uating the creditworthiness of an applicant other than a demonstrably and statistically sound, empirically derived credit system. (u) Marital status means the state of being unmarried, married, or separated, as defined by applicable State law. For the purposes of this part, the term "unmarried" includes persons who are single, divorced, or widowed. (v) Negative factor or value, in relation to the age of elderly applicants, means utilizing a factor, value, or weight that is less favorable regarding elderly applicants than the creditor's experience warrants or is less favorable than the factor, value, or weight assigned to the class of applicants that are not classified as elderly applicants and are most favored by a creditor on the basis of age. (w) Open end credit means credit extended pursuant to a plan under which a creditor may permit an applicant to make purchases or obtain loan from time to time directly from the creditor or indirectly by use of a credit card, check, or other device as the plan may provide. The term does not include negotiated advances under an open end real estate mortgage or a letter of credit. (x) Person means a natural person, corporation, government or governmental subdivision or agency, trust, estate, partnership, cooperative, or association. (y) Pertinent element of creditworthiness, in relation to a judgmental system of evaluating applicants, means any information about applicants that a creditor obtains and considers and that has a demonstrable relationship to a determination of creditworthiness. (z) Prohibited basis means race, color, religion, national origin, sex, marital status, or age (provided that the applicant has the capacity to enter into a binding contract); the fact that all or part of the applicant's income derives from any public assistance program, or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act or any State law upon which an "The first clause of the definition is not limited to characteristics of the applicant. exemption has been granted by th Board. (aa) Public assistance progra means any Federal, State, or local gov ernmental assistance program tha provides a continuing, periodic incom supplement, whether premised on er titlement or need. The term includes but is not limited to, Aid to Familie with Dependent Children, foo stamps, rent and mortgage supple ment or assistance programs, Socia Security and Supplemental Securit Income, and unemployment compen sation. (bb) State means any State, the Dis trict of Columbia, the Commonwealth of Puerto Rico, or any territory or pos session of the United States. (cc) Captions and catchlines are in tended solely as aids to convenient ref erence, and no inference as to the sub stance of any provision of this par may be drawn from them. (dd) Footnotes shall have the same legal effect as the text of the regula tion, whether they are explanatory o illustrative in nature. Therefore, "prohibited basis" as used in thi part refers not only to the race, color, reli gion, national origin, sex, marital status, o age of an applicant (or of partners or offi cers of an applicant), but refers also to the characteristics of individuals with whom ar applicant deals. This means, for example that, under the general rule stated in § 202.4, a creditor may not discriminate against a non-Jewish applicant because o that person's business dealings with Jews, o discriminate against an applicant because o the characteristics of persons to whom th extension of credit relates (e.g., the prospec tive tenants in an apartment complex to b constructed with the proceeds of the credi requested), or because of the characteristic of other individuals residing in the neigh borhood where the property offered as col lateral is located. A creditor may take int account, however, any applicable law, regu lation, or executive order restricting deal ings with citizens or governments of othe countries or imposing limitations regardin credit extended for their use. The second clause is limited to an appli cant's receipt of public assistance incom and to an applicant's good faith exercise o rights under the Consumer Credit Protec tion Act or applicable State law. (a) Classes of transactions afforded special treatment. Pursuant to section 703(a) of the Act, the following classes of transactions are afforded specialized treatment: (1) Extensions of credit relating to transactions under public utility tariffs involving services provided through pipe, wire, or other connected facilities if the charges for such public utility services, the charges for delayed payment, and any discount allowed for early payment are filed with, or reviewed or regulated by, an agency of the Federal Government, a State, or a political subdivision thereof; (2) Extensions of credit subject to regulation under section 7 of the Securities Exchange Act of 1934 or extensions of credit by a broker or dealer subject to regulation as a broker or dealer under the Securities Exchange Act of 1934; (3) Extensions of incidental consumer credit, other than of the types described in