EQUAL CREDIT OPPORTUNITY ACT
Credit is used by millions of consumers to finance an education or a house, remodel a home, or get a small business loan.
The Equal Credit Opportunity Act (ECOA) ensures that all consumers are given an equal chance to obtain credit. This doesn’t mean all consumers who apply for credit get it: Factors such as income, expenses, debt, and credit history are considerations for creditworthiness.
The law protects you when you deal with any creditor who regularly extends credit, including banks, small loan and finance companies, retail and department stores, credit card companies, and credit unions. Anyone involved in granting credit, such as real estate brokers who arrange financing, is covered by the law. Businesses applying for credit also are protected by the law.
When You Apply For Credit, A Creditor May Not...
Discourage you from applying because of your sex, marital status, age, race, national origin, or because you receive public assistance income.
Ask you to reveal your sex, race, national origin, or religion. A creditor may ask you to voluntarily disclose this information (except for religion) if you’re applying for a real estate loan. This information helps federal agencies enforce anti-discrimination laws. You may be asked about your residence or immigration status.
Ask if you’re widowed or divorced. When permitted to ask marital status, a creditor may only use the terms: married, unmarried, or separated.
Ask about your marital status if you’re applying for a separate, unsecured account. A creditor may ask you to provide this information if you live in "community property" states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, and Washington. A creditor in any state may ask for this information if you apply for a joint account or one secured by property.
Request information about your spouse, except when your spouse is applying with you; your spouse will be allowed to use the account; you are relying on your spouse’s income or on alimony or child support income from a former spouse; or if you reside in a community property state.
Inquire about your plans for having or raising children.
Ask if you receive alimony, child support, or separate maintenance payments, unless you’re first told that you don’t have to provide this information if you won’t rely on these payments to get credit. A creditor may ask if you have to pay alimony, child support, or separate maintenance payments.
When Deciding To Give You Credit, A Creditor May Not...
Consider your sex, marital status, race, national origin, or religion.
Consider whether you have a telephone listing in your name. A creditor may consider whether you have a phone.
Consider the race of people in the neighborhood where you want to buy, refinance or improve a house with borrowed money.
Consider your age, unless:
you’re too young to sign contracts, generally younger than 18 years of age;
you’re 62 or older, and the creditor will favor you because of your age;
it’s used to determine the meaning of other factors important to creditworthiness. For example, a creditor could use your age to determine if your income might drop because you’re about to retire;
it’s used in a valid scoring system that favors applicants age 62 and older. A credit-scoring system assigns points to answers you provide to credit application questions. For example, your length of employment might be scored differently depending on your age.
When Evaluating Your Income, A Creditor May Not...
Refuse to consider public assistance income the same way as other income.
Discount income because of your sex or marital status. For example, a creditor cannot count a man’s salary at 100 percent and a woman’s at 75 percent. A creditor may not assume a woman of childbearing age will stop working to raise children.
Discount or refuse to consider income because it comes from part-time employment or pension, annuity, or retirement benefits programs.
Refuse to consider regular alimony, child support, or separate maintenance payments. A creditor may ask you to prove you have received this income consistently.
You Also Have The Right To...
Have credit in your birth name (Mary Smith), your first and your spouse’s last name (Mary Jones), or your first name and a combined last name (Mary Smith-Jones).
Get credit without a cosigner, if you meet the creditor’s standards.
Have a cosigner other than your husband or wife, if one is necessary.
Keep your own accounts after you change your name, marital status, reach a certain age, or retire, unless the creditor has evidence that you’re not willing or able to pay.
Know whether your application was accepted or rejected within 30 days of filing a complete application.
Know why your application was rejected. The creditor must give you a notice that tells you either the specific reasons for your rejection or your right to learn the reasons if you ask within 60 days.
Acceptable reasons include: "Your income was low," or "You haven’t been employed long enough." Unacceptable reasons are: "You didn’t meet our minimum standards," or "You didn’t receive enough points on our credit-scoring system." Indefinite and vague reasons are illegal, so ask the creditor to be specific.
Find out why you were offered less favorable terms than you applied for—unless you accept the terms. Ask for details. Examples of less favorable terms include higher finance charges or less money than you requested.
Find out why your account was closed or why the terms of the account were made less favorable unless the account was inactive or delinquent.
A Special Note To Women
A good credit history—a record of how you paid past bills—often is necessary to get credit. Unfortunately, this hurts many married, separated, divorced, and widowed women. There are two common reasons women don’t have credit histories in their own names: they lost their credit histories when they married and changed their names; or creditors reported accounts shared by married couples in the husband’s name only.
If you’re married, divorced, separated, or widowed, contact your local credit bureau(s) to make sure all relevant information is in a file under your own name.
TITLE VII----EQUAL CREDIT OPPORTUNITY ACT
Sec.
701. Prohibited discrimination; reasons for adverse action.
702. Definitions.
703. Regulations.
704. Administrative enforcement.
704A. Incentives for self-testing and self-correction.
705. Relation to State laws.
706. Civil liability.
707. Annual reports to Congress.
708. Effective date.
709. Short title.
§ 701. Prohibited discrimination; reasons for adverse action
(a) It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction--
(1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract);
(2) because all or part of the applicant's income derives from any public assistance program; or
(3) because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.
(b) It shall not constitute discrimination for purposes of this title for a creditor--
(1) to make an inquiry of marital status if such inquiry is for the purpose of ascertaining the creditor's rights and remedies applicable to the particular extension of credit and not to discriminate in a determination of credit-worthiness;
(2) to make an inquiry of the applicant's age or of whether the applicant's income derives from any public assistance program if such inquiry is for the purpose of determining the amount and probable continuance of income levels, credit history, or other pertinent element of credit-worthiness as provided in regulations of the Board;
(3) to use any empirically derived credit system which considers age if such system is demonstrably and statistically sound in accordance with regulations of the Board, except that in the operation of such system the age of an elderly applicant may not be assigned a negative factor or value; or
(4) to make an inquiry or to consider the age of an elderly applicant when the age of such applicant is to be used by the creditor in the extension of credit in favor of such applicant.
(c) It is not a violation of this section for a creditor to refuse to extend credit offered pursuant to--
(1) any credit assistance program expressly authorized by law for an economically disadvantaged class of persons;
(2) any credit assistance program administered by a nonprofit organization for its members or an economically disadvantaged class of persons; or
(3) any special purpose credit program offered by a profit-making organization to meet special social needs which meets standards prescribed in regulations by the Board;
if such refusal is required by or made pursuant to such program.
(d)(1) Within thirty days (or such longer reasonable time as specified in regulations of the Board for any class of credit transaction) after receipt of a completed application for credit, a creditor shall notify the applicant of its action on the application.
(2) Each applicant against whom adverse action is taken shall be entitled to a statement of reasons for such action from the creditor. A creditor satisfies this obligation by--
(A) providing statements of reasons in writing as a matter of course to applicants against whom adverse action is taken; or
(B) giving written notification of adverse action which discloses (i) the applicant's right to a statement of reasons within thirty days after receipt by the creditor of a request made within sixty days after such notification, and (ii) the identity of the persons or office from which such statement may be obtained. Such statement may be given orally if the written notification advises the applicant of his right to have the statement of reasons confirmed in writing on written request.
(3) A statement of reasons meets the requirements of this section only if it contains the specific reasons for the adverse action taken.
(4) Where a creditor has been requested by a third party to make a specific extension of credit directly or indirectly to an applicant, the notification and statement of reasons required by this subsection may be made directly by such creditor, or indirectly through the third party, provided in either case that the identity of the creditor is disclosed.
(5) The requirements of paragraph (2), (3), or (4) may be satisfied by verbal statements or notifications in the case of any creditor who did not act on more than one hundred and fifty applications during the calendar year preceding the calendar year in which the adverse action is taken, as determined under regulations of the Board.
(6) For purposes of this subsection, the term "adverse action" means a denial or revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the terms requested. Such term does not include a refusal to extend additional credit under an existing credit arrangement where the applicant is delinquent or otherwise in default, or where such additional credit would exceed a previously established credit limit.
(e) Each creditor shall promptly furnish an applicant, upon written request by the applicant made within a reasonable period of time of the application, a copy of the appraisal report used in connection with the applicant's application for a loan that is or would have been secured by a lien on residential real property. The creditor may require the applicant to reimburse the creditor for the cost of the appraisal.
[Codified to 15 U.S.C. 1691]
[Source: Section 701 of title VII of the Act of May 29, 1968 (Pub. L. No. 90--321), as added by section 503 of title V of the Act of October 28, 1974 (Pub. L. No. 93--495; 88 Stat. 1521), effective October 28, 1975, as amended by section 2 of the Act of March 23, 1976 (Pub. L. No. 94--239; 90 Stat. 251), effective March 23, 1977; section 223(d) of title II of the Act of December 19, 1991 (Pub. L. No. 102--242; 105 Stat. 2306), effective December 19, 1991]
NOTES
Findings and purpose. Section 502 of title V of the Act of October 28, 1974 provides as follows:
§ 502. Findings and purpose
The Congress finds that there is a need to insure that the various financial institutions and other firms engaged in the extensions of credit exercise their responsibility to make credit available with fairness, impartiality, and without discrimination on the basis of sex or marital status. Economic stabilization would be enhanced and compe-tition among the various financial institutions and other firms engaged in the extension of credit would be strengthened by an absence of discrimination on the basis of sex or marital status, as well as by the informed use of credit which Congress has heretofore sought to promote. It is the purpose of this [Equal Credit Opportunity] Act to require that financial institutions and other firms engaged in the extension of credit make that credit equally available to all creditworthy customers without regard to sex or marital status.
§ 702. Definitions
(a) The definitions and rules of construction set forth in this section are applicable for the purposes of this title.
(b) The term "applicant" means any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit.
(c) The term "Board" refers to the Board of Governors of the Federal Reserve System.
(d) The term "credit" means the right granted by a creditor to a debtor to defer payment of debt or to incur debts and defer its payment or to purchase property or services and defer payment therefor.
(e) The term "creditor" means any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit.
