On March 5, 2003, the Federal Reserve Board announced it was publishing a final rule amending Regulation B, pursuant to the Board's policy of periodically reviewing and updating its regulations. Regulation B, which implements the Equal Credit Opportunity Act, prohibits discrimination on the basis of a credit applicant's national origin, marital status, religion, color, sex, race, age, receipt of public benefits, or the exercise of rights under the Consumer Credit Protection Act.
The official staff commentary (OSC) for Regulation B was also amended as part of the final rule. Included in the commentary amendments is a new provision that requires lenders to get customers to affirmatively indicate their desire for joint credit at the time of application.
Although questions about the borrowers' intent to apply for joint credit do arise with applications for consumer loans, they are more prevalent in the context of business credit. Some creditors have sought to treat the submission of a joint financial statement or evidence of jointly held assets as an application for joint credit. The new provision in the OSC for Regulation B bars a creditor from presuming that the submission of joint financial information constitutes an application for joint credit.
The OSC for §202.7(d)(1) of Regulation B states that a person's intent to be a joint applicant must be evidenced at the time of application and that evidence of intent to apply for joint credit must be more than the submission of joint financial information. Also, the fact that a credit applicant owns property with another and submits information concerning the property and the joint owner does not mean that both owners intend to be obligated on a credit extension.
The commentary indicates that signatures or initials on a credit application affirming an applicant's intent to apply for joint credit may be used to document the desire for joint credit. These signatures or initials would constitute evidence of a joint application for credit and, thus, document compliance with the law.
Model Forms Updated
To facilitate compliance with this new documentation provision, Model Application Forms 1 through 4 in Appendix B of Regulation B have been revised to include the affirmative attestation required by applicants. Regulation B does not mandate the use of the model forms. However, use of the forms or of the model language provided in them does provide a safe harbor for compliance. If an alternative method to document an applicant's intent to apply for joint credit is utilized, the risk of noncompliance increases.
Business Credit Applications
The new provision in the OSC for Regulation B does not require written applications for business credit. Although creditors are required to have documentation evidencing the borrowers' intent to apply for joint business credit, creditors have the flexibility to determine the methods used to establish intent. Again, the OSC does state that evidence of intent must be provided at the time of application.
The changes in the final rule to Regulation B and the official staff commentary became effective on April 15, 2003. However, compliance is optional until April 15, 2004, when compliance becomes mandatory. In the interim, financial institutions may continue to use their existing stock of application forms and may phase-in any necessary compliance and operational changes.
Between now and the April 15, 2004 mandatory compliance date, lenders should review how they plan to document joint application status and amend procedures and forms as necessary. Use of the modified application forms provided in Appendix B is the easiest way to effect compliance, but is not required. Lenders should also ensure that all lending personnel involved in taking credit applications receive appropriate training to ensure their understanding of the importance of documenting the joint status of credit applicants.
A copy of the final rule amending Regulation B, including the revised model application forms in Appendix B, is available on the Board of Governor's website . The complete text of Regulation B begins on page 41 of the final rule, and the new model applications forms start on page 72.
If you have any questions regarding the new procedures for documenting the joint status of credit applications, please contact Supervising Examiner Eddie L. Valentine or Connie Wallgren, Consumer Compliance/CRA Examinations Unit Manager, through the Regulations Assistance Line at (215) 574-6568.
The views expressed in this article are those of the author and are not necessarily those of this Reserve Bank or the Federal Reserve System.