paragraph (a) (1) and (2) of this section: (i) That are not made pursuant to the terms of a credit card account; (ii) On which no finance charge as defined in § 226.4 of this Title (Regulation Z, 12 CFR 226.4) is or may be imposed; and (iii) That are not payable by agreement in more than four installments; (4) Extensions of credit primarily for business or commercial purposes, including extensions of credit primarily for agricultural purposes, but excluding extensions of credit of the types described in paragraphs (a) (1) and (2) of this section; and (5) Extensions of credit made to governments or governmental subdivisions, agencies, or instrumentalities. (b) Public utilities credit. The following provisions of this part shall not apply to extensions of credit of the type described in paragraph (a) (1) of this section: (1) Section 202.5(d)(1) concerning information about marital status; (2) Section 202.10 relating to nishing of credit information; and (3) Section 202.12(b) relatin record retention. (c) Securities credit. The follo provisions of this part shall not a to extensions of credit of the typ scribed in paragraph (a)(2) of thi tion: (1) Section 202.5(c) concerning i mation about a spouse or fo spouse; (2) Section 202.5(d)(1) concernin formation about marital status; (3) Section 202.5(d)(3) concernin formation about the sex of an a cant; (4) Section 202.7(b) relating to d nation of name, but only to the ex necessary to prevent violation of r regarding an account in which broker or dealer has an interest rules necessitating the aggregation accounts of spouses for the purpos determining controlling intere beneficial interests, beneficial ow ship, or purchase limitations and strictions; (5) Section 202.7(c) relating to act concerning open end accounts, only to the extent the action take on the basis of a change of name marital status; (6) Section 202.7(d) relating to sig tures of a spouse or other person; (7) Section 202.10 relating to f nishing of credit information; and (8) Section 202.12(b) relating record retention. (d) Incidental credit. The followi provisions of this part shall not app to extensions of credit of the type scribed in paragraph (a)(3) of this s tion: (1) Section 202.5(c) concerning inf mation about a spouse or form spouse; (2) Section 202.5(d)(1) concerning i formation about marital status; (3) Section 202.5(d)(2) concerning i formation about income derived fro alimony, child support, or separa maintenance payments; (4) Section 202.5(d)(3) concerning i formation about the sex of an app. cant to the extent necessary for med cal records or similar purposes; (5) Section 202.7(d) relating to sign tures of a spouse or other person; (6) Section 202.9 relating to notifications; (7) Section 202.10 relating to furnishing of credit information; and (8) Section 202.12(b) relating to record retention. (e) Business credit. The following provisions of this part shall not apply to extensions of credit of the type described in paragraph (a)(4) of this section: (1) Section 202.5(d)(1) concerning information about marital status; (2) Section 202.9 relating to notifications, unless an applicant, within 30 days after oral or written notification that adverse action has been taken, requests in writing the reasons for such action; (3) Section 202.10 relating to furnishing of credit information; and (4) Section 202.12(b) relating to record retention, unless an applicant, within 90 days after adverse action has been taken, requests in writing that the records relating to the application be retained. (f) Governmental credit. Except for § 202.1 relating to authority, scope, enforcement, penalties and liabilities, and interpretation, § 202.2 relating to definitions and rules of construction, this section, § 202.4 relating to the general rule prohibiting discrimination, § 202.6(a) relating to the use of information, § 202.11 relating to State laws, and § 202.12(a) relating to the retention of prohibited information, the provisions of this part shall not apply to extensions of credit of the type described in paragraph (a)(5) of this section. § 202.4 General rules prohibiting discrimination. A creditor shall not discriminate against an applicant on a prohibited basis regarding any aspect of a credit transaction. § 202.5 Rules concerning applications. (a) Discouraging applications. A creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application. (b) General rules concerning requests for information. (1) Except as otherwise provided in this section, a creditor may request any information in connection with an application.' (2) Notwithstanding any other provision of this section, a creditor shall request an applicant's race/national origin, sex, and marital status as required in § 202.13 (information for monitoring purposes). In addition, a creditor may obtain such information as may be required by a regulation, order, or agreement issued by, or entered into with, a court or an enforcement agency (including the Attorney General or a similar State official) to monitor or enforce compliance with the