Fair lending laws are a staple of credit card payments. In the world of credit cards, issuers are more concerned about your FICO score than how old you are, where you are from, your lifestyle, your background, or any other protected class.
From the looks of it, even the extremely critical Consumer Financial Protection Bureau (CFPB) has little to say about lending fairness regarding credit cards.
Many regulations came to be during the tipping point for U.S. credit cards. As a result, issuers operate under a wide gamut of requirements, ranging from Regulation B to Regulation Z. (There is a Regulation A, but it covers registration requirements for unrelated securities filings.)
With Reg B, you have the basics of fair lending, which the Federal Reserve defines as “the statute makes it unlawful for any creditor to discriminate against any applicant with respect to any aspect of a credit transaction (1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant can contract); (2) because all or part of the applicant’s income derives from any public assistance program; or (3) because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.”
Reg E is out there with protections for Electronic Funds Transfers, where the Fed says, “Regulation E provides a basic framework that establishes the rights, liabilities, and responsibilities of participants in electronic fund transfer systems such as automated teller machine transfers, telephone bill-payment services, point-of-sale (POS) terminal transfers in stores, and preauthorized transfers from or to a consumer’s account (such as direct deposit and social security payments).”
And Reg Z is your fundamental truth in lending, which dates back to 1970, and discusses the basics of disclosures, transparency, and clarity, one of the foundations of credit cards.
The good news in fair lending today is about the CFPB’s latest report on Fair Lending, published earlier in May 2022. In this 43-page report, you will find a recap of the agency’s enforcement actions for the U.S. market and only one credit card citation.
The Fair Lending director found “bad actors,” as she put it, in credit services provided for detention centers and inmates. In addition, some redlining issues were evident in mortgages (…didn’t you think our society was beyond all that by now?). And the report cited Lend Up, a fintech lender, with a $100,000 fine and consumer redress of $40 million.
Bank of America, one of the foundational lenders in the credit card industry, received the sole strike in the CFPB’s report on an account closure issue. That’s more than “pretty good” in a sector that issued 120 million new cards last year. The agency noted, “Instead, ECOA shields existing borrowers from discrimination in all aspects of a credit arrangement and gives consumers the right to an explanation when their credit application is denied, or when an existing account is terminated, or its terms are unfavorably changed.”
Fair lending: good for the consumer and good for lenders. Looks like a clean bill of health for U.S. credit cards on this issue.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