(f) The term "person" means a natural person, a corporation, government or governmental subdivision or agency, trust, estate, partnership, cooperative, or association.
(g) Any reference to any requirement imposed under this title or any provision thereof includes reference to the regulations of the Board under this title or the provision thereof in question.
[Codified to 15 U.S.C. 1691a]
[Source: Section 702 of title VII of the Act of May 29, 1968 (Pub. L. No. 90--321), as added by section 503 of title V of the Act of October 28, 1974 (Pub. L. No. 93--495; 88 Stat. 1522), effective October 28, 1975]
§ 703. Regulations
(a)(1) The Board shall prescribe regulations to carry out the purposes of this title. These regulations may contain but are not limited to such classifications, differentiation, or other provision, and may provide for such adjustments and exceptions for any class of transactions, as in the judgment of the Board are necessary or proper to effectuate the purposes of this title, to prevent circumvention or evasion thereof, or to facilitate or substantiate compliance therewith.
(2) Such regulations may exempt from the provisions of this title any class of transactions that are not primarily for personal, family, or household purposes, or business or commercial loans made available by a financial institution, except that a particular type within a class of such transactions may be exempted if the Board determines, after making an express finding that the application of this title or of any provision of this title of such transaction would not contribute substantially to effecting the purposes of this title.
(3) An exemption granted pursuant to paragraph (2) shall be for no longer than five years and shall be extended only if the Board makes a subsequent determination, in the manner described by such paragraph, that such exemption remains appropriate.
(4) Pursuant to Board regulations, entities making business or commercial loans shall maintain such records or other data relating to such loans as may be necessary to evidence compliance with this subsection or enforce any action pursuant to the authority of this Act. In no event shall such records or data be maintained for a period of less than one year. The Board shall promulgate regulations to implement this paragraph in the manner prescribed by chapter 5 of title 5, United States Code.
(5) The Board shall provide in regulations that an applicant for a business or commercial loan shall be provided a written notice of such applicant's right to receive a written statement of the reasons for the denial of such loan.
The Board shall establish a Consumer Advisory Council to advise and consult with it in the exercise of its functions under this chapter and to advise and consult with it concerning other consumer related matters it may place before the Council. In appointing the members of the Council, the Board shall seek to achieve a fair representation of the interests of creditors and consumers. The Council shall meet from time to time at the call of the Board. Members of the Council who are not regular full-time employees of the United States shall, while attending meetings of such Council, be entitled to receive compensation at a rate fixed by the Board, but not exceeding $100 per day, including travel time. Such members may be allowed travel expenses, including transportation and subsistence, while away from their homes or regular place of business.
[Codified to 15 U.S.C. 1691b]
[Source: Section 703 of title VII of the Act of May 29, 1968 (Pub. L. No. 90--321), as added by section 503 of title V of the Act of October 28, 1974 (Pub. L. No. 93--495; 88 Stat. 1522), effective October 28, 1975, as amended by section 3 of the Act of March 23, 1976 (Pub. L.
No. 94--239; 90 Stat. 252), effective March 23, 1976; section 301 of title III of the Act of October 25, 1988 (Pub. L. No. 100--533; 102 Stat. 2692), effective October 25, 1988]
§ 704. Administrative enforcement
(a) Compliance with the requirements imposed under this title shall be enforced under:
(1) section 8 of the Federal Deposit Insurance Act, in the case of--
(A) national banks, and Federal branches and Federal agencies of foreign banks, by the Office of the Comptroller of the Currency;
(B) member banks of the Federal Reserve System (other than national banks), branches and agencies of foreign banks (other than Federal branches, Federal agencies, and insured State branches of foreign banks), commercial lending companies owned or controlled by foreign banks, and organizations operating under section 25 or 25(a) of the Federal Reserve Act, by the Board of Governors of the Federal Reserve System; and
(C) banks insured by the Federal Deposit Insurance Corporation (other than members of the Federal Reserve System) and insured State branches of foreign banks, by the Board of Directors of the Federal Deposit Insurance Corporation;
(2) Section 8 of the Federal Deposit Insurance Act, by the Director of the Office of Thrift Supervision, in the case of a savings association the deposits of which are insured by the Federal Deposit Insurance Corporation.
(3) The Federal Credit Union Act, by the Administrator of the National Credit Union Administration with respect to any Federal Credit Union.
(4) The Acts to regulate commerce, by the Secretary of Transportation, with respect to all carriers subject to the jurisdiction of the Surface Transportation Board.
(5) The Federal Aviation Act of 1958, by the Civil Aeronautics Board with respect to any carrier or foreign air carrier subject to that Act.
(6) The Packers and Stockyards Act, 1921 (except as provided in section 406 of that Act), by the Secretary of Agriculture with respect to any activities subject to that Act.
(7) The Farm Credit Act of 1971, by the Farm Credit Administration with respect to any Federal land bank, Federal land bank association, Federal intermediate credit bank, and production credit association;
(8) The Securities Exchange Act of 1934, by the Securities and Exchange Commission with respect to brokers and dealers; and
(9) The Small Business Investment Act of 1958, by the Small Business Administration, with respect to small business investment companies.
The terms used in paragraph (1) that are not defined in this title or otherwise defined in section 3(s) of the Federal Deposit Insurance Act (12 U.S.C. 1813(s)) shall have the meaning given to them in section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101).
(b) For the purpose of the exercise by any agency referred to in subsection (a) of its powers under any Act referred to in that subsection, a violation of any requirement imposed under this title shall be deemed to be a violation of a requirement imposed under that Act. In addition to its powers under any provision of law specifically referred to in subsection (a), each of the agencies referred to in that subsection may exercise for the purpose of enforcing compliance with any requirement imposed under this title, any other authority conferred on it by law. The exercise of the authorities of any of the agencies referred to in subsection (a) for the purpose of enforcing compliance with any requirement imposed under this title shall in no way preclude the exercise of such authorities for the purpose of enforcing compliance with any other provision of law not relating to the prohibition of discrimination on the basis of sex or marital status with respect to any aspect of a credit transaction.
(c) Except to the extent that enforcement of the requirements imposed under this title is specifically committed to some other Government agency under subsection (a), the Federal Trade Commission shall enforce such requirements. For the purpose of the exercise by the Federal Trade Commission of its functions and powers under the Federal Trade Commission Act, a violation of any requirement imposed under this title shall be deemed a violation of a requirement imposed under that Act. All of the functions and powers of the Federal Trade Commission under the Federal Trade Commission Act are available to the Commission to enforce compliance by any person with the requirements imposed under this title, irrespective of whether that person is engaged in commerce or meets any other jurisdictional tests in the Federal Trade Commission Act, including the power to enforce any Federal Reserve Board regulation promulgated under this title in the same manner as if the violation had been a violation of a Federal Trade Commission trade regulation rule.
(d) The authority of the Board to issue regulations under this title does not impair the authority of any other agency designated in this section to make rules respecting its own procedures in enforcing compliance with requirements imposed under this title.
[Codified to 15 U.S.C. 1691c]
[Source: Section 704 of title VII of the Act of May 29, 1968 (Pub. L. No. 90--321), as added by section 503 of title V of the Act of October 28, 1974 (Pub. L. No. 93--495; 88 Stat. 1522), effective October 28, 1975, and as amended by section 4 of the Act of March 23, 1976 (Pub. L. No. 94--239; 90 Stat. 253), effective March 23, 1976; section 744(m) of title VII of the Act of August 9, 1989 (Pub. L. No. 101--73; 103 Stat. 439), effective August 9, 1989; section 212(d) of title II of the Act of December 19, 1991 (Pub. L. No. 102--242; 105 Stat. 2301), effective December 19, 1991; section 1604(a)(8) of title XVI of the Act of October 28, 1992 (Pub. L. No. 102--550, 106 Stat. 4082), effective December 19, 1991; section 315 of title III of the Act of December 29, 1995 (Pub. L. No. 104--88; 109 Stat. 948), effective December 29, 1995]
§ 704A. Incentives for self-testing and self-correction.
(a) PRIVILEGED INFORMATION.--
(1) CONDITIONS FOR PRIVILEGE.--A report or result of a self-test (as that term is defined by regulations of the Board) shall be considered to be privileged under paragraph (2) if a creditor--
(A) conducts, or authorizes an independent third party to conduct, a self-test of any aspect of a credit transaction by a creditor, in order to determine the level or effectiveness of compliance with this title by the creditor; and
(B) has identified any possible violation of this title by the creditor and has taken, or is taking, appropriate corrective action to address any such possible violation.
(2) PRIVILEGED SELF-TEST.--If a creditor meets the conditions specified in subparagraphs (A) and (B) of paragraph (1) with respect to a self-test described in that paragraph, any report or results of that self-test--
(A) shall be privileged; and
(B) may not be obtained or used by any applicant, department, or agency in any--
(i) proceeding or civil action in which one or more violations of this title are alleged; or
(ii) examination or investigation relating to compliance with this title.
(b) RESULTS OF SELF-TESTING.--
(1) IN GENERAL.--No provision of this section may be construed to prevent an applicant, department, or agency from obtaining or using a report or results of any self-test in any proceeding or civil action in which a violation of this title is alleged, or in any examination or investigation of compliance with this title if--
(A) the creditor or any person with lawful access to the report or results--
(i) voluntarily releases or discloses all, or any part of, the report or results to the applicant, department, or agency, or to the general public; or
(ii) refers to or describes the report or results as a defense to charges of violations of this title against the creditor to whom the self-test relates; or
(B) the report or results are sought in conjunction with an adjudication or admission of a violation of this title for the sole purpose of determining an appropriate penalty or remedy.
(2) Disclosure for determination of penalty or remedy.--Any report or results of a self-test that are disclosed for the purpose specified in paragraph (1)(B)--
(A) shall be used only for the particular proceeding in which the adjudication or admission referred to in paragraph (1)(B) is made; and
(B) may not be used in any other action or proceeding.
(c) ADJUDICATION.--An applicant, department, or agency that challenges a privilege asserted under this section may seek a determination of the existence and application of that privilege in--
(1) a court of competent jurisdiction; or
(2) an administrative law proceeding with appropriate jurisdiction.
