The ECOA has been the topic of numerous posts on this blog. It is the law which makes it illegal for a creditor to discriminate against a credit applicant on the basis of, among other factors, the applicant’s marital status, sex, race, religion, or age.
To enforce and administer the ECOA, Congress authorized the Federal Reserve Board to promulgate regulations. Additionally, the Consumer Financial Protection Bureau has the authority to enforce compliance with the ECOA and its regulations. In addition, another federal agency, the Department of Justice (“DOJ”), has been active in ECOA enforcement.
When a bank regulatory agency believes that a creditor may be engaged in systemic discrimination which violates ECOA, the agency is required to refer the matter to the DOJ.[1] Upon investigation, the DOJ may file a lawsuit under ECOA, but the DOJ’s authority is limited to matters evidencing “a pattern or practice of discrimination” rather than individual cases or complaints. The Civil Rights Division of the DOJ is charged with investigating these matters and deciding whether to pursue litigation against the creditor.
When the DOJ receives a referral, it must determine whether to open an investigation or return the matter back to the regulator for administrative enforcement. In 2014, the DOJ received 18 referrals (15 from the CFPB and 3 from the FDIC), 12 of which resulted in an investigation.[2] The types of cases that resulted in litigation involved credit card, auto, mortgage, and unsecured consumer lending discrimination and servicemembers’ rights.
Factors considered by the DOJ in deciding whether to retain or return a referral include whether the practice has ceased and there is little chance that it will be repeated, whether the violation was accidental or from ECOA’s more technical requirements, whether the practice is serious in terms of its potential for financial or emotion harm to members of a protected class, whether court action would be required to fully compensate the credit applicants that were harmed by the practice, and whether DOJ believes the practice to be sufficiently common in the lending industry, or raises an important issue, so as to require action to deter lenders. It is interesting to note that the DOJ cited “spousal signature violations,” previously discussed on this blog, as an example of ECOA’s more technical requirements that may not merit a DOJ investigation.
Lenders should regularly evaluate their compliance with ECOA in order to ensure adherence to fair lending practices. Although violations of ECOA may result in costly penalties, or private causes of action which lead to costly litigation, an investigation by the DOJ could be far more time consuming, expensive and problematic. Therefore, lenders should work with their regulators and counsel to understand the ECOA and avoid being implicated in any type of “pattern or practice of discrimination” in their lending practices.
[1] The bank regulatory agencies that are required to disclose discriminatory behavior to the DOJ include the Consumer Financial Protection Bureau, the FDIC, the Federal Reserve Board, the National Credit Union Administration, and the Office of the Comptroller of the Currency.
[2] This blog post is based on a 2014 report. The Attorney General’s 2014 Annual Report to Congress Pursuant to the Equal Credit Opportunity Act Amendments of 1976, Department of Justice (April 2015),available at http://www.justice.gov/sites/default/files/crt/legacy/2015/04/13/ecoareport2014.pdf.
