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Recorded on 7/7/22
In 1974, Congress passed the Equal Credit Opportunity Act (ECOA) to prohibit discrimination in credit access based on a variety of bases. When amending ECOA in 1976, Congress created Special Purpose Credit Programs (SPCP) to help remedy longstanding discrimination in credit markets. SPCPs do not constitute unlawful discrimination even though the programs target a specific groups of borrowers. During the past 46 years very few SPCPs have been established.
Recently, the federal financial institutions regulatory agencies have placed SPCPs in a spotlight.
- On December 21, 2020, the Consumer Financial Protection Bureau (CFPB) published an Advisory Opinion that is designed to address regulatory uncertainty in special purpose credit programs designed and implemented by for-profit organizations to meet special social needs. Specifically, the Advisory Opinion clarifies:
- The content that a for-profit organization must include in a written plan that establishes and administers a SPCP under Regulation B; and
- The type of research and data that may be appropriate to support a for-profit organization’s determination that a SPCP is needed to benefit a certain class of persons.
- On December 6, 2021, the Department of Housing and Urban Development (HUD) issued a legal opinion that makes clear that some SPCPs that are lawful under ECOA and other federal laws generally are not barred by the Fair Housing Act.
- On December 7, 2021, HUD published a statement regarding Special Purpose Credit Programs as a Remedy for Disparities in Access to Homeownership. Because of systemic discrimination in this nation’s housing and credit markets, including by the federal government itself, homeownership rates are much lower for African Americans and other people of color than for their White counterparts. The Department of Housing and Urban Development (HUD) and its Office of Fair Housing and Equal Opportunity (FHEO) are committed to working to eliminate the homeownership gap. FHEO is encouraging lenders to.
- Review current and historic barriers to credit and homeownership faced by people of color and other underserved communities.
- Help resolve these inequities through SPCPs designed to assist those who have historically been locked out of homeownership opportunities, such as economically disadvantaged classes of persons and first-time homebuyers whose parents and grandparents may have been excluded from the housing and credit markets by discriminatory policies.
- On February 22, 2022, the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), HUD, the Department of Justice (DOJ), and the Federal Housing Finance Agency (hereafter, the agencies) published a Statement on Special Purpose Credit Programs Under the Equal Credit Opportunity Act and Regulation B. The statement reminds creditors of the ability under the ECOA and Regulation B to establish special purpose credit programs to meet the credit needs of specified classes of persons.
An SPCP created following the rules in Regulation B is protected against liability. An SPCP is fairly easy to create. A for-profit organization creating its own SPCP must establish and administer the SPCP through a written plan. The plan must:
- Specify the duration of the program, or contain a statement explaining when the program will be reevaluated to determine its ongoing need;
- Specify the class of people it intends to benefit
- Describe the procedures and standards for extending credit in accordance with the program
- Specify the class of people the plan intends to extend credit to who, according to the specific for-profit organization’s customary standard of creditworthiness, would not be eligible to receive credit or would receive credit on less favorable terms than typically available to other applicants who apply for a similar type and amount of credit.
A Special Purpose Credit Program allows a financial institution to take positive steps to eliminate lending disparities that may exist within the communities it serves. A SPCP does not protect a financial institution from liability resulting from prior discrimination, but development of a program can occur without consideration of an institution’s lending history. No financial institution is required to offer a SPCP.
Participants receive a detailed manual that serves as a handbook long after the program is completed.
Upon completion of this program participants understand:
- The basic rules regarding SPCPs;
- Recent focus on SPCPs;
- The three bases upon which an SPCP may be established;
- The required content of the SPCP written plan;
- How to identify an economically disadvantaged class;
- What constitutes a social need;
- What constitutes a safe harbor for a for-profit organizations that establish SPCPs in good faith;
- How a place-based SPCP works; and
- How to develop an SPCP.
The program is designed for senior management, members of the board of directors, operations officers, risk managers, compliance officers, and auditors. Whether considering the development of a special purpose credit program or just expanding your understanding of the topic, this program provides the background information you need.