[Codified to 15 U.S.C. 1691c-1]
[Section 704 of title VII of the Act of May 29, 1968 (Pub. L. No. 90-321), as added by section 2302 of title II of the Act of September 30, 1996 (Pub. L. No. 104-208; 110 Stat. 3009-420), effective September 30, 1996]
§ 705. Relation to State laws
(a) A request for the signature of both parties to a marriage for the purpose of creating a valid lien, passing clear title, waiving inchoate rights to property, or assigning earnings, shall not constitute discrimination under this title: Provided, however, That this provision shall not be construed to permit a creditor to take sex or marital status into account in connection with the evaluation of creditworthiness of any applicant.
(b) Consideration or application of State property laws directly or indirectly affecting creditworthiness shall not constitute discrimination for purposes of this title.
(c) Any provision of State law which prohibits the separate extension of consumer credit to each party to a marriage shall not apply in any case where each party to a marriage voluntarily applies for separate credit from the same creditor: Provided, That in any case where such a State law is so preempted, each party to the marriage shall be solely responsible for the debt so contracted.
(d) When each party to a marriage separately and voluntarily applies for and obtains separate credit accounts with the same creditor, those accounts shall not be aggregated or otherwise combined for purposes of determining permissible finance charges or permissible loan ceilings under the laws of any State or of the United States.
(e) Where the same act or omission constitutes a violation of this title and of applicable State law, a person aggrieved by such conduct may bring a legal action to recover monetary damages either under this title or under such State law, but not both. This election of remedies shall not apply to court actions in which the relief sought does not include monetary damages or to administrative actions.
(f) This title does not annul, alter, or affect, or exempt any peron subject to the provisions of this title from complying with, the laws of any State with respect to credit discrimination, except to the extent that those laws are inconsistent with any provision of this title, and then only to the extent of the inconsistency. The Board is authorized to determine whether such inconsistencies exist. The Board may not determine that any State law is inconsistent with any provision of this title if the Board determines that such law gives greater protection to the applicant.
(g) The Board shall by regulation exempt from the requirements of sections 701 and 702 of this title any class of credit transactions within any State if it determines that under the law of that State that class of transactions is subject to requirements substantially similar to those imposed under this title or that such law gives greater protection to the applicant, and that there is adequate provision for enforcement. Failure to comply with any requirement of such State law in any transaction so exempted shall constitute a violation of this title for the purposes of section 706.
[Codified to 15 U.S.C. 1691d]
[Source: Section 705 of title VII of the Act of May 29, 1968 (Pub. L. No. 90--321), as added by section 503 of title V of the Act of October 28, 1974 (Pub. L. No. 93--495; 88 Stat. 1523), effective October 28, 1975, and as amended by section 5 of the Act of March 23, 1976 (Pub. L. No. 94--239; 90 Stat. 253), effective March 23, 1976]
§ 706. Civil liability
(a) Any creditor who fails to comply with any requirement imposed under this title shall be liable to the aggrieved applicant for any actual damages subtained by such applicant acting either in an individual capacity or as a member of a class.
(b) Any creditor, other than a government or governmental subdivision or agency, who fails to comply with any requirement imposed under this title shall be liable to the aggrieved applicant for punitive damages in an amount not greater than $10,000, in addition to any actual damages provided in subsection (a), except that in the case of a class action the total recovery under this subsection shall not exceed the lesser of $500,000 or 1 per centum of the net worth of the creditor. In determining the amount of such damages in any action, the court shall consider, among other relevant factors, the amount of any actual damages awarded, the frequency and persistence of failures of compliance by the creditor, the resources of the creditor, the number of persons adversely affected, and the extent to which the creditor's failure of compliance was intentional.
(c) Upon application by an aggrieved applicant, the appropriate United States district court or any other court of competent jurisdiction may grant such equitable and declaratory relief as is necessary to enforce the requirements imposed under this title.
(d) In the case of any successful action under subsection (a), (b), or (c), the costs of the action, together with a reasonable attorney's fee as determined by the court, shall be added to any damages awarded by the court under such subsection.
(e) No provision of this title imposing liability shall apply to any act done or omitted in good faith in conformity with any official rule, regulation, or interpretation thereof by the Board or in conformity with any interpretation or approval by an official or employee of the Federal Reserve System duly authorized by the Board to issue such interpretations or approvals under such procedures as the Board may prescribe therefor, notwithstanding that after such act or omission has occurred, such rule, regulation, interpretation, or approval is amended, rescinded, or determined by judicial or other authority to be invalid for any reason.
(f) Any action under this section may be brought in the appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction. No such action shall be brought later than two years from the date of the occurrence of the violation, except that--
(1) whenever any agency having responsibility for administrative enforcement under section 704 commences an enforcement proceeding within two years from the date of the occurrence of the violation,
(2) whenever the Attorney General commences a civil action under this section within two years from the date of the occurrence of the violation, then any applicant who has been a victim of the discrimination which is the subject of such proceeding or civil action may bring an action under this section not later than one year after the commencement of that proceeding or action.
(g) The agencies having responsibility for administrative enforcement under section 704, if unable to obtain compliance with section 701, are authorized to refer the matter to the Attorney General with a recommendation that an appropriate civil action be instituted. Each agency referred to in paragraphs (1), (2), and (3) of section 704(a) shall refer the matter to the Attorney General whenever the agency has reason to believe that 1 or more creditors has engaged in a pattern or practice of discouraging or denying applications for credit in violation of section 701(a). Each such agency may refer the matter to the Attorney General whenever the agency has reason to believe that 1 or more creditors has violated section 701(a).
(h) When a matter is referred to the Attorney General pursuant to subsection (g), or whenever he has reason to believe that one or more creditors are engaged in a pattern or practice in violation of this title, the Attorney General may bring a civil action in any appropriate United States district court for such relief as may be appropriate, including actual and punitive damages and injunctive relief.
(i) No person aggrieved by a violation of this title and by a violation of section 805 of the Civil Rights Act of 1968 shall recover under this title and section 812 of the Civil Rights Act of 1968, if such violation is based on the same transaction.
(j) Nothing in this title shall be construed to prohibit the discovery of a creditor's credit granting standards under appropriate discovery procedures in the court or agency in which an action or proceeding is brought.
(k) NOTICE TO HUD OF VIOLATIONS.--Whenever an agency referred to in paragraph (1), (2), or (3) of section 704(a)--
(1) has reason to believe, as a result of receiving a consumer complaint, conducting a consumer compliance examination, or otherwise, that a violation of this title has occurred;
(2) has reason to believe that the alleged violation would be a violation of the Fair Housing Act; and
(3) does not refer the matter to the Attorney General pursuant to subsection (g), the agency shall notify the Secretary of Housing and Urban Development of the violation, and shall notify the applicant that the Secretary of Housing and Urban Development has been notified of the alleged violation and that remedies for the violation may be available under the Fair Housing Act.
[Codified to 15 U.S.C. 1691e]
[Source: Section 706 of title VII of the Act of May 29, 1968 (Pub. L. No. 90--321), as added by section 503 of title V of the Act of October 28, 1974 (Pub. L. No. 93--495; 88 Stat. 1524), effective October 28, 1975, and as amended by section 6 of the Act of March 23, 1976 (Pub. L. No. 94--239; 90 Stat. 253), effective March 23, 1976; sections 223(a)--(c) of title II of the Act of December 19, 1991 (Pub. L. No. 102--242; 105 Stat. 2306), effective December 19, 1991]
§ 707. Annual reports to Congress
Each year, the Board and the Attorney General shall, respectively, make reports to the Congress concerning the administration of their functions under this title, including such recommendations as the Board and the Attorney General, respectively, deem necessary or appropriate. In addition, each report of the Board shall include its assessment of the extent to which compliance with the requirements of this title is being achieved, and a summary of the enforcement actions taken by each of the agencies assigned administrative enforcement responsibilities under section 704.
[Codified to 15 U.S.C. 1691f]
[Source: Section 707 of title VII of the Act of May 29, 1968 (Pub. L. No. 90--321), as added by section 7 of the Act of March 23, 1976 (Pub. L. No. 94--239; 90 Stat. 255), effective March 23, 1976; as amended by section 610 of title VI of the Act of March 31, 1980 (Pub. L. No. 96--221; 94 Stat. 174), effective April 1, 1982]
§ 708. Effective date
This title takes effect upon the expiration of one year after the date of its enactment. The amendments made by the Equal Credit Opportunity Act Amendments of 1976 shall take effect on the date of enactment thereof and shall apply to any violation occurring on or after such date, except that the amendments made to section 701 of the Equal Credit Opportunity Act shall take effect 12 months after the date of enactment.
[Codified to 15 U.S.C. 1691 note]
[Source: Section 708 (formerly 707) of title VII of the Act of May 29, 1968 (Pub. L. No. 90--321), as added by section 503 of title V of the Act of October 28, 1974 (Pub. L. No. 93--495; 88 Stat. 1525), effective October 28, 1975, as redesignated by section 7, and as amended by section 8, of the Act of March 23, 1976 (Pub. L. No. 94--239; 90 Stat. 255), effective March 23, 1976]
§ 709. Short title
This title may be cited as the "Equal Credit Opportunity Act."
[Codified to 15 U.S.C. 1691 note]
[Source: Section 709 of title VII of the Act of May 29, 1968 (Pub. L. No. 90--321), as added by section 1(b) of the Act of March 23, 1976 (Pub. L. No. 94--239; 90 Stat. 251), effective March 23, 1976]
STAFF OPINION LETTERS
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINGTON, D.C. 20580
July 14, 2000
Ryan S. Stinneford, Esq.
Pierce Atwood
One Monument Square
Portland, Maine 04101
Re: Section 615(a) of the Fair Credit Reporting Act and Section 202.9(f) of Regulation B, implementing the Equal Credit Opportunity Act.
