases

Each lender must determine what credit or pricing criteria are appropriate to modify based on: their risk appetite, the research supporting the program, and the potential benefit to the targeted group of borrowers. These could include, but (are not limited to):

• Lower required loan-to-value or debt service coverage ratios
• Lower required down payment
• Lower minimum credit score
• Relaxed requirements surrounding time in business
• Discounted interest rates

Regulatory Guidance

The following publications provide available regulatory guidance on Special Purpose Credit Programs. Consult with your regulatory compliance experts and legal counsel as you develop your program plan.

• Applicable section of the Equal Credit Opportunity Act that authorizes Special Purpose Credit Programs (15 USC 1691(c))
• Applicable section of the CFPB's Regulation B, which establishes standards for Special Purpose Credit Programs (Title 12, Chapter X, Part 1002, Section 1002.8)
• Consumer Financial Protection Bureau Advisory Opinion on Special Purpose Credit Programs
• CFPB Supervisory Highlights, June 2016, pp. 16-18
• OCC Advisory Letter 2003-8, Financing Minority Businesses
• Interagency statement on Special Purpose Credit Programs