For a broader coverage related to this topic, see Scholarly communication.
Academic publishing is the subfield of publishing which distributes academic research and scholarship. Most academic work is published in academic journal article, book or thesis form. The part of academic written output that is not formally published but merely printed up or posted on the Internet is often called "grey literature". Most scientific and scholarly journals, and many academic and scholarly books, though not all, are based on some form of peer review or editorial refereeing to qualify texts for publication. Peer review quality and selectivity standards vary greatly from journal to journal, publisher to publisher, and field to field.
Most established academic disciplines have their own journals and other outlets for publication, although many academic journals are somewhat interdisciplinary, and publish work from several distinct fields or subfields. There is also a tendency for existing journals to divide into specialized sections as the field itself becomes more specialized. Along with the variation in review and publication procedures, the kinds of publications that are accepted as contributions to knowledge or research differ greatly among fields and subfields.
Academic publishing is undergoing major changes, as it makes the transition from the print to the electronic format. Business models are different in the electronic environment. Since the early 1990s, licensing of electronic resources, particularly journals, has been very common. Currently, an important trend, particularly with respect to journals in the sciences, is open access via the Internet. In open access publishing, a journal article is made available free for all on the web by the publisher at the time of publication. Open-access journals are often funded by the author paying hundreds or thousands of dollars in publication fees, thereby shifting the costs from the reader to the researcher or their funder, but some open-access journals are funded directly. The Internet has facilitated open access self-archiving, in which authors themselves make a copy of their published articles available free for all on the web. Some important results in mathematics have been published only on arXiv.
The Journal des sçavans (later spelled Journal des savants), established by Denis de Sallo, was the earliest academic journal published in Europe. Its content included obituaries of famous men, church history, and legal reports. The first issue appeared as a twelve-page quartopamphlet on Monday, 5 January 1665, shortly before the first appearance of the Philosophical Transactions of the Royal Society, on 6 March 1665.
At that time, the act of publishing academic inquiry was controversial and widely ridiculed. It was not at all unusual for a new discovery to be announced as an anagram, reserving priority for the discoverer, but indecipherable for anyone not in on the secret: both Isaac Newton and Leibniz used this approach. However, this method did not work well. Robert K. Merton, a sociologist, found that 92% of cases of simultaneous discovery in the 17th century ended in dispute. The number of disputes dropped to 72% in the 18th century, 59% by the latter half of the 19th century, and 33% by the first half of the 20th century. The decline in contested claims for priority in research discoveries can be credited to the increasing acceptance of the publication of papers in modern academic journals, with estimates suggesting that around 50 million journal articles have been published since the first appearance of the Philosophical Transactions. The Royal Society was steadfast in its not-yet-popular belief that science could only move forward through a transparent and open exchange of ideas backed by experimental evidence.
Early scientific journals embraced several models: some were run by a single individual who exerted editorial control over the contents, often simply publishing extracts from colleagues' letters, while others employed a group decision making process, more closely aligned to modern peer review. It wasn't until the middle of the 20th century that peer review became the standard.
Publishers and business aspects
See also: Academic journal § Costs, and Scientific journal § Cost
In the 1960s and 1970s, commercial publishers began to selectively acquire "top-quality" journals which were previously published by nonprofit academic societies. Due to the inelastic demand for these journals, the commercial publishers lost little of the market when they raised the prices significantly. Although there are over 2,000 publishers, as of 2013, five for-profit companies (Reed Elsevier, Springer Science+Business Media, Wiley-Blackwell, Taylor & Francis, and Sage) accounted for 50% of articles published. (Since 2013, Springer Science+Business Media has undergone a merger to form an even bigger company named Springer Nature.) Available data indicate that these companies have high profit margins, especially compared to the smaller publishers which likely operate with low margins. These factors have contributed to the "serials crisis" – from 1986 to 2005, the number of serials purchased has increased an average of 1.9% per year while total expenditures on serials have increased 7.6% per year.
Unlike most industries, in academic publishing the two most important inputs are provided "virtually free of charge". These are the articles and the peer review process. Publishers argue that they add value to the publishing process through support to the peer review group, including stipends, as well as through typesetting, printing, and web publishing. Investment analysts, however, have been skeptical of the value added by for-profit publishers, as exemplified by a 2005 Deutsche Bank analysis which stated that "we believe the publisher adds relatively little value to the publishing process... We are simply observing that if the process really were as complex, costly and value-added as the publishers protest that it is, 40% margins wouldn't be available."
Main article: Serials crisis
A crisis in academic publishing is "widely perceived"; the apparent crisis has to do with the combined pressure of budget cuts at universities and increased costs for journals (the serials crisis). The university budget cuts have reduced library budgets and reduced subsidies to university-affiliated publishers. The humanities have been particularly affected by the pressure on university publishers, which are less able to publish monographs when libraries can't afford to purchase them. For example, the ARL found that in "1986, libraries spent 44% of their budgets on books compared with 56% on journals; twelve years later, the ratio had skewed to 28% and 72%." Meanwhile, monographs are increasingly expected for tenure in the humanities. The Modern Language Association has expressed hope that electronic publishing will solve the issue.
In 2009 and 2010, surveys and reports found that libraries faced continuing budget cuts, with one survey in 2009 finding that one-third of libraries had their budgets cut by 5% or more.
Academic journal publishing reform
Main article: Academic journal publishing reform
Several models are being investigated such as open publication models or adding community-oriented features. It is also considered that "Online scientific interaction outside the traditional journal space is becoming more and more important to academic communication". In addition, experts have suggested measures to make the publication process more efficient in disseminating new and important findings by evaluating the worthiness of publication on the basis of the significance and novelty of the research finding.
See also: Scientific paper and Academic journal § Scholarly articles
In academic publishing, a paper is an academic work that is usually published in an academic journal. It contains original research results or reviews existing results. Such a paper, also called an article, will only be considered valid if it undergoes a process of peer review by one or more referees (who are academics in the same field) who check that the content of the paper is suitable for publication in the journal. A paper may undergo a series of reviews, revisions, and re-submissions before finally being accepted or rejected for publication. This process typically takes several months. Next, there is often a delay of many months (or in some subjects, over a year) before an accepted manuscript appears. This is particularly true for the most popular journals where the number of accepted articles often outnumbers the space for printing. Due to this, many academics self-archive a 'pre-print' copy of their paper for free download from their personal or institutional website.
Some journals, particularly newer ones, are now published in electronic form only. Paper journals are now generally made available in electronic form as well, both to individual subscribers, and to libraries. Almost always these electronic versions are available to subscribers immediately upon publication of the paper version, or even before; sometimes they are also made available to non-subscribers, either immediately (by open access journals) or after an embargo of anywhere from two to twenty-four months or more, in order to protect against loss of subscriptions. Journals having this delayed availability are sometimes called delayed open access journals. Ellison has reported that in economics the dramatic increase in opportunities to publish results online has led to a decline in the use of peer-reviewed articles.
Categories of papers
See also: Types of scientific journal articles
An academic paper typically belongs to some particular category such as:
Note: Law review is the generic term for a journal of legal scholarship in the United States, often operating by rules radically different from those for most other academic journals.
Main article: Academic peer review
Peer review is a central concept for most academic publishing; other scholars in a field must find a work sufficiently high in quality for it to merit publication. A secondary benefit of the process is an indirect guard against plagiarism since reviewers are usually familiar with the sources consulted by the author(s). The origins of routine peer review for submissions dates to 1752 when the Royal Society of London took over official responsibility for Philosophical Transactions. However, there were some earlier examples.
While journal editors largely agree the system is essential to quality control in terms of rejecting poor quality work, there have been examples of important results that are turned down by one journal before being taken to others. Rena Steinzor wrote:
Perhaps the most widely recognized failing of peer review is its inability to ensure the identification of high-quality work. The list of important scientific papers that were initially rejected by peer-reviewed journals goes back at least as far as the editor of Philosophical Transaction's 1796 rejection of Edward Jenner's report of the first vaccination against smallpox.
"Confirmatory bias" is the unconscious tendency to accept reports which support the reviewer's views and to downplay those which do not. Experimental studies show the problem exists in peer reviewing.
The process of academic publishing, which begins when authors submit a manuscript to a publisher, is divided into two distinct phases: peer review and production.
The process of peer review is organized by the journal editor and is complete when the content of the article, together with any associated images or figures, are accepted for publication. The peer review process is increasingly managed online, through the use of proprietary systems, commercial software packages, or open source and free software. A manuscript undergoes one or more rounds of review; after each round, the author(s) of the article modify their submission in line with the reviewers' comments; this process is repeated until the editor is satisfied and the work is accepted.
The production process, controlled by a production editor or publisher, then takes an article through copy editing, typesetting, inclusion in a specific issue of a journal, and then printing and online publication. Academic copy editing seeks to ensure that an article conforms to the journal's house style, that all of the referencing and labelling is correct, and that the text is consistent and legible; often this work involves substantive editing and negotiating with the authors. Because the work of academic copy editors can overlap with that of authors' editors, editors employed by journal publishers often refer to themselves as “manuscript editors”.