Dear Mr. Stinneford,
This responds to your inquiry concerning the notice to a consumer required by Section 615(a) of the Fair Credit Reporting Act ("FCRA") and adverse action notices under the Equal Credit Opportunity Act ("ECOA"). Section 701(d) of the ECOA requires that a creditor must notify an applicant of the action taken on an application, including requirements in the event of "adverse action" on the application. 15 U.S.C. 1691(d). Regulation B of the Board of Governors of the Federal Reserve System implements the requirements of the ECOA, including the notice requirements set forth in Section 202.9 of that regulation. 12 C.F.R. § 202.9.
Section 615(a) of the FCRA imposes an independent requirement that a consumer be provided specified information in circumstances where adverse action with respect to that consumer is taken "based in whole or in part on any information contained in a consumer report." As you note in your letter, the Federal Reserve Board has indicated that the information required by Section 615(a) of the FCRA can be made on the same document as an ECOA adverse action notice, where the circumstances of a given applicant so warrant. Appendix C to Regulation B provides model forms that combine the FCRA and ECOA disclosures. Appendix C was amended to conform to the 1996 FCRA amendments. See 63 Fed. Reg. 16392, April 3, 1998, copy enclosed.
Your inquiry correctly notes that when an application involves more than one applicant, Section 202.9(f) of Regulation B permits the creditor to provide adverse action notification to only one applicant.(1) You ask
Is it permissible for a creditor to send a combined ECOA/FCRA adverse action notification (similar to Form C-1) only to the primary applicant, even if the application was denied based on the co-applicant's (or guarantor's) consumer report?
For the reasons set forth below, it is our view that the answer is no with respect to a co-applicant and yes with respect to a guarantor.
Section 615(a) requires that "any consumer" with respect to whom adverse action is taken must receive the disclosures mandated by Section 615(a) if that action is based "in whole or in part" on information from a consumer report. (Emphasis added). In our view, the plain language "any consumer" includes a co-applicant. Neither Section 202.9(f) of Regulation B, nor the combined disclosure permitted in Appendix C, remove or modify that requirement with respect to co-applicants. The objective of the combined disclosures permitted by the Federal Reserve Board in Appendix C to Regulation B is only to simplify the paperwork involved in making ECOA and FCRA notifications to a single applicant, where both are required -- i.e., the action by the creditor is both adverse to the applicant (ECOA), and is based in whole or in part on information from that applicant's consumer report (FCRA).
Because Section 603(k)(1)(A) of the FCRA provides that, in the context of a credit application, "adverse action" shall have the same meaning for purposes of the FCRA as is provided in the ECOA, we look to the definition of "adverse action" set forth in Section 701(d)(6) of the ECOA, 15 U.S.C. § 1691(d)(6), and Section 202.2(c) of Regulation B, 12 C.F.R. § 202.2(c). Under these authorities, only an "applicant" can experience "adverse action." Section 202.2(c)(1) of Regulation B, 12 C.F.R. § 202.2(c)(1). They further specify that a co-applicant is an "applicant" but that a guarantor is not. Section 702(b) of the ECOA, 15 U.S.C. § 1691a(b); Section 202.2(e) of Regulation B, 12 C.F.R. § 202.2(e).
Thus, in response to the specific example posed in your letter, when there are two applicants a creditor cannot send a combined ECOA/FCRA adverse action notification to only the primary applicant if the application is denied, even in part, based on information in a co-applicant's consumer report. In that circumstance, the co-applicant has been the subject of "adverse action" and must be provided his or her own separate notification to satisfy the requirement of Section 615(a) of the FCRA. If the creditor has provided the ECOA-required information specified in Section 202.9(a)(2) of Regulation B to the primary applicant, it need not be included in the FCRA notice provided to the co-applicant.
The rule is different for a guarantor, because he or she has not experienced "adverse action" that triggers the notice required by Section 615(a) of the FCRA. As discussed above, Section 603(k)(1)(A) of the FCRA adopts the ECOA definition, which excludes a guarantor. Thus a creditor need not provide guarantor with an FCRA adverse action notice, even if the application is denied in whole or in part based upon information from the consumer report of the guarantor. Under these circumstances, therefore, notification to the applicant is all that is required.
I hope that this information is helpful to you. The views expressed herein are the views of the Commission staff and are advisory in nature. They do not necessarily reflect the views of the Commission or of any individual Commissioner.
Very truly yours,
Christopher W. Keller
Attorney
Section 202.9(f) further requires that the notice must be given to the primary applicant where one is readily apparent.
Mr. Elias Latour
17445 Covello Street
Van Nuys, CA 91406
Dear Mr. Latour:
This responds to your letter inquiring whether a company that approved your application for credit only under its highest rates, based on a "risk score" derived from information reported by a credit bureau or other consumer reporting agency ("CRA"), is required to provide an adverse action notice pursuant to the Fair Credit Reporting Act ("FCRA"). You do not state whether you accepted this offer of credit, or whether your application was for credit according to particular terms.
Section 615(a) of the FCRA requires persons who take "adverse action" with respect to any consumer based in whole or in part on a consumer report to provide the consumer with a notice of the adverse action that, among other things, identifies the CRA that furnished the consumer report and includes information about the consumer's FCRA rights.
Section 603(k)(1)(A) defines the term "adverse action" to have "the same meaning as in the Equal Credit Opportunity Act" ("ECOA"), when the action takes place in the credit context.(1)
Under the ECOA, and Regulation B promulgated by the Board of Governors of the Federal Reserve System to implement the ECOA, that term means "a refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the creditor makes a counteroffer (to grant credit in a different amount or on different terms) and the applicant uses or expressly accepts the credit offered." Regulation B, 12 C.F.R. §202.2(c)(1)(i) (emphasis added). In the circumstances described, you would be entitled to the "adverse action" notice required by Section 615(a) if you applied for credit on particular terms, were offered credit only on less favorable terms (e.g., lower credit limit, higher interest rate) based on information in a consumer report, and refused to accept those terms or use the credit offered. However, if you did not apply for credit on particular terms or if you were offered credit and accepted, you are not entitled to the notice because you did not suffer "adverse action" as defined in Section 603(k)(1)(A)of the FCRA.
The views set forth in this informal opinion letter are not binding on the Commission.
Sincerely,
Laura D. Berger
Endnote:
1. Similarly, "adverse action" in the insurance context is defined by Section 603(k)(1)(B)(i), in the employment context by Section 603(k)(1)(B)(ii), in the context of a license or benefit granted by the government by Section 603(k)(1)(B)(iii), and in other contexts by Section 603(k)(1)(B)(iv). (These non-credit types of adverse actions are discussed in other staff opinion letters -- Schieber, 03/03/98; Vail, 04/05/99; Greathouse, 10/20/98; Spritz, 11/05/98). The subsections of the "adverse action" definition in Section 603(k)(1) thus parallel the permissible purposes provided for credit, insurance, employment, governmental benefit or license, and other consumer purposes provided in Section 604(a)(3).
Jeffrey S. Gray
Harding & Associates, P.C.
110 South Main Street
Pleasant Grove, Utah 84062
Re: Loan Differentiation (Your September 6, 1991, Letter to Stephanie Jones)
Dear Mr. Gray:
You have asked whether a federal credit union (FCU) may charge different interest rates on the same type of loan based on either the borrower's credit rating or debt ratio. The FCU Act and NCUA Rules and Regulations do not prohibit such a loan differentiation program.
ANALYSIS
Section 107(5)(A) of the FCU Act (12 U.S.C. ~1757(5)(A)) au- thorizes an FCU to make loans to its members. An FCU board of directors may set interest rates on loans as long as they comply with the requirements set forth in Section 107(5) of the FCU Act and Section 701.21 of NCUA's Rules and Regula- tions (12 C.F.R. 701.21) and any other applicable state and/or federal law. Both sections of the FCU Act and the NCUA Rules and Regulations are silent on the permissibility of interest rate differentiation. While an FCU's board is given wide latitude under our regulations to set loan policies, we expect there to be a rational basis for distin- guishing loan terms for different members on the same type of loan. Furthermore, any such policy must be applied uni- formly. In sum, there is nothing in the FCU Act or NCUA Rules and Regulations prohibiting an FCU from establishing a written policy of charging a different rate on loans of the same type based on the borrower's credit rating or debt ra- tio, as long as there is a rational basis for the differen- tiation.
One cautionary note about the possible impact of Section 701.31 of NCUA's Rules and Regulation (12 C.F.R. 701.31) and the Equal Credit Opportunity Act on the loan program. FCUs may not deny real estate-related loans, nor discriminate in setting or exercising its rights pursuant to the terms or conditions of such loans, on the basis of race, color, na- tional origin, sex, handicap, or familial status. 12 C.F.R. ~701.31(b). A "real estate-related loan" is one made to fi- nance or refinance the purchase, construction, improvement, repair or maintenance of a dwelling. 12 C.F.R. ~701.31(a)(3). You did not state whether the loan differen- tiation program involved real-estate related loans, but if it does, Section 701.31 of NCUA's Rules and Regulations would be applicable. Although your loan differentiation program, on its face, does not violate Section 701.31 of NCUA's Rules and Regulations, if it failed an "effects test" a violation may arise. The "effects test" is a judicial doctrine which, in essence, holds that policies may be discriminatory if the policy has a negative impact on persons intended to be pro- tected by law, even if there is no intent to discriminate.
The Equal Credit Opportunity Act (ECOA) and Regulation B (12 C.F.R. 202) prohibit discrimination in all types of exten- sions of credit based on race, color, religion, national origin, sex, marital status, age, receipt of public assis- tance programs, and good faith exercise of rights under the Consumer Credit Protection Act. Varying the loan interest rate based on the borrower's credit rating or debt ratio may have a discriminatory effect, even though the terms of the loan appear neutral, and thus may fail the "effects test."
While it is the opinion of this Office that FCU's are not prohibited from engaging in this type of interest rate dif- ferentiation, you must consider state or other federal laws (e.g. the Federal Bankruptcy Act) that may be applicable to such a loan program. In addition, although this loan program may be legally permissible, it may raise safety and soundness concerns in NCUA's regional office. You may wish to continue
coordinating your activity with your NCUA examiner and the regional office.
Sincerely,
Hattie M. Ulan
Associate General Counsel
GC/MM:sg
SSIC 3000
91-1005
cc: Gene Jackson, Region V
Director, Division of Insurance
October 30, 1991
Richard P. Kessler, Jr., Esq.