Act, this part, or other Federal or State statute or regulation. (3) The provisions of this section limiting permissible information requests are subject to the provisions of § 202.7(e) regarding insurance and § 202.8(c) and (d) regarding special purpose credit programs. (c) Information about a spouse or former spouse. (1) Except as permitted in this subsection, a creditor may not request any information concerning the spouse or former spouse of an applicant. (2) A creditor may request any information concerning an applicant's spouse (or former spouse under paragraph (c) (2) (v) of this section) that may be requested about the applicant if: (i) The spouse will be permitted to use the account; or (ii) The spouse will be contractually liable upon the account; or (iii) The applicant is relying on the spouse's income as a basis for repayment of the credit requested; or (iv) The applicant resides in a community property State or property upon which the applicant is relying as "This subsection is not intended to limit or abogate any Federal or State law regard ing privacy, privileged information, credit reporting limitations, or similar restrictions on obtainable information. Furthermore permission to request information should not be confused with how it may be utilized which is governed by § 202.6 (rules concern ing evaluations of applications). a basis for repayment of the credit requested is located in such a State; or (v) The applicant is relying on alimony, child support, or separate maintenance payments from a spouse or former spouse as a basis for repayment of the credit requested. (3) A creditor may request an applicant to list any account upon which the applicant is liable and to provide the name and address in which such account is carried. A creditor may also ask the names in which an applicant has previously received credit. (d) Information a creditor may not request. (1) If an applicant applies for an individual, unsecured account, a creditor shall not request the applicant's marital status, unless the applicant resides in a community property State or property upon which the applicant is relying as a basis for repayment of the credit requested is located in such a State. Where an application is for other than individual, unsecured credit, a creditor may request an applicant's marital status. Only the terms "married," "unmarried," and "separated" shall be used, and a creditor may explain that the category "unmarried" includes single, divorced, and widowed persons. 5 (2) A creditor shall not inquire whether any income stated in an application is derived from alimony, child support, or separate maintenance payments, unless the creditor appropriately discloses to the applicant that such income need not be revealed if the applicant does not desire the creditor to consider such income in determining the applicant's creditworthiness. Since a general inquiry "This provision does not preclude requesting relevant information that may indirectly disclose marital status, such as asking about liability to pay alimony, child support, or separate maintenance; the source of income to be used as a basis for the repayment of the credit requested, which may disclose that it is a spouse's income; whether any obligation disclosed by the applicant has a co-obligor, which may disclose that the co-obligor is a spouse or former spouse; or the ownership of assets, which may disclose the interest of a spouse, when such assets are relied upon in extending the credit. Such inquiries are allowed by the general rule of subparagraph (b)(1) of this section. about income, without further sp cation, may lead an applicant t alimony, child support, or sep maintenance payments, a cre shall provide an appropriate noti an applicant before inquiring a the source of an applicant's inc unless the terms of the inquiry ( as an unquiry about salary, wage vestment income, or similarly spe income) tend to preclude the uni tional disclosure of alimony, child port, or separate maintenance ments. (3) A creditor shall not request sex of an applicant. An applicant be requested to designate a title of application form (such as Ms., N Mr., or Mrs.) if the form appropria discloses that the designation of s a title is optional. An application f shall otherwise use only terms are neutral as to sex. (4) A creditor shall not request in mation about birth control practi intentions concerning the bearing rearing of children, or capability bear children. This does not preclu creditor from inquiring about number and ages of an applicant's pendents or about dependent-rela financial obligations or expenditu provided such information is requ ed without regard to sex, mar status, or any other prohibited basis (5) A creditor shall not request race, color, religion, or national ori of an applicant or any other person connection with a credit transaction creditor may inquire, however, as an applicant's permanent resider and immigration status. (e) Application forms. A credi need not use written applications. I creditor chooses to use written form it may design