Joint Pain from the FDIC

Susan B. Hollinger
Published on : 2010-03-23

A number of banks have been caught by surprise in recent compliance exams by the FDIC with respect to an alleged violation of the Equal Credit Opportunity Act (ECOA) involving marital status.

It began when a representative of the FDIC spoke at a Massachusetts Bankers Association event in October 2009 and informed the attending banks of its view of the potential ECOA violation. Obviously, this event was directed at Massachusetts banks, but not all were there. Since then, there has been no official guidance from FDIC to banks in Massachusetts or other states about this issue. However, FDIC examiners are now citing it as a “Significant Violation” in compliance exams in Massachusetts and other states, advising that the violation may be referred to the Department of Justice for action and required to be disclosed in a bank’s CRA Exam Report (which is available to the public). Although it began in Massachusetts, it appears that the examiners may be looking for this violation nationwide.

The violation focuses on credit reports. Each person has his/her own credit record and credit score. When one person applies for credit, a credit report is pulled, and the customer may be charged for the report (e.g., $15). However, if two people apply together for credit, credit reports for two people can either be pulled as two single reports (i.e., 2 x $15 = $30) or as one joint report on two people (e.g., $18). The FDIC believes that charging two married joint applicants for a single joint credit report, and charging two unmarried joint applicants for two separate single reports constitutes a marital status discrimination violation because FDIC has confirmed that the credit bureaus can and will provide joint credit reports on unmarried joint applicants for the same price as married applicants.

The violation relates to the fee that is charged to joint applicants. If unmarried joint applicants are charged more for credit report(s) than married joint applicants are, the FDIC thinks that should be deemed a violation of Regulation B, 12 CFR 202.6(b)(8).

The extent of the violation appears to be small at some recently examined banks – e.g., less than 1 violation per 300 loans or 0.33%. And the discrepancy in fees is only a minor amount ($12 in the example). Yet, the FDIC is treating this as very important and threatening downgrades in CRA and compliance ratings.

If banks have committed this alleged violation in the past, they should consider conducting a review of their records, identifying the customers who have overpaid, refunding the overpayment and documenting the corrective action to demonstrate to the FDIC that they have been proactive in addressing the issue. Banks must also ensure that going forward, for loan products where the customers are charged for credit reports, all two-person joint applicants (regardless of marital status) are charged the same fee for credit reports. If a bank’s vendor indicates that this is not possible, FDIC has advised banks that they should find a new provider who will comply with this requirement.

Please contact Attorney Funk with any additional questions about this issue.