Macey, Wilensky, Cohen,
Wittner & Kessler
Suite 700 Carnegie Building
133 Carnegie Way, Northwest
Atlanta, Georgia 30303
Re: Powerco Federal Credit Union - Georgia Power Company Employee Personal Computer Loan Program (Your October 2, 1991, Letter)
Dear Mr. Kessler:
You asked whether a loan program proposed by the Powerco Fed- eral Credit Union ("Powerco") is allowable under the Federal Credit Union Act ("the Act") and NCUA's Rules and Regulations (the "Regulations"). In our opinion, the loan program is permissible.
Background
Georgia Power Company is a sponsor of Powerco. Georgia Power has proposed a loan plan to enable Georgia Power employees who are members of Powerco to purchase personal computer hardware. Only Powerco members who are employed by Georgia Power would be eligible for the loan program.
Under the program, a Georgia Power employee will select a personal computer to purchase. Georgia Power will approve the computer, and indicate its willingness to guarantee a loan for its purchase. The employee will then apply to Powerco for a loan. Assuming that Powerco finds the employee/member creditworthy, it will grant a loan on the following terms.
1. The interest rate charged to the employees/members will be 3% of the outstanding loan balance each month.
2. The loan amount will be not less than $200.00 or more than $5,000.00.
3. The maximum loan term will be 36 months.
4. The loans will be repaid by payroll deduction.
5. Georgia Power will guarantee the loans.
6. Loan balances will be due and payable immediately if the employee leaves Georgia Power for any reason other than a transfer to an affiliated company.
7. Each month, Georgia Power will pay Powerco a variable rate administrative fee on the outstanding portfolio of loans made under the program. The interest rate on the fee will be equal to the prime rate listed in the Wall Street Journal, minus 4%.
8. Georgia Power will purchase the loan of any member who is more than 120 days delinquent, upon receipt of an invoice from Powerco.
You enclosed copies of a proposed "computer loans program agreement" and an "unconditional guarantee of payment and performance" with your letter. However, as I explained to you in our telephone conversation, this Office does not re- view contracts, which are governed by state law. Conse- quently, our opinion is based solely upon the information contained in the body of your letter.
Analysis
Section 107(5) of the Act, 12 U.S.C. ~1757(5), authorizes a federal credit union ("FCU") to make loans to its members. Section 701.21 of the Regulations, 12 C.F.R. 701.21, contains additional standards and restrictions on loans to members. Neither the Act nor the Regulations prohibits any aspect of the proposed loan program. Although FCUs are limited with regard to the fees they may receive as a result of group pur- chasing activities (see, 12 C.F.R. Part 721), there is no limitation in the Act or Regulations on FCU compensation re- ceived in connection with activities, such as the making of loans, that are expressly authorized by the Act. It is our opinion that the proposed loan program is permissible under the Act and the Regulations. We offer no opinion as to the effect, if any, of state law on the proposed program.
We caution you that the Equal Credit Opportunity Act ("ECOA") may have an impact on the proposed program. ECOA and its implementing regulation, Regulation B, 12 C.F.R. Part 202, are intended, in part, to promote the availability of credit to all creditworthy applicants, regardless of race, color, religion, national origin, sex, marital status or age. The proposed program does not appear, on its face, to violate ECOA or Regulation B. However, policies that are facially neutral may be prohibited under the "effects test." Under the "effects test," a policy is discriminatory if it has a negative impact on a protected class of persons, even if there is no intent to discriminate. We suggest that you re- view the proposed program to determine the applicability of ECOA and whether the program would have a discriminatory effect if implemented.
Lastly, we wish to point out that although the proposed loan program is legally permissible, it may raise safety and soundness concerns with NCUA's Regional Office. Powerco may wish to consult its NCUA examiner before implementing the program.
Sincerely,
Hattie M. Ulan
Associate General Counsel
GC/MRS:sg
SSIC 3600
91-1004
July 31, 2003
Preemption Determination and Order Concerning
the Georgia Fair Lending Act
Questions and Answers
• What action is the OCC taking today?
The OCC is issuing a Determination and Order that preempts the Georgia Fair Lending
Act (GFLA). This action is being taken in response to a request by National City Bank,
N.A., National City Bank of Indiana, N.A., and their operating subsidiaries for a
determination of whether the Georgia law applies to them. Our Determination and Order
provides a detailed analysis of how several statutes and regulations already preempt much
of the state law, and then discusses how the remaining provisions conflict with national
banks’ power to make real estate loans under 12 U.S.C. § 371. As a result of our Order
and Determination, the GFLA does not apply to national banks and their operating
subsidiaries making loans in Georgia.
We also are issuing simultaneously with the publication of this Determination and Order
a notice of proposed rulemaking in which we invite comments on proposed amendments
to our rules that would clarify the extent to which state law applies to national bank
deposit-taking, lending, and other authorized activities.
• Does the Determination and Order apply to national banks and their operating
subsidiaries in addition to the National City entities that submitted the request?
Yes. Because our conclusions rest on an analysis of the legal effects of the GFLA under
Constitutional preemption principles, they would not differ with respect to any other
national bank or operating subsidiary engaged in real estate lending activities in Georgia.
• What protections do consumers have against predatory lending by national banks in
Georgia?
As an initial matter, it is important to note that there is no evidence of predatory lending
by national banks or their operating subsidiaries, in Georgia or elsewhere. This point
recently was confirmed by nearly two dozen state Attorneys General in a brief they filed
in litigation concerning an OTS rulemaking. In that brief, the Attorneys General stated,
“Based on consumer complaints received, as well as investigations and enforcement
actions undertaken by the Attorneys General, predatory lending abuses are largely
confined to the subprime mortgage lending market and to non-depository institutions.
Almost all of the leading subprime lenders are mortgage companies and finance
companies, not banks or direct bank subsidiaries.â€ﾝ
Preemption of the Georgia law does not mean that the lending practices of national banks
in Georgia will be unregulated. There are a wide variety of federal protections that apply,
including the Homeowners Equity Protection Act of 1994 (HOEPA), the Fair Housing
Act, and the Equal Credit Opportunity Act. The OCC also will evaluate whether lending
practices involve unfair or deceptive acts or practices in violation of the Federal Trade
Commission Act. In addition, the OCC has issued two advisory letters concerning
predatory and abusive practices in originating or purchasing loans.
In the notice of proposed rulemaking that accompanies the GFLA Determination and
Order, we are inviting comments on a federal safety and soundness-based anti-predatory
lending standard that would prohibit national banks from making loans based
predominantly on the foreclosure value of the borrower’s collateral, without regard to the
borrower’s repayment ability. If that standard is adopted in final, it will provide a
uniform standard applicable throughout the nation.
• How does the OCC supervise national banks to ensure that they are not engaging in
predatory or abusive lending practices?
Through a network of approximately 1,800 examiners located throughout the U.S., we
monitor conditions and trends in individual banks and groups of banks. Our supervisory
activities hone in on the highest risks as identified by our sophisticated surveillance tools
and subject matter experts.
As part of our ongoing supervision of national banks, examiners look at bank policies and
procedures. These policies and procedures are reviewed to evaluate if they adequately
address the particular risks that the bank may face, given the nature and scope of its
business. Depending on the nature of that business, we would expect bank policies and
controls to reflect the considerations we have identified in our two advisories on how
national banks should avoid becoming involved in predatory lending practices.
Our Customer Assistance Group in Houston, Texas (CAG) plays an important role in
helping to identify potentially unfair and deceptive practices. In addition to providing
immediate assistance to consumers, the CAG collates and disseminates complaint data
that help point our field examiners toward banks, activities, and products that require
further investigation.
We obtain additional valuable insight and surveillance from community and consumer
groups, internal and external auditors, other federal, state and local authorities, and
competing banks.
Thus, national banks’ compliance with applicable laws is subject to comprehensive – and
in the case of the largest national banks, continuous – supervision. Where violations of
law are found, we take appropriate enforcement action to remedy the problem and to
address consumer harm. Illustrative of this is the precedent-setting action taken by the
OCC in 2000 against a national bank found to have engaged in a pattern of deceptive
practices in connection with that bank's marketing of subprime credit cards. The OCC
2
ordered the bank to pay more than $300 million in restitution to consumers who had been
harmed by these practices.
• If no national bank is engaging in predatory lending, why does the OCC object to the
application of state laws that may serve as an added deterrent while imposing little or
no costs on national banks?
Whether a state law is preempted does not depend on the merits of the law. Rather, the
state law will be preempted if it conflicts with the federal law. In the case of the GFLA,
the state is attempting to condition the exercise of national bank powers on compliance
with various restrictions. These restrictions have significant adverse consequences for
national banks that lend in Georgia, including --
o Disrupting the secondary market for loans;
o Imposing a set of restrictions unique to one state, adding to the burden on a lender
conducting a multi-state lending business;
o Introducing new standards for subprime lending that are untested, sometimes
vague, often complex, and, in many cases, different from established and well-
understood federal requirements; and
o Exposing lenders to potentially significant liability arising from violating the
statute.
The GFLA interferes with national banks’ ability to exercise permissible federal powers,
and, therefore, is preempted, notwithstanding its laudable objectives.
• Is the OCC preempting all state laws governing real estate lending?
National City asked us to review only one state's law, the GFLA. A conclusion that
federal law occupies the field of real estate lending regulation would have implications
beyond the applicability of the Georgia law. For that reason, we believe it is appropriate
to consider the question of whether federal law “occupies the fieldâ€ﾝ of real estate lending
in a rulemaking. Contemporaneously with the issuance of this Determination and Order,
therefore, we are initiating a rulemaking that addresses that issue.
• Why did the OCC respond to National City’s request by issuing a Determination and
Order instead of an opinion letter?
Section 371 states that national banks may make real estate loans subject to “such
restrictions and requirements as the Comptroller of the Currency may prescribe by
regulation or order.â€ﾝ While we could have offered our opinion on the extent to which
federal law preempts state law, we believe that it is appropriate for us to exercise the
statutory authority to issue an order and in so doing provide the greater certainty to
national banks that an order offers. Unlike opinion letters, an order has the force and
effect of law.