In much of the 20th century, such articles were photographed for printing into proceedings and journals, and this stage was known as camera-ready copy. With modern digital submission in formats such as PDF, this photographing step is no longer necessary, though the term is still sometimes used.
The author will review and correct proofs at one or more stages in the production process. The proof correction cycle has historically been labour-intensive as handwritten comments by authors and editors are manually transcribed by a proof reader onto a clean version of the proof. In the early 21st century, this process was streamlined by the introduction of e-annotations in Microsoft Word, Adobe Acrobat, and other programs, but it still remained a time-consuming and error-prone process. The full automation of the proof correction cycles has only become possible with the onset of onlinecollaborative writing platforms, such as Authorea, Google Docs, and various others, where a remote service oversees the copy-editing interactions of multiple authors and exposes them as explicit, actionable historic events.
Main article: Citation
Academic authors cite sources they have used, in order to support their assertions and arguments and to help readers find more information on the subject. It also gives credit to authors whose work they use and helps avoid plagiarism.
Each scholarly journal uses a specific format for citations (also known as references). Among the most common formats used in research papers are the APA, CMS, and MLA styles.
The American Psychological Association (APA) style is often used in the social sciences. The Chicago Manual of Style (CMS) is used in business, communications, economics, and social sciences. The CMS style uses footnotes at the bottom of page to help readers locate the sources. The Modern Language Association (MLA) style is widely used in the humanities.
Publishing by discipline
Main article: Scientific literature
Scientific, technical, and medical (STM) literature is a large industry which generated $23.5 billion in revenue; $9.4 billion of that was specifically from the publication of English-language scholarly journals. Most scientificresearch is initially published in scientific journals and considered to be a primary source. Technical reports, for minor research results and engineering and design work (including computer software), round out the primary literature. Secondary sources in the sciences include articles in review journals (which provide a synthesis of research articles on a topic to highlight advances and new lines of research), and books for large projects, broad arguments, or compilations of articles. Tertiary sources might include encyclopedias and similar works intended for broad public consumption or academic libraries.
A partial exception to scientific publication practices is in many fields of applied science, particularly that of U.S. computer science research. An equally prestigious site of publication within U.S. computer science are some academic conferences. Reasons for this departure include a large number of such conferences, the quick pace of research progress, and computer science professional society support for the distribution and archiving of conference proceedings.
Publishing in the social sciences is very different in different fields. Some fields, like economics, may have very "hard" or highly quantitative standards for publication, much like the natural sciences. Others, like anthropology or sociology, emphasize field work and reporting on first-hand observation as well as quantitative work. Some social science fields, such as public health or demography, have significant shared interests with professions like law and medicine, and scholars in these fields often also publish in professional magazines.
Publishing in the humanities is in principle similar to publishing elsewhere in the academy; a range of journals, from general to extremely specialized, are available, and university presses issue many new humanities books every year. The arrival of online publishing opportunities has radically transformed the economics of the field and the shape of the future is controversial. Unlike science, where timeliness is critically important, humanities publications often take years to write and years more to publish. Unlike the sciences, research is most often an individual process and is seldom supported by large grants. Journals rarely make profits and are typically run by university departments.
The following describes the situation in the United States. In many fields, such as literature and history, several published articles are typically required for a first tenure-track job, and a published or forthcoming book is now often required before tenure. Some critics complain that this de facto system has emerged without thought to its consequences; they claim that the predictable result is the publication of much shoddy work, as well as unreasonable demands on the already limited research time of young scholars. To make matters worse, the circulation of many humanities journals in the 1990s declined to almost untenable levels, as many libraries cancelled subscriptions, leaving fewer and fewer peer-reviewed outlets for publication; and many humanities professors' first books sell only a few hundred copies, which often does not pay for the cost of their printing. Some scholars have called for a publication subvention of a few thousand dollars to be associated with each graduate studentfellowship or new tenure-track hire, in order to alleviate the financial pressure on journals.
Open access journals
Main article: Open access journal
An alternative to the subscription model of journal publishing is the open access journal model, which typically involves a publication charge being paid by the author. Prestige journals typically charge several thousand dollars. Oxford University Press, with over 300 journals, has fees ranging from £1000-£2500, with discounts of 50% to 100% to authors from developing countries. Wiley Blackwell has 700 journals available, and they charge a flat $US3000 open access fee. Springer, with over 2600 journals, charges US$3000 or EUR 2200 (excluding VAT).
The online distribution of individual articles and academic journals then takes place without charge to readers and libraries. Most open access journals remove all the financial, technical, and legal barriers that limit access to academic materials to paying customers. The Public Library of Science and BioMed Central are prominent examples of this model.
Open access has been criticized on quality grounds, as the desire to maximize publishing fees could cause some journals to relax the standard of peer review. It may be criticized on financial grounds as well because the necessary publication fees have proven to be higher than originally expected. Open access advocates generally reply that because open access is as much based on peer reviewing as traditional publishing, the quality should be the same (recognizing that both traditional and open access journals have a range of quality). It has also been argued that good science done by academic institutions who cannot afford to pay for open access might not get published at all, but most open access journals permit the waiver of the fee for financial hardship or authors in underdeveloped countries. In any case, all authors have the option of self-archiving their articles in their institutional repositories in order to make them open access, whether or not they publish them in a journal.
If they publish in a Hybrid open access journal, authors pay a subscription journal a publication fee to make their individual article open access. The other articles in such hybrid journals are either made available after a delay or remain available only by subscription. Most traditional publishers (including Wiley-Blackwell, Oxford University Press, and Springer Science+Business Media) have already introduced such a hybrid option, and more are following. Proponents of open access suggest that such moves by corporate publishers illustrate that open access, or a mix of open access and traditional publishing, can be financially viable, and evidence to that effect is emerging. The fraction of the authors of a hybrid open access journal that make use of its open access option can, however, be small. It also remains unclear whether this is practical in fields outside the sciences, where there is much less availability of outside funding. In 2006, several funding agencies, including the Wellcome Trust and several divisions of the Research Councils in the UK announced the availability of extra funding to their grantees for such open access journal publication fees.
In May 2016, the Council for the European Union agreed that from 2020 all scientific publications as a result of publicly funded research must be freely available. It also must be able to optimally reuse research data. To achieve that, the data must be made accessible, unless there are well-founded reasons for not doing so, for example, intellectual property rights or security or privacy issues.
In recent decades there has been a growth in academic publishing in developing countries as they become more advanced in science and technology. Although the large majority of scientific output and academic documents are produced in developed countries, the rate of growth in these countries has stabilized and is much smaller than the growth rate in some of the developing countries. The fastest scientific output growth rate over the last two decades has been in the Middle East and Asia with Iran leading with an 11-fold increase followed by the Republic of Korea, Turkey, Cyprus, China, and Oman. In comparison, the only G8 countries in top 20 ranking with fastest performance improvement are, Italy which stands at tenth and Canada at 13th globally.
By 2004, it was noted that the output of scientific papers originating from the European Union had a larger share of the world's total from 36.6 to 39.3 percent and from 32.8 to 37.5 per cent of the "top one per cent of highly cited scientific papers". However, the United States' output dropped 52.3 to 49.4 per cent of the world's total, and its portion of the top one percent dropped from 65.6 to 62.8 per cent.
Iran, China, India, Brazil, and South Africa were the only developing countries among the 31 nations that produced 97.5% of the most cited scientific articles in a study published in 2004. The remaining 162 countries contributed less than 2.5%. The Royal Society in a 2011 report stated that in share of English scientific research papers the United States was first followed by China, the UK, Germany, Japan, France, and Canada. The report predicted that China would overtake the United States sometime before 2020, possibly as early as 2013. China's scientific impact, as measured by other scientists citing the published papers the next year, is smaller although also increasing.
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- ^Jeffery, Keith G. (2006) Open Access: An Introduction. ERCIM News 64. January 2006
- ^Kaufman, Marc (July 2, 2010), "Russian mathematician wins $1 million prize, but he appears to be happy with $0", Washington Post
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- ^Nadejda Lobastova and Michael Hirst, "Maths genius living in poverty", Sydney Morning Herald, August 21, 2006
- ^The Amsterdam printing of the Journal des sçavans, Dibner Library of the Smithsonian Institution
- ^Brown, 1972, p. 368
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- ^Hendler, James (2007). "Reinventing Academic Publishing -Part 1". IEEE Intelligent Systems. 22 (5). doi:10.1109/MIS.2007.93 (inactive 2017-03-13).