its own, use forms p pared by another person, or use t appropriate model application for 6 "A creditor also may continue to use a application form that complies with the quirements of the October 28, 1975 versi of Regulation B until its present stock those forms is exhausted or until March 1978, whichever occurs first. The provisio of this part shall not determine and are n evidence of the meaning of the requir ments of the previous version of Regulati B. contained in Appendix B. If a creditor chooses to use an Appendix B form, it may change the form: (1) By asking for additional information not prohibited by this section; (2) By deleting any information request; or (3) By rearranging the format without modifying the substance of the inquiries; provided that in each of these three instances the appropriate notices regarding the optional nature of courtesy titles, the option to disclose alimony, child support, or separate maintenance, and the limitation concerning marital status inquiries are included in the appropriate places if the items to which they relate appear on the creditor's form. If a creditor uses an appropriate Appendix B model form or to the extent that it modifies such a form in accordance with the provisions of clauses (2) or (3) of the preceding sentence or the instructions to Appendix B, that creditor shall be deemed to be acting in compliance with the provisions of paragraphs (c) and (d) of this section. § 202.6 Rules concerning evaluation of applications. (a) General rule concerning use of information. Except as otherwise provided in the Act and this part, a creditor may consider in evaluating an application any information that the creditor obtains, so long as the information is not used to discriminate against an applicant on a prohibited basis." (b) Specific rules concerning use of information. (1) Except as provided in the Act and this part, a creditor shall not take a prohibited basis into account in any system of evaluating the creditworthiness of applicants. "The legislative history of the Act indicates that the Congress intended an "effects test" concept, as outlined in the employment field by the Supreme Court in the cases of Griggs v. Duke Power Co., 401 U.S. 424 (1971), and Albemarle Paper Co. v. Moody, 422 U.S. 405 (1975), to be applicable to a creditor's determination of creditworthiness. See Senate Report to accompany H.R. 6516, No. 94-589, pp. 4-5; House Report to accompany H.R. 6516, N. 94-210, p. 5. "This provision does not prevent a creditor from considering the marital status of (2)(i) Except as permitted in this section, a creditor shall not take into account an applicant's age (Provided, That the applicant has the capacity to enter into a binding contract) or whether an applicant's income derives from any public assistance program. (ii) In a demonstrably and statistically sound, empirically derived credit system, a creditor may use an applicant's age as a predictive variable, proIvided that the age of an elderly applicant is not assigned a negative factor or value. (iii) In a judgmental system of evaluating creditworthiness, a creditor may consider an applicant's age or whether an applicant's income derives from any public assistance program only for the purpose of determining a pertinent element of creditworthiness.9 an applicant or the source of an applicant's income for the purpose of ascertaining the creditor's rights and remedies applicable to the particular extension of credit and not to discriminate in a determination of creditworthiness. Furthermore, a prohibited basis may be considered in accordance with § 202.8 (special purpose credit programs). "Concerning income derived from a public assistance program, a creditor may consider, for example, the length of time an applicant has been receiving such income; whether an applicant intends to continue to reside in the jurisdiction in relation to residency requirements for benefits; and the status of to an applicant's dependents ascertain whether benefits that the applicant is presently receiving will continue. Concerning age, a creditor may consider, for example, the occupation and length of time to retirement of an applicant to ascertain whether the applicant's income (including retirement income, as applicable) will support the extension of credit until its maturity; or the adequacy of any security offered if the duration of the credit extension will exceed the life expectancy of the applicant. An elderly applicant might not qualify for a five-percent down, 30-year mortgage loan because the duration of the loan exceeds the applicant's life expectancy and the cost of realizing on the collateral might exceed the applicant's equity. The same applicant might qualify with a larger downpayment and a shorter loan maturity. A creditor could also consider an applicant's age, for example to assess the significance of the applicant's length of employment or residence (a young applicant may have just entered the job market; an elderly applicant may recently have retired and moved from a long-time residence). |