• What types of state and local laws apply to national bank real estate lending after the
OCC’s order?
3
4
That is the subject of the rulemaking published today, where we are seeking comment on
proposed amendments to our real estate lending rules to clarify what types of state laws
apply. As discussed in that rulemaking, courts have identified certain types of state laws
– such as those pertaining to contracts, torts, debt collection, acquisition and transfer of
real property, taxation, and zoning – as within the states’ purview. These laws do not
regulate the manner or content of national banks’ real estate lending, but instead form the
legal infrastructure that surrounds and supports the conduct of that business. They
promote national banks' ability to conduct business, rather than obstruct, national banks’
exercise of powers granted under federal law.
• Was the OCC’s consideration of the National City request influenced by the fact that
the OTS already has preempted the GFLA?
It is not surprising that the Office of Thrift Supervision (OTS) reached a similar
conclusion for federal thrifts, given the similarity between the powers of federal thrifts
and national banks and the purposes for which the two types of federal charters were
created. However, our decision was based on a review of applicable law governing
national bank powers. As noted in our order, many of the GFLA provisions already are
preempted by existing statutes or regulations. The remaining provisions obstruct national
banks’ exercise of power granted by federal law to make real estate loans.
We note that the OTS action does have a direct bearing on national banks located in
Georgia. Under 12 U.S.C. § 85, a national bank may charge interest at the rate allowed
for the most favored state lender under the laws of the state where the bank is located.
The OTS has previously determined that the GFLA does not apply to Federal savings
associations. By virtue of the parity provision in the GFLA, that law also would not
apply to a Georgia state savings association. Thus, for purposes of section 85, a Georgia
state savings association is the most favored lender with respect to the types of loans
covered by the GFLA, and, accordingly, a national bank located in Georgia is similarly
not subject to limits on the rate of interest it may charge for loans within the scope of the
GFLA.
• Has the OCC received requests to preempt other state or local predatory lending laws?
If not, would you entertain requests concerning other laws?
We have not received any other request in connection with another state’s or
municipality’s predatory lending laws. National banks are free to seek our views
concerning the application of other predatory lending laws to their lending operations.
|
|
HB-1-3560
Appendix 4
APPENDIX 4
HANDBOOK LETTERS REFERENCED IN THIS HANDBOOK
Handbook Letter 101 (3560), Standardized Adverse Decision Letter
Handbook Letter 102 (3560), Letter of Conditions, Loan Approval, or Obligation of
Funds
Handbook Letter 103 (3560), Cover Letter to the Initial Application Package
Handbook Letter 104 (3560), Letter To Interim Lender
Handbook Letter 105 (3560), Notice To Proceed
Handbook Letter 106 (3560), Notice of Pre-application Review Action
Handbook Letter 107 (3560), A Letter Informing the Applicant of the Lack of Funds
Handbook Letter 108 (3560), Letter Denying Funding due to Ineligibility
Handbook Letter 109 (3560), Letter Informing of National Office Review
(02-24-05) SPECIAL PN
HB-1-3560
Appendix 4
Handbook Letter 101 (3560)
REFERENCE: HB-1-3560 Chapter 1
PURPOSE:
Standardized Adverse Decision Letter
RURAL DEVELOPMENT
[LOCATION]
[insert date]
Dear [insert name]:
After careful consideration, we [insert were unable to take favorable action on your
application/request for Rural Development services or are canceling/reducing the
assistance you are presently receiving]. The specific reasons for our decision are:
[Insert the adverse decision and all of the specific reasons for the adverse action]
If you have any questions concerning the decision or the facts used in making our
decision and desire further explanation you may call or write to our office at the above
address and telephone number within 15 calendar days of the date of this letter. You
should present any new information or evidence along with possible alternatives for our
consideration. You may also have the right to appeal this decision to a hearing officer in
lieu of, or in addition to, a meeting with this office.
If you do not wish a meeting, and as outlined above wish to appeal, a request for a
hearing must be sent to the National Appeals Division, USDA, [Include appropriate NAD
address], postmarked no later than 30 days from the date of this letter.
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,
handicap, or age (provided that the applicant has the capacity to enter into a binding
contract), or because all or part of the applicant’s income derives from any public
assistance program. Department of Agriculture regulations provide that no agency,
officer, or employee of the United States Department of Agriculture shall exclude from
participation in, deny the benefits of, or subject to discrimination any person based on
race, color, religion, sex, age, handicap, or national origin under any program or activity
administered by such agency, officer, or employee. The Fair Housing Act prohibits
discrimination in real estate-related transactions, or in the terms and conditions of such a
transaction, because of race, color, religion, sex, handicap, familial status, or national
origin. If an applicant or borrower believes he or she has been discriminated against for
any of these reasons, that person can write the Secretary of Agriculture, Washington,
HB-1-3560
Appendix 4
D.C. 20250. Applicants also cannot be denied a loan because the applicant has in good
faith exercised his or her rights under the Consumer Credit Protection Act. If an
applicant believes he or she was denied a loan for this reason, the applicant should
contact the Federal Trade Commission, Washington, D.C. 20580.
Sincerely,
___________________________
(Decision Maker)
___________________________
(Title)
Attachment – Appeal Rights
(02-24-05) SPECIAL PN
HB-1-3560
Appendix 4
ATTACHMENT TO LETTER NOTIFYING CUSTOMERS OF AN ADVERSE
DECISION THAT IS APPEALABLE
The decision described in the attached letter did not grant you the assistance you
requested or will terminate or reduce the assistance you are currently receiving. If you
believe this decision or the facts used in this case are in error, you may pursue any or all
of the following three options.
Option 1 - Informal Review
If you have questions concerning this decision or the facts used making it and desire
further explanation, you may write this office to request an informal review. There is no
cost for an informal review. This written request must be received no later than 15
calendar days from the date of the attached letter. You must present any new
information, evidence, and possible alternatives along with your request. You may also
have a representative or legal counsel participate in the process, at your cost. The
informal review may be conducted by telephone or in person, at the discretion of the
Agency. Please include a daytime phone number in your request to arrange for the
review. You may skip this step in the informal process and select one of the following
two options. If you do, you will automatically waive your right to an informal review.
Option 2 - Mediation or Alternative Dispute Resolution (ADR)
You have the right to request mediation or other forms of alternative dispute resolution
(ADR) for the issues that are available for mediation. You will have to pay for at least
50 percent of the cost of mediation or ADR. Rural Development will pay for the other
50 percent of the cost, provided the Agency has sufficient resources from its appropriated
funds. If the Agency does not have sufficient resources, you will be advised how much,
if any, the Agency can contribute to the cost of mediation or ADR. If you need the
information to assist you in deciding whether to seek mediation or ADR, you may contact
the Rural Development State Director listed below.
If you elect to seek mediation or ADR, your written request for this service must be sent
to the Rural Development State Director listed below and must be postmarked no later
than 30 days from the date of the attached letter. The Rural Development State Director
will advise you of the estimated cost of mediation or ADR, the extent to which the
Agency can contribute to the cost, and the process and procedures for this service. In
States with a USDA-sponsored mediation program, you will generally be referred to such
service. In States without a USDA-sponsored mediation program, you will be provided
with the name or names of mediators. You will be advised directly by the mediation or
ADR source if they can mediate your case. Once you request mediation or ADR, it stops
the running of the 30-day period in which you may request an appeal (described in
Option 3). If mediation or ADR does not result in resolution of these issues, you have
the right to continue with a request for an appeal hearing as set forth in Option 3.
HB-1-3560
Appendix 4
When mediation or ADR is concluded, you will be notified of the result and the number
of days remaining to request an appeal, if applicable. If you request mediation or ADR
prior to filing for an appeal, the number of days you will have to request an appeal will be
30 days from the adverse decision minus the number of days you took to request
mediation. Mediation or ADR does not take the place of, or limit your rights to, an
appeal to the National Appeals Division (NAD); however, a NAD appeal hearing would
take place after mediation or ADR. You may skip mediation or ADR and request an
appeal hearing. However, in doing so, you will automatically waive your rights to an
informal meeting, mediation, or ADR.
[Insert Rural Development State Director address]
Option 3 - Request an Appeal
You may request an appeal hearing by the National Appeals Division (NAD) rather than
an informal review, mediation, or ADR. There is no cost for an appeal. Your request
for an appeal must be made no later than 30 days from the date you receive the attached
letter. You must write the Assistant Director, NAD, for your region at the following
address:
[Insert NAD Assistant Director address]
The request for a NAD hearing must state the reasons why you believe the decision is
wrong, be personally signed by you, and must include a copy of the attached letter. A
copy of your request must also be sent to the Rural Development State Director at the
address specified above.
You have the right to an appeal hearing within 45 days of the receipt of your request.
You or your representative or counsel may contact this office anytime during regular
office hours in the 10 days following the receipt of your request for a hearing to examine
or copy relevant non-confidential material in your file. Photocopies will be provided to
you. Your representative or counsel should have your written authorization to represent
you and review your file.
The NAD Hearing Officer will contact you regarding a time and place for the hearing.
You may also request a teleconference hearing in lieu of the face-to-face hearing. At any
time before the scheduled hearing you may also request that the Hearing Officer make a
decision without a hearing. If you do, the Hearing Officer’s decision will be based on the
Rural Development file, any written statements or evidence you may provide and any
additional information the Hearing Officer thinks necessary.
The Federal Equal Credit Opportunity Act prohibits creditors from discriminating against
credit applicants based on race, color, religion, national origin, sex, marital status, age
(provided that the applicant has the capacity to enter into a binding contract), or because
all or part of the applicant’s income derives from any public assistance program; or
because the applicant has in good faith exercised any right under the Consumer Credit
(02-24-05) SPECIAL PN
HB-1-3560
Appendix 4
Protection Act. The federal agency that administers compliance with this law concerning
this creditor is the Federal Trade Commission. If a person believes he or she was denied
assistance in violation of this law, they should contact the Federal Trade Commission,
Washington, D.C. 20580
The Fair Housing act prohibits discrimination in real estate related transactions, or in the
terms and conditions of such a transaction because of race, color, religion, sex, disability,
familiar status, or national origin. The federal agency that is responsible for enforcing
this law is the U.S. Department of Housing and Urban Development. If a person believes
that they have been discriminated against in violation of this law, they should contact the
U.S. Department of Housing and Urban Development, Washington, D.C. 20410 or call
(800) 669-9777.