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- ^Glenn Ellison, "Is Peer Review in Decline?" Economic Inquiry (July 2011) 49#3 pp 635–657, doi:10.1111/j.1465-7295.2010.00261.x
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- ^For typical policies see UC Berkeley Library, "Selective List of Open Access Fees"
- ^See Oxford Open Pricing
- ^See Author Services
- ^See "Open Choice"
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FDIC Law, Regulations, Related Acts
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6500 - Consumer Financial Protection Bureau
Supplement I to Part 1002Official Interpretations
Following is an official interpretation of Regulation B (12 CFR Part 1002) issued by the Bureau of Consumer Financial Protection. References are to sections of the regulation or the Equal Credit Opportunity Act (15 U.S.C. 1601 et seq.).
1. Official status. Section 706(e) of the Equal Credit Opportunity Act protects a creditor from civil liability for any act done or omitted in good faith in conformity with an interpretation issued by a duly authorized official of the Bureau. This commentary is the means by which the Bureau of Consumer Financial Protection issues official interpretations of Regulation B. Good-faith compliance with this commentary affords a creditor protection under section 706(e) of the Act.
2. Issuance of interpretations. Under Appendix D to the regulation, any person may request an official interpretation. Interpretations will be issued at the discretion of designated officials and incorporated in this commentary following publication for comment in the Federal Register. Except in unusual circumstances, official interpretations will be issued only by means of this commentary.
3. Comment designations. The comments are designated with as much specificity as possible according to the particular regulatory provision addressed. Each comment in the commentary is identified by a number and the regulatory section or paragraph that it interprets. For example, comments to § 1002.2(c) are further divided by subparagraph, such as comment 2(c)(1)(ii)-1 and comment 2(c)(2)(ii)-1.
Section 1002.1Authority, Scope, and Purpose
1(a) Authority and scope.
1. Scope. The Equal Credit Opportunity Act and Regulation B apply to all credit--commercial as well as personal-without regard to the nature or type of the credit or the creditor, except for an entity excluded from coverage of this part (but not the Act) by section 1029 of the Consumer Financial Protection Act of 2010 (12 U.S.C. 5519). If a transaction provides for the deferral of the payment of a debt, it is credit covered by Regulation B even though it may not be a credit transaction covered by Regulation Z (Truth in Lending) (12 CFR Part 1026). Further, the definition of creditor is not restricted to the party or person to whom the obligation is initially payable, as is the case under Regulation Z. Moreover, the Act and regulation apply to all methods of credit evaluation, whether performed judgmentally or by use of a credit scoring system.
2. Foreign applicability. Regulation B generally does not apply to lending activities that occur outside the United States. The regulation does apply to lending activities that take place within the United States (as well as the Commonwealth of Puerto Rico and any territory or possession of the United States), whether or not the applicant is a citizen.
3. Bureau. The term Bureau, as used in this part, means the Bureau of Consumer Financial Protection.
2(c) Adverse action.
1. Application for credit. If the applicant applied in accordance with the creditor's procedures, a refusal to refinance or extend the term of a business or other loan is adverse action.
1. Move from service area. If a credit card issuer terminates the open-end account of a customer because the customer has moved out of the card issuer's service area, the termination is adverse action unless termination on this ground was explicitly provided for in the credit agreement between the parties. In cases where termination is adverse action, notification is required under § 1002.9.
2. Termination based on credit limit. If a creditor terminates credit accounts that have low credit limits (for example, under $400) but keeps open accounts with higher credit limits, the termination is adverse action and notification is required under § 1002.9.
1. Default--exercise of due-on-sale clause. If a mortgagor sells or transfers mortgaged property without the consent of the mortgagee, and the mortgagee exercises its contractual right to accelerate the mortgage loan, the mortgagee may treat the mortgagor as being in default. An adverse action notice need not be given to the mortgagor or the transferee. (See comment 2(e)-1 for treatment of a purchaser who requests to assume the loan.)
2. Current delinquency or default. The term adverse action does not include a creditor's termination of an account when the accountholder is currently in default or delinquent on that account. Notification in accordance with § 1002.9 of the regulation generally is required, however, if the creditor's action is based on a past delinquency or default on the account.
1. Point-of-sale transactions. Denial of credit at point of sale is not adverse action except under those circumstances specified in the regulation. For example, denial at point of sale is not adverse action in the following situations:
i. A credit cardholder presents an expired card or a card that has been reported to the card issuer as lost or stolen.
ii. The amount of a transaction exceeds a cash advance or credit limit.
iii. The circumstances (such as excessive use of a credit card in a short period of time) suggest that fraud is involved.
iv. The authorization facilities are not functioning.
v. Billing statements have been returned to the creditor for lack of a forwarding address.
2. Application for increase in available credit. A refusal or failure to authorize an account transaction at the point of sale or loan is not adverse action except when the refusal is a denial of an application, submitted in accordance with the creditor's procedures, for an increase in the amount of credit.
1. Terms of credit versus type of credit offered. When an applicant applies for credit and the creditor does not offer the credit terms requested by the applicant (for example, the interest rate, length of maturity, collateral, or amount of downpayment), a denial of the application for that reason is adverse action (unless the creditor makes a counteroffer that is accepted by the applicant) and the applicant is entitled to notification under § 1002.9.
1. Request to assume loan. If a mortgagor sells or transfers the mortgaged property and the buyer makes an application to the creditor to assume the mortgage loan, the mortgagee must treat the buyer as an applicant unless its policy is not to permit assumptions.
1. General. A creditor has the latitude under the regulation to establish its own application process and to decide the type and amount of information it will require from credit applicants.
2. Procedures used. The term "procedures" refers to the actual practices followed by a creditor for making credit decisions as well as its stated application procedures. For example, if a creditor's stated policy is to require all applications to be in writing on the creditor's application form, but the creditor also makes credit decisions based on oral requests, the creditor's procedures are to accept both oral and written applications.
3. When an inquiry or prequalification request becomes an application. A creditor is encouraged to provide consumers with information about loan terms. However, if in giving information to the consumer the creditor also evaluates information about the consumer, decides to decline the request, and communicates this to the consumer, the creditor has treated the inquiry or prequalification request as an application and must then comply with the notification requirements under § 1002.9. Whether the inquiry or prequalification request becomes an application depends on how the creditor responds to the consumer, not on what the consumer says or asks. (See comment 9-5 for further discussion of prequalification requests; see comment 2(f)-5 for a discussion of preapproval requests.)
4. Examples of inquiries that are not applications. The following examples illustrate situations in which only an inquiry has taken place:
i. A consumer calls to ask about loan terms and an employee explains the creditor's basic loan terms, such as interest rates, loan-to-value ratio, and debt-to-income ratio.
ii. A consumer calls to ask about interest rates for car loans, and, in order to quote the appropriate rate, the loan officer asks for the make and sales price of the car and the amount of the downpayment, then gives the consumer the rate.
iii. A consumer asks about terms for a loan to purchase a home and tells the loan officer her income and intended downpayment, but the loan officer only explains the creditor's loan-to-value ratio policy and other basic lending policies, without telling the consumer whether she qualifies for the loan.
iv. A consumer calls to ask about terms for a loan to purchase vacant land and states his income and the sales price of the property to be financed, and asks whether he qualifies for a loan; the employee responds by describing the general lending policies, explaining that he would need to look at all of the consumer's qualifications before making a decision, and offering to send an application form to the consumer.
5. Examples of an application. An application for credit includes the following situations:
i. A person asks a financial institution to "preapprove" her for a loan (for example, to finance a house or a vehicle she plans to buy) and the institution reviews the request under a program in which the institution, after a comprehensive analysis of her creditworthiness, issues a written commitment valid for a designated period of time to extend a loan up to a specified amount. The written commitment may not be subject to conditions other than conditions that require the identification of adequate collateral, conditions that require no material change in the applicant's financial condition or creditworthiness prior to funding the loan, and limited conditions that are not related to the financial condition or creditworthiness of the applicant that the lender ordinarily attaches to a traditional application (such as certification of a clear termite inspection for a home purchase loan, or a maximum mileage requirement for a used car loan). But if the creditor's program does not provide for giving written commitments, requests for preapprovals are treated as prequalification requests for purposes of the regulation. i
i. Under the same facts as above, the financial institution evaluates the person's creditworthiness and determines that she does not qualify for a preapproval.
6. Completed application--diligence requirement. The regulation defines a completed application in terms that give a creditor the latitude to establish its own information requirements. Nevertheless, the creditor must act with reasonable diligence to collect information needed to complete the application. For example, the creditor should request information from third parties, such as a credit report, promptly after receiving the application. If additional information is needed from the applicant, such as an address or a telephone number to verify employment, the creditor should contact the applicant promptly. (But see comment 9(a)(1)-3, which discusses the creditor's option to deny an application on the basis of incompleteness.)
2(g) Business credit.
1. Definition. The test for deciding whether a transaction qualifies as business credit is one of primary purpose. For example, an open-end credit account used for both personal and business purposes is not business credit unless the primary purpose of the account is business-related. A creditor may rely on an applicant's statement of the purpose for the credit requested.
