What Is Regulation B?

Before the passage of the Equal Credit Opportunity Act (ECOA) in 1974, lenders often discriminated against women and minorities when deciding whether to extend credit, and it was perfectly legal to do so. Regulation B is a set of rules implementing the ECOA. 

What is the Regulation B used for? Learn how it works and why it’s so important to consumers everywhere.

What is the Regulation B, and why was it created?

Regulation B is a federal rule that clarifies how the ECOA should be implemented. The exact wording of Regulation B can be found in Title 12 of the Code of Federal Regulations Part 1002. 

Some people think that the ECOA and Regulation B are the same, but there’s a key difference between the two:

• The ECOA is a law passed by Congress to ban discrimination when extending credit
• Regulation B is a set of actionable rules explaining how the ECOA is to be applied

Originally, Regulation B was enforced by the Federal Reserve Board. However, the Dodd-Frank Act of 2010 granted that responsibility to the Consumer Financial Protection Bureau (CFPB) instead.

Protections under Regulation B

If you’re applying for credit or think you’ll need a loan in the near future, you should be aware of your protections under Regulation B. These are some of the most critical.

Anti- discrimination

Under Regulation B and the ECOA, creditors may not use any of the following factors to discriminate against someone who is applying for credit:

• Sex
• Marital status
• Race
• Color
• Religion
• National origin
• Source of income
• Whether the applicant exercised any of their rights under the Consumer Credit Protection Act

The “source of income” provision was added to the ECOA and Regulation B to prevent discrimination against borrowers who receive public assistance, such as Social Security retirement benefits or Social Security Disability Insurance. In the past, lenders frequently used this as a reason to deny applications.

Recordkeeping

If lenders kept no records at all, it would be impossible for regulators to investigate potential misconduct.

After a lender has made a credit decision, Regulation B requires them to keep the following records for at least 25 months:

• All application information
• Any other information used for the evaluation
• Notifications of denial or other adverse actions (if applicable)
• Specific reasons for denial (if applicable)

Creditors that violate these record-keeping requirements may face hundreds of thousands of dollars in fines, as well as sanctions from regulatory agencies like the CFPB.

Notifications

If you apply for credit, Regulation B requires the creditor to send a notice of any of the following within 30 days:

• Incomplete application
• Approval
• Counteroffer
• Adverse action (denial)

An adverse action notice must contain a specific reason for the denial. Likewise, a counteroffer (an offer of credit but with different terms than you applied for) must also come with a reason.

For example, imagine you apply for a $10,000 personal loan. If the lender is only willing to lend you $5,000, it might send a notice explaining that it is offering you this lower amount because of your limited credit history.

What to do if your rights under Regulation B are violated

Most lenders today are compliant with the ECOA and Regulation B, but unfortunately, there are some outliers. If you believe your Regulation B rights have been violated, you can take one or more of the following courses of action.

Contact the creditor directly

Contacting the creditor directly could be effective. The creditor might have mistakenly denied you credit, or it may have failed to adequately explain why it denied your application.

You should document this process thoroughly. If you do pursue legal action, it may help to have proof that you tried to resolve the situation on your own.

File a complaint

Depending on what type of lender denied your application for credit, you may file a complaint with one of these agencies:

• CFPB
• Federal Reserve Board 
• Office of the Comptroller of the Currency 
• Federal Deposit Insurance Corporation
• National Credit Union Association 
• Federal Trade Commission 

If you aren’t sure where to start, consider getting in touch with your state’s office of the attorney general.

Talk to an attorney

Courts take discrimination in lending very seriously. If you prove that a lender has discriminated against you, you might be entitled to compensation for attorney’s fees and any losses you suffered as a direct result of the lender’s actions.

You also may receive other compensation. When lenders blatantly violate the law, courts sometimes order them to pay additional damages to discourage them from doing it again.

Many attorneys who take on Regulation B cases work on contingency. This means that you don’t pay up front. You only pay the attorney if they secure compensation for you.

Want to improve your chances of credit approval?

Regulation B protects consumers from most forms of discrimination when applying for loans. However, it doesn’t protect you from being charged high interest rates or being denied a loan due to bad credit.

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