A number of our clients have asked about how to handle loan applications received under the Paycheck Protection Program (PPP) for the purposes of the Equal Credit Opportunity Act (ECOA). This has become an urgent issue as the PPP is strapped for funds at the moment.
PPP loans are subject to the ECOA for the purposes of both the general prohibitions of this law against unlawful discrimination and the obligation to notify credit decisions and adverse actions. Regarding the latter requirement, most lenders insert a web page prior to the Small Business Administration approved loan application that includes certain information, including the following language model from section 1002.9 (b) of Regulation B:1
Notice of the Federal Equal Credit Opportunities Act: The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant’s income comes from any public assistance program; or because the applicant has exercised a right under the Consumer Credit Protection Act in good faith. The federal agency that administers compliance with this law with respect to this creditor is _____________________________________.
Right to ask for specific reasons for a credit denial notice: If your business credit application is denied, you have the right to a written statement of the specific reasons for the denial. To obtain the statement, please contact: ________________________ or call XXX-XXX-XXXX or write to us at ______________________ within 60 days of the date you are notified of our decision. We will send you a written statement of the reasons for the denial within 30 days of receiving your request for disclosure. The _____________________ bank, a member of the FDIC, is located in _____________________.
If disclosures similar to those above were provided at the time the denied claim was submitted for consideration, the obligee has fulfilled its legal obligation under the ECOA to inform the applicant of its right to receive reasons. specific to the refusal of credit. In addition, in the case of a business applicant, notification of the credit decision may be communicated orally or in writing at the time the action is initiated. If the applicant’s annual gross income exceeds $ 1 million, notice can be provided within a reasonable time. Choosing to abide by ECOA’s general rule of providing notice within 30 days of the creditor’s receipt of a completed loan application in any event, regardless of the size of gross income, would avoid any risk of late notification. Finally, if the notice is given orally, the creditor must disclose the plaintiff’s right to receive the reasons for the adverse action in writing within 30 days of his written request for confirmation.
If PPP loans are currently unavailable due to lack of funding for the program, this fact should be clearly stated on the creditor’s website. Regulation B provides that no unlawful discrimination can result if a creditor does not offer the type of credit plan requested, which would be the case whether PPP loans are temporarily suspended or terminated completely.
1 12 CFR § 1002.9 (b).