1. General. Regulation B covers a wider range of credit transactions than Regulation Z (Truth in Lending). Under Regulation B, a transaction is credit if there is a right to defer payment of a debt-regardless of whether the credit is for personal or commercial purposes, the number of installments required for repayment, or whether the transaction is subject to a finance charge.
1. Assignees. The term creditor includes all persons participating in the credit decision. This may include an assignee or a potential purchaser of the obligation who influences the credit decision by indicating whether or not it will purchase the obligation if the transaction is consummated.
2. Referrals to creditors. For certain purposes, the term creditor includes persons such as real estate brokers, automobile dealers, home builders, and home-improvement contractors who do not participate in credit decisions but who only accept applications and refer applicants to creditors, or select or offer to select creditors to whom credit requests can be made. These persons must comply with § 1002.4(a), the general rule prohibiting discrimination, and with § 1002.4(b), the general rule against discouraging applications.
2(p) Empirically derived and other credit scoring systems.
1. Purpose of definition. The definition under §§ 1002.2(p)(1)(i) through (iv) sets the criteria that a credit system must meet in order to use age as a predictive factor. Credit systems that do not meet these criteria are judgmental systems and may consider age only for the purpose of determining a "pertinent element of creditworthiness." (Both types of systems may favor an elderly applicant. See § 1002.6(b)(2).)
2. Periodic revalidation. The regulation does not specify how often credit scoring systems must be revalidated. The credit scoring system must be revalidated frequently enough to ensure that it continues to meet recognized professional statistical standards for statistical soundness. To ensure that predictive ability is being maintained, the creditor must periodically review the performance of the system. This could be done, for example, by analyzing the loan portfolio to determine the delinquency rate for each score interval, or by analyzing population stability over time to detect deviations of recent applications from the applicant population used to validate the system. If this analysis indicates that the system no longer predicts risk with statistical soundness, the system must be adjusted as necessary to reestablish its predictive ability. A creditor is responsible for ensuring its system is validated and revalidated based on the creditor's own data.
3. Pooled data scoring systems. A scoring system or the data from which to develop such a system may be obtained from either a single credit grantor or multiple credit grantors. The resulting system will qualify as an empirically derived, demonstrably and statistically sound, credit scoring system provided the criteria set forth in paragraph (p)(1)(i) through (iv) of this section are met. A creditor is responsible for ensuring its system is validated and revalidated based on the creditor's own data when it becomes available.
4. Effects test and disparate treatment. An empirically derived, demonstrably and statistically sound, credit scoring system may include age as a predictive factor (provided that the age of an elderly applicant is not assigned a negative factor or value). Besides age, no other prohibited basis may be used as a variable. Generally, credit scoring systems treat all applicants objectively and thus avoid problems of disparate treatment. In cases where a credit scoring system is used in conjunction with individual discretion, disparate treatment could conceivably occur in the evaluation process. In addition, neutral factors used in credit scoring systems could nonetheless be subject to challenge under the effects test. (See comment 6(a)-2 for a discussion of the effects test).
2(w) Open-end credit.
1. Open-end real estate mortgages. The term "open-end credit" does not include negotiated advances under an open-end real estate mortgage or a letter of credit.
2(z) Prohibited basis.
1. Persons associated with applicant. As used in this part, prohibited basis refers not only to characteristics-the race, color, religion, national origin, sex, marital status, or age-of an applicant (or officers of an applicant in the case of a corporation) but also to the characteristics of individuals with whom an applicant is affiliated or with whom the applicant associates. This means, for example, that under the general rule stated in § 1002.4(a), a creditor may not discriminate against an applicant because of that person's personal or business dealings with members of a certain religion, because of the national origin of any persons associated with the extension of credit (such as the tenants in the apartment complex being financed), or because of the race of other residents in the neighborhood where the property offered as collateral is located.
2. National origin. A creditor may not refuse to grant credit because an applicant comes from a particular country but may take the applicant's immigration status into account. A creditor may also take into account any applicable law, regulation, or executive order restricting dealings with citizens (or the government) of a particular country or imposing limitations regarding credit extended for their use.
3. Public assistance program. Any Federal, state, or local governmental assistance program that provides a continuing, periodic income supplement, whether premised on entitlement or need, is "public assistance" for purposes of the regulation. The term includes (but is not limited to) Temporary Aid to Needy Families, food stamps, rent and mortgage supplement or assistance programs, social security and supplemental security income, and unemployment compensation. Only physicians, hospitals, and others to whom the benefits are payable need consider Medicare and Medicaid as public assistance.
Section 1002.3Limited Exceptions for Certain Classes of Transactions
1. Scope. Under this section, procedural requirements of the regulation do not apply to certain types of credit. All classes of transactions remain subject to § 1002.4(a), the general rule barring discrimination on a prohibited basis, and to any other provision not specifically excepted.
3(a) Public-utilities credit.
1. Definition. This definition applies only to credit for the purchase of a utility service, such as electricity, gas, or telephone service. Credit provided or offered by a public utility for some other purpose-such as for financing the purchase of a gas dryer, telephone equipment, or other durable goods, or for insulation or other home improvements-is not excepted.
2. Security deposits. A utility company is a creditor when it supplies utility service and bills the user after the service has been provided. Thus, any credit term (such as a requirement for a security deposit) is subject to the regulation's bar against discrimination on a prohibited basis.
3. Telephone companies. A telephone company's credit transactions qualify for the exceptions provided in § 1002.3(a)(2) only if the company is regulated by a government unit or files the charges for service, delayed payment, or any discount for prompt payment with a government unit.
3(c) Incidental credit.
1. Examples. If a service provider (such as a hospital, doctor, lawyer, or merchant) allows the client or customer to defer the payment of a bill, this deferral of debt is credit for purposes of the regulation, even though there is no finance charge and no agreement for payment in installments. Because of the exceptions provided by this section, however, these particular credit extensions are excepted from compliance with certain procedural requirements as specified in § 1002.3(c).
3(d) Government credit.
1. Credit to governments. The exception relates to credit extended to (not by) governmental entities. For example, credit extended to a local government is covered by this exception, but credit extended to consumers by a Federal or state housing agency does not qualify for special treatment under this category.
Section 1002.4General Rules
1. Scope of rule. The general rule stated in § 1002.4(a) covers all dealings, without exception, between an applicant and a creditor, whether or not addressed by other provisions of the regulation. Other provisions of the regulation identify specific practices that the Bureau has decided are impermissible because they could result in credit discrimination on a basis prohibited by the Act. The general rule covers, for example, application procedures, criteria used to evaluate creditworthiness, administration of accounts, and treatment of delinquent or slow accounts. Thus, whether or not specifically prohibited elsewhere in the regulation, a credit practice that treats applicants differently on a prohibited basis violates the law because it violates the general rule. Disparate treatment on a prohibited basis is illegal whether or not it results from a conscious intent to discriminate.
i. Disparate treatment would exist, for example, in the following situations:
A. A creditor provides information only on "subprime" and similar products to minority applicants who request information about the creditor's mortgage products, but provides information on a wider variety of mortgage products to similarly situated nonminority applicants.
B. A creditor provides more comprehensive information to men than to similarly situated women.
C. A creditor requires a minority applicant to provide greater documentation to obtain a loan than a similarly situated nonminority applicant.
D. A creditor waives or relaxes credit standards for a nonminority applicant but not for a similarly situated minority applicant. i
i. Treating applicants differently on a prohibited basis is unlawful if the creditor lacks a legitimate nondiscriminatory reason for its action, or if the asserted reason is found to be a pretext for discrimination.
1. Prospective applicants. Generally, the regulation's protections apply only to persons who have requested or received an extension of credit. In keeping with the purpose of the Act-to promote the availability of credit on a nondiscriminatory basis-§ 1002.4(b) covers acts or practices directed at prospective applicants that could discourage a reasonable person, on a prohibited basis, from applying for credit. Practices prohibited by this section include:
i. A statement that the applicant should not bother to apply, after the applicant states that he is retired.
ii. The use of words, symbols, models or other forms of communication in advertising that express, imply, or suggest a discriminatory preference or a policy of exclusion in violation of the Act.
iii. The use of interview scripts that discourage applications on a prohibited basis.
2. Affirmative advertising. A creditor may affirmatively solicit or encourage members of traditionally disadvantaged groups to apply for credit, especially groups that might not normally seek credit from that creditor.
1. Requirement for written applications. Model application forms are provided in Appendix B to the regulation, although use of a printed form is not required. A creditor will satisfy the requirement by writing down the information that it normally considers in making a credit decision. The creditor may complete an application on behalf of an applicant and need not require the applicant to sign the application.
2. Telephone applications. A creditor that accepts applications by telephone for dwelling-related credit covered by § 1002.13 can meet the requirement for written applications by writing down pertinent information that is provided by the applicant.
3. Computerized entry. Information entered directly into and retained by a computerized system qualifies as a written application under this paragraph. (See the commentary to § 1002.13(b), Applications through electronic media and Applications through video.)
