There are lots of laws that every money lender, a traditional bank or non-bank lender, has to follow. Regulation B is one such regulation that is intended to prevent all borrowers from being discriminated against any form and aspect of a credit transaction. This regulation outlines the rules all money lenders must adhere to while receiving a loan application and during processing credit information.
According to this regulation all money lenders are prohibited from discriminating any loan applicant on the basis of the following factors such as:
- Age
- Gender
- Ethnicity
- Religion
- Nationality or
- Marital status.
Typically, Regulation B ensures there is no discrimination and therefore at the same time it upholds the Equal Credit Opportunity Act, ECOA. This Act is regulated and enforced by the Consumer Financial Protection Bureau, CPFB.
The primary objective of enacting ECOA was to ensure that all financial institutions and firms that extend credit to people must make it available equally to all customers who are creditworthy. This means that while approving for any loan any other feature that has nothing to do with the creditworthiness of the consumer cannot be used by any money lender for the evaluation purpose.
Any creditor who fails to comply with this Regulation B is liable for punitive damages such as:
- $10,000 for individual actions
- Up to $500,000 for class actions or
- 1% of the net worth of the creditor.
Regulation B covers the actions of all creditors whether it is a bank or non-bank lender before, during, as well as after any credit transaction. You can learn about the services of non-bank lenders visiting such as https://www.libertylending.com/ or others. According to the CFPB, there is a specific list of transactions and other allied aspects of credit transactions that includes almost all types of credit transactions such as:
- Consumer credit
- Business credit
- Open end credit
- Refinancing
- Mortgage
- Information requirements
- Credit applications
- Standards of creditworthiness
- Investigation procedures and
- Revocation or termination of credit.
CFPB also specifies that when it comes to credit transactions no money lender can discriminate:
- Against an applicant whose income is consequential from any public assistance program or
- Against any applicant who as an act of good faith has exercised their rights under the Consumer Credit Protection Act.
The Regulation B also mandates that a few other aspects of money lending and credit transactions such as:
- Lenders must provide an oral or a written notice of rejection to all the failed applicants
- This notice must be sent within 30 days of receiving the completed application
- The notice must explain all the points as to why the loan application of the applicant was rejected and
- It must also give specific instructions so that the applicant may request for such information.
According to the law, even the spouses of the married applicants whose applications are rejected also have the right to request for such information which is helpful in two distinctive ways such as:
- Typically, this information that provides the applicants with the reasons of rejection of their loan applicants will help them to take necessary and constructive steps to build their credit to a reasonably acceptable level.
- It will also help them in correcting the erroneous information if any that may be used by the money lender while evaluating the creditworthiness of the applicant.
There are a few special considerations under Regulation B as well. It says that the lender cannot request for any specific information about an applicant such as sex, color, national origin or any other but however, while evaluating the credit worthiness of an applicant there may be times when obtaining such information may become necessary and collected from the applicant. For example, if an applicant puts down the primary residential home as collateral for the loan will have to provide such additional information as these may be necessary for the money lender for proper monitoring compliance.
The new measures
Just as the money lender is required to comply with Regulation B to prevent any discrimination or face punitive damages for non-compliance, there are also a few other strict measures implemented in the law.
A money lender can only ask for the age of an applicant if it seems that the applicant has not attained the age or have the capacity to sign a loan contract legally.
The creditor may also ask the applicant for the number of children and their ages, all other financial obligations of the borrower for the children and others under special considerations.
Even the creditor may ask about the marital status if required especially if the loan applicant lives in a community property state.
As for collecting specific information from the spouse of the original loan applicant, the creditor may only request for such information if:
- The spouse is permitted to use the account
- The spouse is contractually liable on the account
- The applicant is relies on the income of the spouse majorly for the repayment of the loan requested
- The applicant resides in a community property state and relies on it heavily for repayment of the requested loan and if
- The applicant is relying on child support, alimony, or separate maintenance payments from the current or former spouse as a basis for the repayment of the credit requested.
The federal regulators have also issued specific new rules to rein in access to the payday loans as well where certain practices are followed that have drawn anger from the consumer advocates and needs to be regulated.
Payday loans provide quick access to cash for the strapped consumers and are typically characterized by its ultra-high rate of interest and short payment period. In most of the cases borrowers usually cannot afford to pay these loans back and therefore have to take out new loans. This puts them into a cycle of debt.
As per the new rules of the CFPB the following changes are made:
- The payday lenders will now require to determine the borrower’s ability to repay
- The consumer will not be able to take out more than three loans in quick succession
- The ways to pursue repayment are also restricted for the lenders.
All these measures prevent families from falling into the vicious cycle of debt.