HB-1-3560
Appendix 4
Handbook Letter 102 (3560)
REFERENCE: HB-1-3560 Chapters 3, 4, 5 and 8
PURPOSE:
Letter of Conditions, Loan Approval, or Obligation of Funds
RURAL DEVELOPMENT
[LOCATION]
Date: [insert today’s date]
SUBJECT: Loan Approval Conditions for [insert name of applicant]
[insert name of project]
[insert number of units - Type (E or F) - number of RA units]
[insert location of project]
TO: [insert Owner/Managing General Partner]
[insert Address]
Dear [insert name of applicant]:
This letter establishes conditions under which USDA – Rural Development will approve
a Rural Rental Housing loan for the subject applicant in the amount of $[insert amount],
in participation with funds provided by [insert source of leveraged funds, such as State
HFA], subject to the following:
The conditions indicated in Part I must be met before the start of construction or closing
of the interim loan, whichever occurs first. The conditions indicated in Part II must be
met as indicated in the condition itself prior to project completion and closing of the
USDA-Rural Development loan. In all cases, “the applicantâ€ﾝ means [insert name of
applicant].
PART I - APPROVAL:
(1)
The applicant must contribute 5 percent towards the project as initial equity. The
amount of the required contribution is $[insert amount] and must be in the form of
cash and/or land.
The above contribution must be made at or before closing of the interim financing
loan. This amount represents the applicant's initial investment on which the 8
percent return to owner will be allowed.
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HB-1-3560
Appendix 4
(2)
This project will be funded utilizing interim financing for construction in
accordance with 7 CFR 3560.71(b). The applicant will be advised of the
procedure and furnished with the appropriate forms. No loan funds will be
disbursed until the applicant's full required contribution has been expended.
(3)
The applicant will provide a detailed list of all materials and equipment needed to
be funded by the initial operating capital in accordance with 7 CFR 3560.64. The
initial 2 percent operating capital of $[insert amount] plus any additional amount
needed for the items above, must be provided in cash. Evidence of deposit to the
general operating account must be furnished to the State Office prior to the start
of construction.
(4)
Organizational documents, including any amendments, must meet USDA–Rural
Development requirements and be approved by the Office of General Counsel
before the loan is closed.
(5)
Competitive bidding for this project is waived in accordance with RD Instruction
1924-A, § 1924.13 (e) (1) (vii) (A).
(6)
Authorization is hereby granted to pay debts for items of expense incurred after
the application was filed pursuant to 7 CFR 3560.53.
(7)
The applicant's final plans and specifications must be reviewed by the State
Architect before final acceptance is made by the State Office. No work shall be
authorized before final acceptance is made.
(8)
The State Office will arrange a pre-construction conference before any work starts
on the project.
(9)
A 100 percent Performance Bond and 100 percent Payment Bond is required for
this project, unless waived in writing by the interim lender. The applicant will
submit either a copy of the bond or the waiver by the interim lender with each
copy of the Construction Contract submitted for approval.
(10) Prior to the start of construction, the applicant, contractor and any subcontractor,
material supplier or equipment lessor sharing an identity of interest must submit
the accounting system that the applicant, contractor, subcontractor, material
supplier or equipment lessor and/or the CPA or LPA proposes to set up and use in
maintaining a running record of the actual cost. In order to be acceptable, it must
allow for a trade-item basis comparison of the actual cost as compared to the
estimated cost submitted in accordance with § 1924.13 (e) (1) (iv) of RD
Instruction 1924-A, i.e., the accounting system trade-item basis must be consistent
with Form RD 1924-13, Estimate and Certificate of Actual Costs.
(11) The Construction Contract with appropriate attachments (including the bonds or
waiver) between the borrower and the contractor for development of a Rural
HB-1-3560
Appendix 4
Rental Housing project must be approved by USDA-Rural Development before
the start of construction. Four copies with original signatures must be submitted
to the State Office for review.
(12) Construction Contracts of more than $10,000 will be subject to the provisions of
RD Instruction 1901-E, § 1901.205, Nondiscrimination in Construction Financed
with RD Loan. This will be discussed at the pre-construction conference.
Contractors with 100 or more employees, and those with 50 or more employees
should complete Forms SF-100, Equal Employment Opportunity Employer
Information Report EEO-1 or AD-425, Contractor’s Affirmative Action Plan for
Equal Employment Opportunity, respectively, and attach same to the Construction
Contract.
(13) A USDA- Rural Development official will sign Form RD 400-3, Notice to
Contractors and Applicants, and provide copies at the pre-construction
conference. USDA-Rural Development Officials will also make sure that the
“Equal Employment Opportunity is the Lawâ€ﾝ sign is posted at the project site.
(14) The applicant's architect must mail a copy of the project inspection report to the
USDA-Rural Development State Office immediately after each inspection.
(15) All construction will be in accordance with the conditions set forth in RD
Instruction 1924-A.
(16) The applicant must provide USDA-Rural Development with evidence that they
have met the Historic Preservation requirements. Favorable comments of the
State Historic Preservation Officer must be obtained.
NOTE: If cultural resources are encountered during construction,
construction will temporarily cease and the USDA-Rural Development State
Office and the Division of Historic Preservation & Archeology will be
notified.
(17) Form RD 3560-34, Loan Agreement, will be executed by the applicant. Three
copies are enclosed with this memorandum. All three copies are to be dated and
signed by the applicant as soon as possible. The original and one copy are to be
returned to the USDA-Rural Development State Office after signing. These must
be returned prior to the start of construction. This loan is subject to restrictive-
use provisions for the life of the loan. The restrictive-use provisions and
prepayment restriction will be included in the Promissory Note and/or Deed
of Trust at the time of the USDA-Rural Development loan closing.
(18) The applicant will execute Form RD 400-1, Equal Opportunity Agreement, and
Form RD 400-4, Assurance Agreement, as part of the pre-construction
conference.
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HB-1-3560
Appendix 4
(19) The applicant and any Identity of Interest (IOI) entity principals must complete
the IOI Form RD 3560-30 and Form RD 3560-31 and submit to the USDA-Rural
Development State Office.
(20) Form SF 424.2, Application for Federal Assistance, must be revised and initialed
by the applicant to reflect the proper funding and development cost for the project
(if necessary).
(21) Form RD 1924-13, Estimate and Certificate of Actual Cost, must be revised to
reflect the proper development cost for the project (if necessary).
(22) Form RD 3560-7, Multiple Family Housing Project Budget/Utility Allowance,
must be revised to reflect the correct debt repayment, interest rate, reserve
requirement, and return to owner (if necessary).
(23) Applicant to provide USDA-Rural Development with a current financial
statement, including a separate statement for any general partner and certificate of
appropriate net worth for limited partners in accordance with 7 CFR 3560.55 and
Chapter 4 of the Loan Origination Handbook.
(24) Form HUD 935.2, Affirmative Fair Housing Marketing Plan, must be completed
in its entirety by the applicant and then, along with necessary attachments, be
submitted to the USDA-Rural Development State Office for approval. When
approved, the “Planâ€ﾝ must be posted in any and all rental offices serving the
project. The participant must maintain records reflecting their efforts in fulfilling
the requirements and objectives of the “Planâ€ﾝ and such records will be made
available to USDA-Rural Development for review.
(25) Both the applicant and the general contractor must execute a “Certification for
Contract, Grant and Loansâ€ﾝ (separate certificates) per RD Instruction 1940-Q.
HB-1-3560
Appendix 4
PART II - CLOSING CONDITIONS
(1)
An updated American Land Title Association (ALTA) Preliminary Title Report
must be provided by the applicant to the USDA-Rural Development State Office,
prior to submission to OGC for closing instructions.
(2)
Public liability and property damage insurance in a minimum amount
recommended, in writing, by the applicant's attorney must be approved by the
USDA-Rural Development State Office, prior to loan closing, and letter and
evidence of coverage must be provided.
(3)
Worker's Compensation: The applicant will be required to carry workers
compensation insurance for all its employees in accordance with the applicable
state laws.
(4)
Fidelity Coverage: Any personnel entrusted with the receipt, custody, and
disbursement of any project monies, securities, or property will be covered. The
type of coverage policy and minimum amount of coverage will be in accordance
with 7 CFR 3560.62(d) and 7 CFR 3560.105. Fidelity coverage must be obtained
before any interim financing funds or loan funds are made available.
(5)
Fire insurance, including extended coverage, on buildings included as security for
the loan will be required in an amount not less than the “Total Estimated
Reproduction Cost New of Improvementsâ€ﾝ on page 5 of RD Form 1922-7,
Appraisal Report for Multi-Unit Housing. Evidence of the first year paid
premium must be provided to USDA-Rural Development prior to or at closing.
(6)
The loan is to be closed in accordance with RD Instruction 1927-B and
supplemental instructions issued by the Regional Attorney. An ALTA Loan
Policy of Title Insurance will be required.
(7)
A Mortgage or Deed of Trust will be taken on the security property. Exceptions
to the Preliminary Title Report will be handled in accordance with RD Instruction
1927-B.
(8)
A Financing Statement and Security Agreement will also be taken as security for
the loan in accordance with 7 CFR 3560.61. OGC will provide necessary forms
and instructions as part of their issuance of loan closing instructions.
(9)
When it has been determined that loan closing conditions can be met, the
following actions will be taken:
a.
The State Office will prepare Form RD 1927-15, Loan Closing
Instructions and Statement, and Form RD 3560-52, Promissory Note, for
this loan prior to submission to OGC for closing instructions, if needed.
(02-24-05) SPECIAL PN
HB-1-3560
Appendix 4
To facilitate review by the Regional Attorney, the following items should
be filed at the top of their respective positions:
Position 2: Forms RD 3560-51, Multi-Family Housing Obligation and
Fund Analysis, and RD 3560-52, Promissory Note (A separate Promissory
Note is required for the initial and each subsequent loan.)