1. Clear and conspicuous. This standard requires that disclosures be presented in a reasonably understandable format in a way that does not obscure the required information. No minimum type size is mandated, but the disclosures must be legible, whether typewritten, handwritten, or printed by computer.
2. Form of disclosures. Whether the disclosures required to be on or with an application must be in electronic form depends upon the following:
i. If an applicant accesses a credit application electronically (other than as described under ii below), such as online at a home computer, the creditor must provide the disclosures in electronic form (such as with the application form on its Web site) in order to meet the requirement to provide disclosures in a timely manner on or with the application. If the creditor instead mailed paper disclosures to the applicant, this requirement would not be met.
ii. In contrast, if an applicant is physically present in the creditor's office, and accesses a credit application electronically, such as via a terminal or kiosk (or if the applicant uses a terminal or kiosk located on the premises of an affiliate or third party that has arranged with the creditor to provide applications to consumers), the creditor may provide disclosures in either electronic or paper form, provided the creditor complies with the timing, delivery, and retainability requirements of the regulation.
Section 1002.5Rules Concerning Requests for Information
5(a) General rules.
1. Requests for information. This section governs the types of information that a creditor may gather. Section1002.6 governs how information may be used.
1. Local laws. Information that a creditor is allowed to collect pursuant to a "state" statute or regulation includes information required by a local statute, regulation, or ordinance.
2. Information required by Regulation C. Regulation C generally requires creditors covered by the Home Mortgage Disclosure Act (HMDA) to collect and report information about the race, ethnicity, and sex of applicants for home-improvement loans and home-purchase loans, including some types of loans not covered by § 1002.13.
3. Collecting information on behalf of creditors. Persons such as loan brokers and correspondents do not violate the ECOA or Regulation B if they collect information that they are otherwise prohibited from collecting, where the purpose of collecting the information is to provide it to a creditor that is subject to the Home Mortgage Disclosure Act or another Federal or state statute or regulation requiring data collection.
5(d) Other limitations on information requests.
1. Indirect disclosure of prohibited information. The fact that certain credit-related information may indirectly disclose marital status does not bar a creditor from seeking such information. For example, the creditor may ask about:
i. The applicant's obligation to pay alimony, child support, or separate maintenance income.
ii. The source of income to be used as the basis for repaying the credit requested, which could disclose that it is the income of a spouse.
iii. Whether any obligation disclosed by the applicant has a co-obligor, which could disclose that the co-obligor is a spouse or former spouse.
iv. The ownership of assets, which could disclose the interest of a spouse.
1. Disclosure about income. The sample application forms in Appendix B to the regulation illustrate how a creditor may inform an applicant of the right not to disclose alimony, child support, or separate maintenance income.
2. General inquiry about source of income. Since a general inquiry about the source of income may lead an applicant to disclose alimony, child support, or separate maintenance income, a creditor making such an inquiry on an application form should preface the request with the disclosure required by this paragraph.
3. Specific inquiry about sources of income. A creditor need not give the disclosure if the inquiry about income is specific and worded in a way that is unlikely to lead the applicant to disclose the fact that income is derived from alimony, child support, or separate maintenance payments. For example, an application form that asks about specific types of income such as salary, wages, or investment income need not include the disclosure.
Section 1002.6Rules Concerning Evaluation of Applications
6(a) General rule concerning use of information.
1. General. When evaluating an application for credit, a creditor generally may consider any information obtained. However, a creditor may not consider in its evaluation of creditworthiness any information that it is barred by § 1002.5 from obtaining or from using for any purpose other than to conduct a self-test under § 1002.15.
2. Effects test. The effects test is a judicial doctrine that was developed in a series of employment cases decided by the U.S. Supreme Court under Title VII of the Civil Rights Act of 1964 (42 U.S.C. 2000e et seq. ), and the burdens of proof for such employment cases were codified by Congress in the Civil Rights Act of 1991 (42 U.S.C. 2000e-2). Congressional intent that this doctrine apply to the credit area is documented in the Senate Report that accompanied H.R. 6516, No. 94-589, pp. 4-5; and in the House Report that accompanied H.R. 6516, No. 94-210, p.5. The Act and regulation may prohibit a creditor practice that is discriminatory in effect because it has a disproportionately negative impact on a prohibited basis, even though the creditor has no intent to discriminate and the practice appears neutral on its face, unless the creditor practice meets a legitimate business need that cannot reasonably be achieved as well by means that are less disparate in their impact. For example, requiring that applicants have income in excess of a certain amount to qualify for an overdraft line of credit could mean that women and minority applicants will be rejected at a higher rate than men and nonminority applicants. If there is a demonstrable relationship between the income requirement and creditworthiness for the level of credit involved, however, use of the income standard would likely be permissible.
6(b) Specific rules concerning use of information.
1. Prohibited basis--special purpose credit. In a special purpose credit program, a creditor may consider a prohibited basis to determine whether the applicant possesses a characteristic needed for eligibility. (See § 1002.8.)
1. Favoring the elderly. Any system of evaluating creditworthiness may favor a credit applicant who is age 62 or older. A credit program that offers more favorable credit terms to applicants age 62 or older is also permissible; a program that offers more favorable credit terms to applicants at an age lower than 62 is permissible only if it meets the special-purpose credit requirements of § 1002.8.
2. Consideration of age in a credit scoring system. Age may be taken directly into account in a credit scoring system that is "demonstrably and statistically sound," as defined in § 1002.2(p), with one limitation: Applicants age 62 years or older must be treated at least as favorably as applicants who are under age 62. If age is scored by assigning points to an applicant's age category, elderly applicants must receive the same or a greater number of points as the most favored class of nonelderly applicants.
i. Age-split scorecards. Some credit systems segment the population and use different scorecards based on the age of an applicant. In such a system, one card may cover a narrow age range (for example, applicants in their twenties or younger) who are evaluated under attributes predictive for that age group. A second card may cover all other applicants, who are evaluated under the attributes predictive for that broader class. When a system uses a card covering a wide age range that encompasses elderly applicants, the credit scoring system is not deemed to score age. Thus, the system does not raise the issue of assigning a negative factor or value to the age of elderly applicants. But if a system segments the population by age into multiple scorecards, and includes elderly applicants in a narrower age range, the credit scoring system does score age. To comply with the Act and regulation in such a case, the creditor must ensure that the system does not assign a negative factor or value to the age of elderly applicants as a class.
3. Consideration of age in a judgmental system. In a judgmental system, defined in § 1002.2(t), a creditor may not decide whether to extend credit or set the terms and conditions of credit based on age or information related exclusively to age. Age or age-related information may be considered only in evaluating other "pertinent elements of creditworthiness" that are drawn from the particular facts and circumstances concerning the applicant. For example, a creditor may not reject an application or terminate an account because the applicant is 60 years old. But a creditor that uses a judgmental system may relate the applicant's age to other information about the applicant that the creditor considers in evaluating creditworthiness. As the following examples illustrate, the evaluation must be made in an individualized, case-by-case manner:
i. A creditor may consider the applicant's occupation and length of time to retirement to ascertain whether the applicant's income (including retirement income) will support the extension of credit to its maturity.
ii. A creditor may consider the adequacy of any security offered when the term of the credit extension exceeds the life expectancy of the applicant and the cost of realizing on the collateral could exceed the applicant's equity. An elderly applicant might not qualify for a 5 percent down, 30-year mortgage loan but might qualify with a larger downpayment or a shorter loan maturity.
iii. A creditor may consider the applicant's age to assess the significance of length of employment (a young applicant may have just entered the job market) or length of time at an address (an elderly applicant may recently have retired and moved from a long-term residence).
4. Consideration of age in a reverse mortgage. A reverse mortgage is a home-secured loan in which the borrower receives payments from the creditor, and does not become obligated to repay these amounts (other than in the case of default) until the borrower dies, moves permanently from the home, or transfers title to the home, or upon a specified maturity date. Disbursements to the borrower under a reverse mortgage typically are determined by considering the value of the borrower's home, the current interest rate, and the borrower's life expectancy. A reverse mortgage program that requires borrowers to be age 62 or older is permissible under § 1002.6(b)(2)(iv). In addition, under § 1002.6(b)(2)(iii), a creditor may consider a borrower's age to evaluate a pertinent element of creditworthiness, such as the amount of the credit or monthly payments that the borrower will receive, or the estimated repayment date.
5. Consideration of age in a combined system. A creditor using a credit scoring system that qualifies as "empirically derived" under § 1002.2(p) may consider other factors (such as a credit report or the applicant's cash flow) on a judgmental basis. Doing so will not negate the classification of the credit scoring component of the combined system as "demonstrably and statistically sound." While age could be used in the credit scoring portion, however, in the judgmental portion age may not be considered directly. It may be used only for the purpose of determining a "pertinent element of creditworthiness." (See comment 6(b)(2)-3.)
