Regulation B is a rule that was created by the Federal Reserve to implement the Equal Credit Opportunity Act (ECOA). The ECOA prohibits discrimination based on race, color, religion, national origin, sex, marital status, age, or use of public aid. Regulation B defines unlawful discriminatory behavior and prohibits financial institutions that extend credit from engaging in certain activities before, during, and after an applicant applies for credit.
Learn more about who is protected by Regulation B, what types of conduct are prohibited, and what the consequences are for those who violate the rule.
Definition and Examples of Regulation B
Regulation B is a federal law found in Title 12 Chapter X Part 1002 of the Code of Federal Regulations. It governs the behavior of any financial institution that extends credit to consumers to ensure they don't discourage people from applying for credit on the basis of prohibited factors. Regulation B also forbids lenders from considering certain factors when making decisions related to issuing credit. These prohibited factors include race, color, religion, national origin, sex, marital status, age, use of public aid, and history of exercising consumer rights.
For example, Regulation B ensures that a lender cannot refuse someone from opening a credit card based on marital status. Lenders also can't prohibit a person receiving Social Security Disability Insurance (SSDI) benefits from qualifying for a loan because they're receiving government aid.
In the past, discriminatory behaviors were common in the lending industry. The Equal Credit Opportunity Act (ECOA) was passed in 1974 to prevent these from happening.
How Regulation B Works
Regulation B was originally enforced by the Fed. In 2010, the Dodd-Frank Act made the Consumer Financial Protection Bureau (CFPB) responsible for enforcing Regulation B. The CFPB, along with the Department of Justice and Federal Trade Commission, can initiate legal action against lenders that violate Regulation B.
If you’ve been unlawfully discriminated against, you have the option to file a lawsuit. Regulation B provides for both actual damages and punitive damages. Punitive damages can total as much as $10,000 in individual lawsuits or up to the lesser of $500,000 or 1% of the financial institution's net worth if a class action case is initiated. You may also be entitled to compensation for court costs or attorney fees.
You can report suspected violations to the CFPB by calling (855)-411-2372, or by submitting a complaint online.
Requirements for Regulation B
Under Regulation B, lenders cannot discriminate on the basis of prohibited factors, including:
- National origin
- Marital status
- Use of public assistance
- Making past claims under certain consumer protection laws
Lenders also can’t make any oral or written statements designed to discourage people from applying based on one of those prohibited factors. Pre-screening tactics that might weed out applicants based on a prohibited factor are also not allowed.
Lenders can’t request any information from potential credit applicants or any information about applicants that could be used to discriminate and that doesn't have a direct bearing on the credit requested. They also can’t collect information on race, color, religion, national origin, or sex of applicants (except when required by regulatory authorities or if the information is used to test for compliance with fair lending rules).
Be wary of lenders who request information about current or former spouses—it’s not allowed in most circumstances unless a spouse will be a user of the account, is applying jointly for credit, is in a community property state and using marital property as collateral, or is relying on spousal or child support as a source of income.
Lastly, lenders are not allowed to make decisions for lending credit on the basis of a prohibited factor, such as assuming someone’s income will be interrupted because they will become a parent.
Lenders are required to provide written notice of any action taken on a request for credit within 30 days of the time they receive a credit application.
- Regulation B implements the Equal Credit Opportunity Act (ECOA) and prohibits discrimination on the basis of race, color, religion, and other prohibited factors.
- All financial institutions that extend credit are required to abide by Regulation B.
- Lenders cannot discriminate against applicants or take any action to discourage applicants from applying for credit on one of these prohibited factors.
Frequently Asked Questions (FAQs)
What is the difference between the ECOA and Regulation B?
The ECOA is the Equal Credit Opportunity Act, which Congress passed to prohibit lending discrimination on the basis of certain factors. Regulation B is the rule that the Federal Reserve created to enforce the ECOA. Regulation B, which is enforced by the CFPB now, tells lenders what they can and cannot do, and establishes penalties for violations of the law.
Is Regulation B part of fair lending?
Regulation B implements the ECOA, which is just one law designed to ensure that financial institutions follow fair lending practices. Another fair lending law is the Fair Housing Act. Both the ECOA and Fair Housing Act prohibit lenders from discriminating on the basis of certain factors such as race, color, national origin, religion, sex, familial status, disability, age, or use of public benefits.