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Appeal of Equal Credit Opportunity Act Violation and U.S. Department of Justice Referral (Fourth Quarter 2013)


A bank appealed to the Ombudsman of the Office of the Comptroller of the Currency (OCC) the finding in a recent supervisory letter that the supervisory office has reason to believe the bank engaged in a pattern or practice of discrimination based on age, in violation of the Equal Credit Opportunity Act (ECOA) and Regulation B. Specifically, the supervisory office found that the bank instituted a policy for a 28-month period that prevented consumers of contract age under the age of 21 (young consumers) from applying online (i.e., via the bank’s Internet-based application) for credit cards. The bank also stated in its appeal that it would be inappropriate for the OCC to refer the matter to the U.S. Department of Justice (DOJ).


In its appeal, the bank stated that it believes its actions were required by the provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (Credit CARD Act), which is designed to protect young consumers. The Credit CARD Act prohibits issuing a credit card to young consumers unless they submit a written application. The bank asserted that to comply with the Credit CARD act, it stopped taking online credit card applications from applicants under 21 because the bank’s online application process did not have the functionality to meet all of the requirements under the Electronic Signatures in Global and National Commerce Act (E-SIGN Act) necessary to create a written application. The bank further asserted that certain consumer groups confirmed that to meet the Credit CARD Act’s requirements for a written application, card issuers must comply with the E-SIGN Act’s record retention and record reproduction requirements when accepting online applications from young consumers. The bank stated that its online application process did not have these attributes. The bank’s systems have since been modified to provide this functionality.

The bank’s appeal also stated that Regulation Z’s final rules make it clear that compliance with Credit CARD Act requirements to protect young consumers does not violate the ECOA. The final rules state that a card issuer does not violate Regulation B by complying with the requirements in 12 CFR 1026.51(b) of Regulation Z.

The bank further asserted that it believes its actions with respect to online applications did not constitute a pattern or practice of discrimination based on age in violation of the ECOA. The bank stated that it had no reason to exclude any person from applying for credit cards; that during the period in question, it continued to accept and approve thousands of non-Internet credit card applications from young consumers; that online applications represented a very small and largely unpublicized channel of its credit card applications; and that the bank’s strategy throughout the period in question focused on encouraging all customers, including young consumers, to submit in-house applications.

Additionally, the bank argued that it would be inappropriate for the OCC to refer this matter to the DOJ because the OCC cited the practice over a year ago and there is no chance the practice will be repeated. The bank further asserted that any violation, if one occurred, was accidental and related to a highly technical legal issue, and that approximately less than 1 percent of all applicants were affected, with a low level of potential harm.


The Ombudsman conducted a comprehensive review of information submitted by the bank and the supervisory office. The standards for the Ombudsman’s analysis were the Comptroller’s Handbook booklets “Fair Lending” and “Truth in Lending Act,” in addition to the ECOA, Regulation B, the Truth in Lending Act (TILA) as amended by the Credit CARD Act, Regulation Z, and the E-SIGN Act.

This appeal matter involves three statutes:

  • ECOA, which prohibits discrimination against credit applicants on a prohibited basis. The prohibited bases include: race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract).
  • TILA, which, as amended by the Credit CARD Act, prohibits issuance of a credit card or other open-end credit plan to a person under 21  (young consumer) unless that person submits a written application either demonstrating that he or she has the independent ability to repay his or her credit card debts, or, alternatively, providing the signature of a co-signer who has the ability to repay the credit card or other open-end debt.
  • The E-SIGN Act, which provides that a “signature, contract, or other record” relating to a transaction may not be denied legal effect because it is in electronic form, unless certain exceptions apply. An electronic record of a contract or other record required to be in writing may be denied legal effect, validity, or enforceability if such record is not in a form that is capable of being retained and accurately reproduced for later reference by all parties or persons who are entitled to retain the contract or other record.

Based on a review of the information submitted by the bank and the supervisory office, as well as the relevant standards, the Ombudsman made the following determinations:

  • The Official Staff Interpretations to Regulation Z state that, consistent with other provisions of Regulation Z, an application may be provided to a consumer in electronic form without regard to the consumer consent or other provisions of the E-Sign Act.1 The Official Staff Interpretations clearly state that the electronic submission of an application from a consumer to a card issuer “would constitute a written application for purposes of [12 CFR] 1026.51(b) and would not be considered a consumer disclosure for purposes of the E-SIGN Act.”2
  • Under the Official Staff Interpretations of Regulation Z, acceptance of an online application from a young consumer would not have violated 12 CFR 1026.51(b).
  • While Regulation Z does not require a creditor to allow applicants to apply for credit electronically, Regulation B does not permit a creditor to accept electronic applications from some consumers and not others in a manner that treats applicants under 21 less favorably than applicants 21 and older.
  • Acceptance of an online application from a young consumer would not have violated the E-SIGN Act. The bank might have faced, however, some legal risk in any litigation concerning the fact that its system did not provide a method for an online application to be retained by the consumer, because a court might have denied the legal effect of the application. Rather than modify its online process to obtain the protections afforded under the E-SIGN Act, which the bank eventually did, it chose to discontinue accepting online applications from young consumers.
  • By discontinuing acceptance of online applications from young consumers, there is reason to believe that the bank treated those applicants differently in the credit process based on age, and effectively denied their applications in violation of Regulation B and ECOA.

Based on these factors, the Ombudsman concluded that the supervisory office appropriately supported its reason to believe that the bank engaged in a pattern or practice of discrimination against young consumers in violation of ECOA and Regulation B.

In addition, the 1994 Interagency Policy Statement provides guidance on what constitutes a pattern or practice of lending discrimination, which is based on an analysis of facts in a given case.3 Isolated, unrelated, or accidental occurrences do not constitute a pattern or practice. However, repeated, intentional, regular, usual, deliberate, or institutionalized practices almost always constitute a pattern or practice. The Ombudsman determined that, based on the length of time the violation continued before the bank took corrective action and the number of young consumers who were denied the opportunity to apply online during that period, the bank’s actions at issue were not isolated, unrelated, or accidental.

Regarding the appropriateness of referring the violation to the DOJ, the bank argued that there are several factors the DOJ considers in deciding whether to return a matter to a referring agency for administrative action. The Ombudsman determined that regulatory agencies are required under the ECOA to refer matters to the DOJ if an agency determines there is reason to believe that a bank has engaged in a pattern or practice of discouraging or denying applications for credit on a prohibited basis in violation of the ECOA, even if the matter is ultimately returned for administrative action. Therefore, the Ombudsman supported the conclusion that the supervisory office should refer this matter to the DOJ.

1 12 CFR 1026, supplement I, comment 51(b)-4. Good faith reliance on the Official Interpretations protects creditors from civil liability under TILA. See also 15 USC 1640(f); 12 CFR 1026, supplement I, Introduction, comment 1.

2 Id. See also Comptroller’s Handbook, “Truth in Lending Act,” page 5 (December 2010) (“[i]n order to comply with Regulation Z, it is critical to reference and rely on the commentary”).

3 Policy Statement on Discrimination in Lending, question 9 (April 15, 1994), reprinted in Comptroller’s Handbook, “Fair Lending,” pages 168-69 (2010).