Special Purpose Credit Programs – Fair Lending Interagency Statement Explained

Thoughtware Article Published: Mar 23, 2022
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On February 22, the Federal Reserve System, FDIC, National Credit Union Administration, Office of the Comptroller of the Currency (OCC), Consumer Financial Protection Bureau (CFPB), U.S. Department of Housing and Urban Development (HUD), U.S. Department of Justice (DOJ), and Federal Housing Finance Agency released an interagency statement regarding the use of special purpose credit programs (SPCP) in accordance with Regulation B and the Equal Credit Opportunity Act (ECOA). This statement reminds financial institutions of the ability to establish SPCPs to meet the credit needs of specific classes of persons in the communities they serve. The intention of these programs is to expand access to credit and better address social needs for the economically disadvantaged. Examples include low-income minorities and minority- or disabled-owned small businesses.

The statement also includes the following:

  • References the advisory opinion issued by the CFPB in December 2020 that indicates all for-profit institutions must include a written plan for the establishment of any SPCPs under the regulation; and
  • References the December 2021 HUD guidance that concludes SPCPs established in accordance with the ECOA and Regulation B generally do not violate the Fair Housing Act (FHA)

This affects your institution in that there are solutions to remedy potential disparities in access to homeownership in your market area. Implementation of SPCPs, in accordance with the ECOA and FHA, can provide the opportunity to offer credit in an anti-discriminatory manner and can be a reflection of your institution’s efforts to meet the affirmative provisions within these regulations if gaps are identified and the program is established proactively.

HUD’s June 2021 proposal to recodify the discriminatory effects standard further emphasizes the benefits of SPCPs. This standard addresses any policies that may cause systemic inequality in housing by unnecessarily excluding specific groups of people. An SPCP, in conjunction with the removal of systemic restrictions in policies, can provide additional opportunities for credit where standard policies might have previously created gaps in access.  

In addition, if your institution’s denial rates for minority groups when accounting for underwriting factors reflect a significant disparity, SPCPs might be a good option to mitigate those gaps. As a recent example, in October 2021, the CFPB, OCC, and DOJ issued a total of $9 million in civil money penalties to a financial institution for—among a number of other factors—the systemic discrimination of applicants and prospective applicants, which was reflected by its number of home mortgage applications being 2.5 times less than its “peer lenders” in one of its metropolitan statistical areas (MSA). The consent order requires the financial institution to establish a loan subsidy program that offers loans to qualified applicants on a more affordable basis when borrowing to purchase properties in this MSA.

With the increase in regulatory focus on consumer protection, understanding your fair lending risk and identifying areas where your financial institution is not meeting its market areas’ needs proactively are key. Regulators’ reminders of the opportunity to establish programs such as SPCPs serve as a clear indicator that your financial institution should be critically analyzing its products and creating meaningful solutions for access to credit in the areas you serve.

For more information, refer to the link below, reach out to your advisor, or submit the Contact Us form below.

Additional Reading
•   Interagency Statement

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