6. Consideration of public assistance. When considering income derived from a public assistance program, a creditor may take into account, for example:
i. The length of time an applicant will likely remain eligible to receive such income.
ii. Whether the applicant will continue to qualify for benefits based on the status of the applicant's dependents (as in the case of Temporary Aid to Needy Families, or social security payments to a minor).
iii. Whether the creditor can attach or garnish the income to assure payment of the debt in the event of default.
1. Consideration of an individual applicant. A creditor must evaluate income derived from part-time employment, alimony, child support, separate maintenance payments, retirement benefits, or public assistance on an individual basis, not on the basis of aggregate statistics; and must assess its reliability or unreliability by analyzing the applicant's actual circumstances, not by analyzing statistical measures derived from a group.
2. Payments consistently made. In determining the likelihood of consistent payments of alimony, child support, or separate maintenance, a creditor may consider factors such as whether payments are received pursuant to a written agreement or court decree; the length of time that the payments have been received; whether the payments are regularly received by the applicant; the availability of court or other procedures to compel payment; and the creditworthiness of the payor, including the credit history of the payor when it is available to the creditor.
3. Consideration of income.
i. A creditor need not consider income at all in evaluating creditworthiness. If a creditor does consider income, there are several acceptable methods, whether in a credit scoring or a judgmental system:
A. A creditor may score or take into account the total sum of all income stated by the applicant without taking steps to evaluate the income for reliability.
B. A creditor may evaluate each component of the applicant's income, and then score or take into account income determined to be reliable separately from other income; or the creditor may disregard that portion of income that is not reliable when it aggregates reliable income.
C. A creditor that does not evaluate all income components for reliability must treat as reliable any component of protected income that is not evaluated.
ii. In considering the separate components of an applicant's income, the creditor may not automatically discount or exclude from consideration any protected income. Any discounting or exclusion must be based on the applicant's actual circumstances.
4. Part-time employment, sources of income. A creditor may score or take into account the fact that an applicant has more than one source of earned income-a full-time and a part-time job or two part-time jobs. A creditor may also score or treat earned income from a secondary source differently than earned income from a primary source. The creditor may not, however, score or otherwise take into account the number of sources for income such as retirement income, social security, supplemental security income, and alimony. Nor may the creditor treat negatively the fact that an applicant's only earned income is derived from, for example, a part-time job.
1. Types of credit references. A creditor may restrict the types of credit history and credit references that it will consider, provided that the restrictions are applied to all credit applicants without regard to sex, marital status, or any other prohibited basis. On the applicant's request, however, a creditor must consider credit information not reported through a credit bureau when the information relates to the same types of credit references and history that the creditor would consider if reported through a credit bureau.
1. National origin-immigration status. The applicant's immigration status and ties to the community (such as employment and continued residence in the area) could have a bearing on a creditor's ability to obtain repayment. Accordingly, the creditor may consider immigration status and differentiate, for example, between a noncitizen who is a long-time resident with permanent resident status and a noncitizen who is temporarily in this country on a student visa.
2. National origin--citizenship. A denial of credit on the ground that an applicant is not a United States citizen is not per se discrimination based on national origin.
1. Prohibited basis-marital status. A creditor may consider the marital status of an applicant or joint applicant for the purpose of ascertaining the creditor's rights and remedies applicable to the particular extension of credit. For example, in a secured transaction involving real property, a creditor could take into account whether state law gives the applicant's spouse an interest in the property being offered as collateral.
Section 1002.7Rules Concerning Extensions of Credit
7(a) Individual accounts.
1. Open-end credit-authorized user. A creditor may not require a creditworthy applicant seeking an individual credit account to provide additional signatures. But the creditor may condition the designation of an authorized user by the account holder on the authorized user's becoming contractually liable for the account, as long as the creditor does not differentiate on any prohibited basis in imposing this requirement.
2. Open-end credit-choice of authorized user. A creditor that permits an account holder to designate an authorized user may not restrict this designation on a prohibited basis. For example, if the creditor allows the designation of spouses as authorized users, the creditor may not refuse to accept a non-spouse as an authorized user.
3. Overdraft authority on transaction accounts. If a transaction account (such as a checking account or NOW account) includes an overdraft line of credit, the creditor may require that all persons authorized to draw on the transaction account assume liability for any overdraft.
7(b) Designation of name.
1. Single name on account. A creditor may require that joint applicants on an account designate a single name for purposes of administering the account and that a single name be embossed on any credit cards issued on the account. But the creditor may not require that the name be the husband's name. (See § 1002.10 for rules governing the furnishing of credit history on accounts held by spouses.)
7(c) Action concerning existing open-end accounts.
1. Termination coincidental with marital status change. When an account holder's marital status changes, a creditor generally may not terminate the account unless it has evidence that the account holder is now unable or unwilling to repay. But the creditor may terminate an account on which both spouses are jointly liable, even if the action coincides with a change in marital status, when one or both spouses:
i. Repudiate responsibility for future charges on the joint account.
ii. Request separate accounts in their own names.
iii. Request that the joint account be closed.
2. Updating information. A creditor may periodically request updated information from applicants but may not use events related to a prohibited basis-such as an applicant's retirement or reaching a particular age, or a change in name or marital status-to trigger such a request.
1. Procedure pending reapplication. A creditor may require a reapplication from an account holder, even when there is no evidence of unwillingness or inability to repay, if (1) the credit was based on the qualifications of a person who is no longer available to support the credit and (2) the creditor has information indicating that the account holder's income may be insufficient to support the credit. While a reapplication is pending, the creditor must allow the account holder full access to the account under the existing contract terms. The creditor may specify a reasonable time period within which the account holder must submit the required information.
7(d) Signature of spouse or other person.
1. Qualified applicant. The signature rules ensure that qualified applicants are able to obtain credit in their own names. Thus, when an applicant requests individual credit, a creditor generally may not require the signature of another person unless the creditor has first determined that the applicant alone does not qualify for the credit requested.
2. Unqualified applicant. When an applicant requests individual credit but does not meet a creditor's standards, the creditor may require a cosigner, guarantor, endorser, or similar party-but cannot require that it be the spouse. (See commentary to §§ 1002.7(d)(5) and (6).)
1. Signature of another person. It is impermissible for a creditor to require an applicant who is individually creditworthy to provide a cosigner-even if the creditor applies the requirement without regard to sex, marital status, or any other prohibited basis. (But see comment 7(d)(6)-1 concerning guarantors of closely held corporations.)
2. Joint applicant. The term "joint applicant" refers to someone who applies contemporaneously with the applicant for shared or joint credit. It does not refer to someone whose signature is required by the creditor as a condition for granting the credit requested.
3. Evidence of joint application. A person's intent to be a joint applicant must be evidenced at the time of application. Signatures on a promissory note may not be used to show intent to apply for joint credit. On the other hand, signatures or initials on a credit application affirming applicants' intent to apply for joint credit may be used to establish intent to apply for joint credit. (See Appendix B.) The method used to establish intent must be distinct from the means used by individuals to affirm the accuracy of information. For example, signatures on a joint financial statement affirming the veracity of information are not sufficient to establish intent to apply for joint credit.
1. Jointly owned property. If an applicant requests unsecured credit, does not own sufficient separate property, and relies on joint property to establish creditworthiness, the creditor must value the applicant's interest in the jointly owned property. A creditor may not request that a nonapplicant joint owner sign any instrument as a condition of the credit extension unless the applicant's interest does not support the amount and terms of the credit sought.
i. Valuation of applicant's interest. In determining the value of an applicant's interest in jointly owned property, a creditor may consider factors such as the form of ownership and the property's susceptibility to attachment, execution, severance, or partition; the value of the applicant's interest after such action; and the cost associated with the action. This determination must be based on the existing form of ownership, and not on the possibility of a subsequent change. For example, in determining whether a married applicant's interest in jointly owned property is sufficient to satisfy the creditor's standards of creditworthiness for individual credit, a creditor may not consider that the applicant's separate property could be transferred into tenancy by the entirety after consummation. Similarly, a creditor may not consider the possibility that the couple may divorce. Accordingly, a creditor may not require the signature of the non-applicant spouse in these or similar circumstances.
ii. Other options to support credit. If the applicant's interest in jointly owned property does not support the amount and terms of credit sought, the creditor may offer the applicant other options to qualify for the extension of credit. For example:
A. Providing a co-signer or other party (§ 1002.7(d)(5));
B. Requesting that the credit be granted on a secured basis (§ 1002.7(d)(4)); or
C. Providing the signature of the joint owner on an instrument that ensures access to the property in the event of the applicant's death or default, but does not impose personal liability unless necessary under state law (such as a limited guarantee). A creditor may not routinely require, however, that a joint owner sign an instrument (such as a quitclaim deed) that would result in the forfeiture of the joint owner's interest in the property.
2. Need for signature--reasonable belief. A creditor's reasonable belief as to what instruments need to be signed by a person other than the applicant should be supported by a thorough review of pertinent statutory and decisional law or an opinion of the state attorney general.
