‘No good deed goes unpunished,’ it is said.
How about when a lender encourages traditionally disadvantaged
groups to apply for credit?
As long as such applicants are
eligible for a certain loan product and all the origination rules and
regulations are followed – and there is no predatory lending or fair lending
violation! – why not encourage them to apply?
It seems fair to conjecture that such
a disadvantaged group could be encouraged to apply for a loan.
Occasionally, a good deed hides in
plain sight!
One regulation that is supposed to
keep everybody honest is Regulation B, the implementing regulation of the Equal
Credit Opportunity Act (ECOA). Regulation B provides[i] that a creditor
“shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application.”
The comment to this provision states that
“[a] creditor may affirmatively solicit or encourage members of traditionally disadvantaged groups to apply for credit, especially groups that might not normally seek credit from that creditor.”
While
Regulation B generally qualifies its prohibition against discouragement with
the words “on a prohibited basis,” many, if not most, lenders require their
employees to encourage inquirers to apply, in part to fulfill the lender’s
standard policies and procedures designed to ensure compliance with ECOA and
other regulatory requirements. These policies and procedures are also designed
to prevent compliance failures by misinformed or rogue employees. In addition,
they provide some assurance that employees will not make premature decisions
based on incomplete information.