1. Residency. In assessing the creditworthiness of a person who applies for credit in a community property state, a creditor may assume that the applicant is a resident of the state unless the applicant indicates otherwise.
1. Creation of enforceable lien. Some state laws require that both spouses join in executing any instrument by which real property is encumbered. If an applicant offers such property as security for credit, a creditor may require the applicant's spouse to sign the instruments necessary to create a valid security interest in the property. The creditor may not require the spouse to sign the note evidencing the credit obligation if signing only the mortgage or other security agreement is sufficient to make the property available to satisfy the debt in the event of default. However, if under state law both spouses must sign the note to create an enforceable lien, the creditor may require the signatures.
2. Need for signature--reasonable belief. Generally, a signature to make the secured property available will only be needed on a security agreement. A creditor's reasonable belief that, to ensure access to the property, the spouse's signature is needed on an instrument that imposes personal liability should be supported by a thorough review of pertinent statutory and decisional law or an opinion of the state attorney general.
3. Integrated instruments. When a creditor uses an integrated instrument that combines the note and the security agreement, the spouse cannot be asked to sign the integrated instrument if the signature is only needed to grant a security interest. But the spouse could be asked to sign an integrated instrument that makes clear--for example, by a legend placed next to the spouse's signature--that the spouse's signature is only to grant a security interest and that signing the instrument does not impose personal liability.
1. Qualifications of additional parties. In establishing guidelines for eligibility of guarantors, cosigners, or similar additional parties, a creditor may restrict the applicant's choice of additional parties but may not discriminate on the basis of sex, marital status, or any other prohibited basis. For example, the creditor could require that the additional party live in the creditor's market area.
2. Reliance on income of another person--individual credit. An applicant who requests individual credit relying on the income of another person (including a spouse in a non-community property state) may be required to provide the signature of the other person to make the income available to pay the debt. In community property states, the signature of a spouse may be required if the applicant relies on the spouse's separate income. If the applicant relies on the spouse's future earnings that as a matter of state law cannot be characterized as community property until earned, the creditor may require the spouse's signature, but need not do so--even if it is the creditor's practice to require the signature when an applicant relies on the future earnings of a person other than a spouse. (See § 1002.6(c) on consideration of state property laws.)
3. Renewals. If the borrower's creditworthiness is reevaluated when a credit obligation is renewed, the creditor must determine whether an additional party is still warranted and, if not warranted, release the additional party.
1. Guarantees. A guarantee on an extension of credit is part of a credit transaction and therefore subject to the regulation. A creditor may require the personal guarantee of the partners, directors, or officers of a business, and the shareholders of a closely held corporation, even if the business or corporation is creditworthy. The requirement must be based on the guarantor's relationship with the business or corporation, however, and not on a prohibited basis. For example, a creditor may not require guarantees only for women-owned or minority-owned businesses. Similarly, a creditor may not require guarantees only of the married officers of a business or the married shareholders of a closely held corporation.
2. Spousal guarantees. The rules in § 1002.7(d) bar a creditor from requiring the signature of a guarantor's spouse just as they bar the creditor from requiring the signature of an applicant's spouse. For example, although a creditor may require all officers of a closely held corporation to personally guarantee a corporate loan, the creditor may not automatically require that spouses of married officers also sign the guarantee. If an evaluation of the financial circumstances of an officer indicates that an additional signature is necessary, however, the creditor may require the signature of another person in appropriate circumstances in accordance with § 1002.7(d)(2).
1. Differences in terms. Differences in the availability, rates, and other terms on which credit-related casualty insurance or credit life, health, accident, or disability insurance is offered or provided to an applicant does not violate Regulation B.
2. Insurance information. A creditor may obtain information about an applicant's age, sex, or marital status for insurance purposes. The information may only be used for determining eligibility and premium rates for insurance, however, and not in making the credit decision.
Section 1002.8Special Purpose Credit Programs
8(a) Standards for programs.
1. Determining qualified programs. The Bureau does not determine whether individual programs qualify for special purpose credit status, or whether a particular program benefits an "economically disadvantaged class of persons." The agency or creditor administering or offering the loan program must make these decisions regarding the status of its program.
2. Compliance with a program authorized by Federal or state law. A creditor does not violate Regulation B when it complies in good faith with a regulation promulgated by a government agency implementing a special purpose credit program under § 1002.8(a)(1). It is the agency's responsibility to promulgate a regulation that is consistent with Federal and state law.
3. Expressly authorized. Credit programs authorized by Federal or state law include programs offered pursuant to Federal, state, or local statute, regulation or ordinance, or pursuant to judicial or administrative order.
4. Creditor liability. A refusal to grant credit to an applicant is not a violation of the Act or regulation if the applicant does not meet the eligibility requirements under a special purpose credit program.
5. Determining need. In designing a special purpose credit program under § 1002.8(a), a for-profit organization must determine that the program will benefit a class of people who would otherwise be denied credit or would receive it on less favorable terms. This determination can be based on a broad analysis using the organization's own research or data from outside sources, including governmental reports and studies. For example, a creditor might design new products to reach consumers who would not meet, or have not met, its traditional standards of creditworthiness due to such factors as credit inexperience or the use of credit sources that may not report to consumer reporting agencies. Or, a bank could review Home Mortgage Disclosure Act data along with demographic data for its assessment area and conclude that there is a need for a special purpose credit program for low-income minority borrowers.
6. Elements of the program. The written plan must contain information that supports the need for the particular program. The plan also must either state a specific period of time for which the program will last, or contain a statement regarding when the program will be reevaluated to determine if there is a continuing need for it.
8(b) Rules in other sections.
1. Applicability of rules. A creditor that rejects an application because the applicant does not meet the eligibility requirements (common characteristic or financial need, for example) must nevertheless notify the applicant of action taken as required by § 1002.9.
8(c) Special rule concerning requests and use of information.
1. Request of prohibited basis information. This section permits a creditor to request and consider certain information that would otherwise be prohibited by §§ 1002.5 and 1002.6 to determine an applicant's eligibility for a particular program.
2. Examples. Examples of programs under which the creditor can ask for and consider information about a prohibited basis are:
i. Energy conservation programs to assist the elderly, for which the creditor must consider the applicant's age.
ii. Programs under a Minority Enterprise Small Business Investment Corporation, for which a creditor must consider the applicant's minority status.
8(d) Special rule in the case of financial need.
1. Request of prohibited basis information. This section permits a creditor to request and consider certain information that would otherwise be prohibited by §§ 1002.5 and 1002.6, and to require signatures that would otherwise be prohibited by § 1002.7(d).
2. Examples. Examples of programs in which financial need is a criterion are:
i. Subsidized housing programs for low-to moderate-income households, for which a creditor may have to consider the applicant's receipt of alimony or child support, the spouse's or parents' income, etc.
ii. Student loan programs based on the family's financial need, for which a creditor may have to consider the spouse's or parents' financial resources.
3. Student loans. In a guaranteed student loan program, a creditor may obtain the signature of a parent as a guarantor when required by Federal or state law or agency regulation, or when the student does not meet the creditor's standards of creditworthiness. (See §§ 1002.7(d)(1) and (5).) The creditor may not require an additional signature when a student has a work or credit history that satisfies the creditor's standards.
1. Use of the term adverse action. The regulation does not require that a creditor use the term adverse action in communicating to an applicant that a request for an extension of credit has not been approved. In notifying an applicant of adverse action as defined by § 1002.2(c)(1), a creditor may use any words or phrases that describe the action taken on the application.
2. Expressly withdrawn applications. When an applicant expressly withdraws a credit application, the creditor is not required to comply with the notification requirements under § 1002.9. (The creditor must comply, however, with the record retention requirements of the regulation. See § 1002.12(b)(3).)
3. When notification occurs. Notification occurs when a creditor delivers or mails a notice to the applicant's last known address or, in the case of an oral notification, when the creditor communicates the credit decision to the applicant.
4. Location of notice. The notifications required under § 1002.9 may appear on either or both sides of a form or letter.
5. Prequalification requests. Whether a creditor must provide a notice of action taken for a prequalification request depends on the creditor's response to the request, as discussed in comment 2(f)-3. For instance, a creditor may treat the request as an inquiry if the creditor evaluates specific information about the consumer and tells the consumer the loan amount, rate, and other terms of credit the consumer could qualify for under various loan programs, explaining the process the consumer must follow to submit a mortgage application and the information the creditor will analyze in reaching a credit decision. On the other hand, a creditor has treated a request as an application, and is subject to the adverse action notice requirements of § 1002.9 if, after evaluating information, the creditor decides that it will not approve the request and communicates that decision to the consumer. For example, if the creditor tells the consumer that it would not approve an application for a mortgage because of a bankruptcy in the consumer's record, the creditor has denied an application for credit.
9(a) Notification of action taken, ECOA notice, and statement of specific reasons.
1. Timing of notice--when an application is complete. Once a creditor has obtained all the information it normally considers in making a credit decision, the application is complete and the creditor has 30 days in which to notify the applicant of the credit decision. (See also comment 2(f)-6.)
2. Notification of approval. Notification of approval may be express or by implication. For example, the creditor will satisfy the notification requirement when it gives the applicant the credit card, money, property, or services requested.
3. Incomplete application--denial for incompleteness. When an application is incomplete regarding information that the applicant can provide and the creditor lacks sufficient data for a credit decision, the creditor may deny the application giving as the reason for denial that the application is incomplete. The creditor has the option, alternatively, of providing a notice of incompleteness under § 1002.9(c).
4. Incomplete application---denial for reasons other than incompleteness. When an application is missing information but provides sufficient data for a credit decision, the creditor may evaluate the application, make its credit decision, and notify the applicant accordingly. If credit is denied, the applicant must be given the specific reasons for the credit denial (or notice of the right to receive the reasons); in this instance missing information or "incomplete application" cannot be given as the reason for the denial.
5. Length of counteroffer. Section 1002.9(a)(1)(iv) does not require a creditor to hold a counteroffer open for 90 days or any other particular length of time.
6. Counteroffer combined with adverse action notice. A creditor that gives the applicant a combined counteroffer and adverse action notice that complies with § 1002.9(a)(2) need not send a second adverse action notice if the applicant does not accept the counteroffer. A sample of a combined notice is contained in form C--4 of Appendix C to the regulation.
7. Denial of a telephone application. When an application is made by telephone and adverse action is taken, the creditor must request the applicant's name and address in order to provide written notification under this section. If the applicant declines to provide that information, then the creditor has no further notification responsibility.
1. Coverage. In determining which rules in this paragraph apply to a given business credit application, a creditor may rely on the applicant's assertion about the revenue size of the business. (Applications to start a business are governed by the rules in § 1002.9(a)(3)(i).) If an applicant applies for credit as a sole proprietor, the revenues of the sole proprietorship will determine which rules govern the application. However, if an applicant applies for business credit as an individual, the rules in § 1002.9(a)(3)(i) apply unless the application is for trade or similar credit.
2. Trade credit. The term trade credit generally is limited to a financing arrangement that involves a buyer and a seller--such as a supplier who finances the sale of equipment, supplies, or inventory; it does not apply to an extension of credit by a bank or other financial institution for the financing of such items.
3. Factoring. Factoring refers to a purchase of accounts receivable, and thus is not subject to the Act or regulation. If there is a credit extension incident to the factoring arrangement, the notification rules in § 1002.9(a)(3)(ii) apply, as do other relevant sections of the Act and regulation.
4. Manner of compliance. In complying with the notice provisions of the Act and regulation, creditors offering business credit may follow the rules governing consumer credit. Similarly, creditors may elect to treat all business credit the same (irrespective of revenue size) by providing notice in accordance with § 1002.9(a)(3)(i).
5. Timing of notification. A creditor subject to § 1002.9(a)(3)(ii)(A) is required to notify a business credit applicant, orally or in writing, of action taken on an application within a reasonable time of receiving a completed application. Notice provided in accordance with the timing requirements of § 1002.9(a)(1) is deemed reasonable in all instances.
9(b) Form of ECOA notice and statement of specific reasons.
1. Substantially similar notice. The ECOA notice sent with a notification of a credit denial or other adverse action will comply with the regulation if it is "substantially similar" to the notice contained in § 1002.9(b)(1). For example, a creditor may add a reference to the fact that the ECOA permits age to be considered in certain credit scoring systems, or add a reference to a similar state statute or regulation and to a state enforcement agency.
1. Number of specific reasons. A creditor must disclose the principal reasons for denying an application or taking other adverse action. The regulation does not mandate that a specific number of reasons be disclosed, but disclosure of more than four reasons is not likely to be helpful to the applicant.
2. Source of specific reasons. The specific reasons disclosed under §§ 1002.9(a)(2) and (b)(2) must relate to and accurately describe the factors actually considered or scored by a creditor.
3. Description of reasons. A creditor need not describe how or why a factor adversely affected an applicant. For example, the notice may say "length of residence" rather than "too short a period of residence."
4. Credit scoring system. If a creditor bases the denial or other adverse action on a credit scoring system, the reasons disclosed must relate only to those factors actually scored in the system. Moreover, no factor that was a principal reason for adverse action may be excluded from disclosure. The creditor must disclose the actual reasons for denial (for example, "age of automobile") even if the relationship of that factor to predicting creditworthiness may not be clear to the applicant.
5. Credit scoring--method for selecting reasons. The regulation does not require that any one method be used for selecting reasons for a credit denial or other adverse action that is based on a credit scoring system. Various methods will meet the requirements of the regulation. One method is to identify the factors for which the applicant's score fell furthest below the average score for each of those factors achieved by applicants whose total score was at or slightly above the minimum passing score. Another method is to identify the factors for which the applicant's score fell furthest below the average score for each of those factors achieved by all applicants. These average scores could be calculated during the development or use of the system. Any other method that produces results substantially similar to either of these methods is also acceptable under the regulation.
6. Judgmental system. If a creditor uses a judgmental system, the reasons for the denial or other adverse action must relate to those factors in the applicant's record actually reviewed by the person making the decision.
7. Combined credit scoring and judgmental system. If a creditor denies an application based on a credit evaluation system that employs both credit scoring and judgmental components, the reasons for the denial must come from the component of the system that the applicant failed. For example, if a creditor initially credit scores an application and denies the credit request as a result of that scoring, the reasons disclosed to the applicant must relate to the factors scored in the system. If the application passes the credit scoring stage but the creditor then denies the credit request based on a judgmental assessment of the applicant's record, the reasons disclosed must relate to the factors reviewed judgmentally, even if the factors were also considered in the credit scoring component. If the application is not approved or denied as a result of the credit scoring, but falls into a gray band, and the creditor performs a judgmental assessment and denies the credit after that assessment, the reasons disclosed must come from both components of the system. The same result applies where a judgmental assessment is the first component of the combined system. As provided in comment 9(b)(2)-1, disclosure of more than a combined total of four reasons is not likely to be helpful to the applicant.
8. Automatic denial. Some credit decision methods contain features that call for automatic denial because of one or more negative factors in the applicant's record (such as the applicant's previous bad credit history with that creditor, the applicant's declaration of bankruptcy, or the fact that the applicant is a minor). When a creditor denies the credit request because of an automatic-denial factor, the creditor must disclose that specific factor.
9. Combined ECOA-FCRA disclosures. The ECOA requires disclosure of the principal reasons for denying or taking other adverse action on an application for an extension of credit. The Fair Credit Reporting Act (FCRA) requires a creditor to disclose when it has based its decision in whole or in part on information from a source other than the applicant or its own files. Disclosing that a credit report was obtained and used in the denial of the application, as the FCRA requires, does not satisfy the ECOA requirement to disclose specific reasons. For example, if the applicant's credit history reveals delinquent credit obligations and the application is denied for that reason, to satisfy § 1002.9(b)(2) the creditor must disclose that the application was denied because of the applicant's delinquent credit obligations. The FCRA also requires a creditor to disclose, as applicable, a credit score it used in taking adverse action along with related information, including up to four key factors that adversely affected the consumer's credit score (or up to five factors if the number of inquiries made with respect to that consumer report is a key factor). Disclosing the key factors that adversely affected the consumer's credit score does not satisfy the ECOA requirement to disclose specific reasons for denying or taking other adverse action on an application or extension of credit. Sample forms C--1 through C--5 of Appendix C of the regulation provide for both the ECOA and FCRA disclosures. See also comment 9(b)(2)-1.
9(c) Incomplete applications.
1. Exception for preapprovals. The requirement to provide a notice of incompleteness does not apply to preapprovals that constitute applications under § 1002.2(f).
1. Reapplication. If information requested by a creditor is submitted by an applicant after the expiration of the time period designated by the creditor, the creditor may require the applicant to make a new application.
1. Oral inquiries for additional information. If an applicant fails to provide the information in response to an oral request, a creditor must send a written notice to the applicant within the 30-day period specified in §§ 1002.9(c)(1) and (2). If the applicant provides the information, the creditor must take action on the application and notify the applicant in accordance with § 1002.9(a).
9(g) Applications submitted through a third party.
1. Third parties. The notification of adverse action may be given by one of the creditors to whom an application was submitted, or by a noncreditor third party. If one notification is provided on behalf of multiple creditors, the notice must contain the name and address of each creditor. The notice must either disclose the applicant's right to a statement of specific reasons within 30 days, or give the primary reasons each creditor relied upon in taking the adverse action-clearly indicating which reasons relate to which creditor.
2. Third party notice--enforcement agency. If a single adverse action notice is being provided to an applicant on behalf of several creditors and they are under the jurisdiction of different Federal enforcement agencies, the notice need not name each agency; disclosure of any one of them will suffice.
3. Third-party notice--liability.