Position 5: Current Preliminary Title Report, Executed RD Form 3560-33
or 3560-34, Loan Agreement, and the organizational documents. Any
changes previously required in the organizational documents by USDA-
Rural Development must be completed. Certified copies of the
amendments must be provided by the applicant.
b.
The State Office will proceed to order a loan check so that it is available
when the loan is ready for closing.
c.
Before closing, USDA-Rural Development will be provided with Form
RD 1924-9, Certificate of Contractor's Release, and Form 1924-10,
Release by Claimants, executed by all persons who furnished materials or
labor in connection with the contract. If such statements cannot be
obtained, the loan may be closed in accordance with § 1924.6(a) (12) (vi)
(C) of RD Instruction 1924-A.
(10) The USDA-Rural Development State Office will schedule a pre-occupancy
conference with the applicant to discuss advertisement of available units,
affirmative marketing practices, management and tenancy documents and
requirements after occupancy, in accordance with 7 CFR part 3560, subpart C.
The steps necessary to close the USDA-Rural Development loan (pre-closing
conference) will also be discussed at the time of the pre-occupancy conference.
(11) The following materials will be given to and discussed with the borrower and
management agent (if applicable) at the pre-occupancy conference:
(a)
Asset Management Handbook.
(b)
Booklets entitled, Audit Program and Audit Program Addendum No. 1.
(c)
Forms and FMI’s: 3560-7, 3560-10, 3560-29, 3560-8.
(d)
Fair Housing and “….and Justice for Allâ€ﾝ Posters
(12) The applicant will provide USDA-Rural Development with an initial operating
budget indicating the interim year of operation and first full year of operation
prior to occupancy. The budget must show enough income to pay all expenses
and deposit the required amount in reserve, and must be approved by the State
Office.
(13) Initial rents cannot exceed those shown in the approved budget required in
preceding paragraph.
HB-1-3560
Appendix 4
(14) Form RD 3560-7, Multiple Family Housing Project Budget/Utility Allowance
must be completed and executed in duplicate by the applicant, or agent, and
submitted to the USDA-Rural Development State Office for approval. This
should be done at least 60-90 days prior to occupancy and must include the
required backup data.
(15) The applicant's tenant lease, application for admission, management agreement, if
applicable, and statement of policy regarding occupancy and tenant selection must
be acceptable to USDA-Rural Development prior to rent-up. The Management
Plan is required prior to the start of construction or loan closing, whichever first
occurs. Written approval by the USDA-Rural Development Servicing Official is
required. These documents must fully meet the requirements of 7 CFR part 3560,
subparts C and D, and be approved by the State Office prior to any rent-up
activity.
(16) When the project is nearing completion, the applicant will provide the State
Office with the original certification of actual cost of construction prepared by a
Licensed Public Accountant or Certified Public Accountant. Forms and
instructions may be obtained from the USDA-Rural Development State Office.
These should be requested in time for the pre-occupancy conference.
(17) The applicant's architect shall certify that the contractor has completed the work
in accordance with USDA-Rural Development approved plans, specifications, and
special or general conditions. This certification shall be issued at time of final
inspection.
(18) The Form RD 1924-19, Builder's Warranty, must be executed by the contractor
and owner at time of final inspection. Occupancy is not permitted prior to the
USDA-Rural Development final inspection.
(19) Form RD 3560-9, Interest Credit and Rental Assistance Agreement, will be
prepared and executed at loan closing. Interest Credit Plan II will be used for this
project. When the closing information is input into the AMAS system, the M4Z,
“Daily Interest Subsidyâ€ﾝ will also be entered.
(20) Form RD 3560-27, Rental Assistance Agreement, must be completed, dated and
executed in triplicate at the same time as Form RD 3560-9.
(21) It is recommended that the site manager be duly certified by an acceptable
certification program. A copy of the site manager's certificate may be provided
for inclusion in the USDA-Rural Development servicing file.
(22) Evidence of Affirmative Fair Housing Marketing activity must be provided to and
found acceptable by the MFH Loan Specialist.
(02-24-05) SPECIAL PN
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Appendix 4
(23) A satisfactory laundry lease, if applicable, is to be provided to the State Office.
(24) Applicant must certify as to the availability or non-availability of other
government assistance immediately prior to loan closing. If other government
assistance becomes available prior to loan closing, the loan amount will be
decreased.
(25) At loan closing, the USDA-Rural Development State Office will send the final
terms of funding to the state housing finance agency or other tax credit allocating
agency, and request a copy of Form(s) IRS 8609, Low-Income Housing Credit
Allocation Certification.
(26) Prior to closing, each loan approval and closing condition will be initialed and
dated upon completion. Under no circumstances will USDA-Rural Development
close this loan if any approval or closing condition is not fully satisfied or you
have not received a written waiver of that requirement from the State Office.
Immediately after closing, we will conduct a post-closing review to verify that the
loan has been properly closed in accordance with the escrow instructions given
the title company. This includes the proper completion, recordation and
disbursement of forms.
[insert name of MFH Specialist]
MFH Specialist
Loan Closing Certification
Date Closed: [insert date closed]
Name and Address of Title Company
_________________________________
_________________________________
_________________________________
________________________________
Signature of MFH Specialist
HB-1-3560
Appendix 4
Handbook Letter 103 (3560)
REFERENCE: HB-1-3560 Chapter 4
PURPOSE:
Cover Letter to the Initial Application Package
RURAL RENTAL HOUSING INITIAL LOAN APPLICATION PACKAGE
Date: [insert today’s date]
TO: RURAL DEVELOPMENT
[INSERT ADDRESS]
RE: [insert name of applicant]
[insert name of project]
[insert location]
The following checked items, assembled in the order shown, are submitted for [insert
name of applicant] for the purpose of obtaining a rural housing loan for the purpose of
[insert constructing or rehabilitating/repairing] multi-family rental housing located at
[insert location/address].
Forms to be Included
Form SF 424, Application for Federal Assistance, (include for construction) provides
summary information about the project and the applicant, when completed.
Form RD 1924-13, Estimate and Certificate of Actual Costs, provides detailed cost
estimates that the Loan Originator will review to judge reasonableness.
Form RD 1940-20, Request for Environmental Information, requests the applicant to
provide specific environmental information about the proposed project. Instructions
to the applicant are part of the form. The form will be used by the Agency to
complete an environmental review of the proposed project.
HB-1-3560
Appendix 4
Form RD 3560-7, Multiple Family Housing Project Budget/Utility Allowance,
provides a schedule of proposed rents and utilities and anticipated operating and
maintenance costs. The form will be used by the Loan Originator to conduct the
project feasibility analysis and to determine whether the utility allowance is accurate.
Form RD 3560-25, Initial Request for Rental Assistance or Operating Assistance,
must be completed by the applicant if rental assistance is required for the project.
Form RD 1944-37, Previous Participation Certification, describes an applicant’s
prior involvement with Federal assistance.
Form RD 410-9, Statement Required by the Privacy Act, (for individuals only), and
Form RD 410-7, Notification to Applicant on Use of Financial Information from
Financial Institution (for individuals only), will allow the Agency to verify
information provided by the loan Applicant.
Required Applicant/Project Information
I. To establish applicant eligibility:
A. Current (within 6 months) financial statements with the following paragraph
certified by someone with the legal authority to do so:
“I/we certify the above is a true and accurate reflection of my/our financial
condition as of the date stated herein. This statement is given for the purpose of
inducing the United States of America to make a loan or to enable the United
States of America to make a determination of continued eligibility of the
applicant for a loan as requested in the loan application of which this statement
is a part.â€ﾝ
B. Check for $28 from individual applicants and $40 from organizational applicants
made out to United States Department of Agriculture. This will be used to pay for
credit reports obtained by the Agency.
C. Statements signed by applicants that they will pay any cost overruns.
D. Proposed limited partnership agreement and certificates of limited partners, if
applicable. (Agency requirements should be contained in one section of the
agreement and their location identified by the applicants or their attorney in a
cover sheet.)
E. If a nonprofit organization:
1. Tax-exempt ruling from the IRS designating them as a 501(c)(3) or 501(c)(4)
organization. If the designation is pending, a copy of the designation request
must be submitted.
(02-24-05) SPECIAL PN
HB-1-3560
Appendix 4
2. Purpose statement, including the provision of low income housing.
3. Evidence of organization under state and local law, or copies of pending
applications.
4. List of Board of Directors.
F. If a limited liability company, proposed operating agreement and the authorized
agent who has the authority to complete the loan application and loan closing
documents.
G. If a trust, organizational documents and attorney opinion letter that the trust is
validly formed and identifying the authorized representative to act on the trust’s
behalf.
II. To establish project feasibility:
A. Market feasibility documentation: Either a market study or a market survey, as
appropriate.
B. Type of project and structures proposed (total number of units by bedroom size,
size of each unit type, size and type of other facilities).
C. Schematic drawings:
1. Site plan, including contour lines;
2. Floor plan of each living unit type and other spaces, such as laundry facilities,
community rooms, stairwells, etc.;
3. Building exterior elevations;
4. Typical building exterior wall section; and
5. Plot plan.
D. Description and justification of related facilities, schedule of separate charges for
related facilities.
E. Type and method of construction (owner builder, negotiated bid, or contractor
method).
F. Estimated costs (loan applicant completes Form 1924-13.
G. Statement of proposed management.
HB-1-3560
Appendix 4
H. Congregate services package/plan (if applicable).
I. Statement of support from other Government services providers to the project
(congregate only).
J. Response to the Uniform Relocation Assistance Act (if applicable).
III. To establish project financing:
A. Statement of budget and cash flow (applicant completes Form RD 3560-7),
including type of utilities and utility allowance, if applicable and contribution to
reserves.
B. Life cycle cost analysis.
C. Congregate services charges (if applicable).
D. Status of efforts to obtain leveraged funds.
E. Proposed construction financing (interim or multiple advance; if interim
financing, letter of interest from intended lender).
IV. To understand environmental and site information:
A. Environmental information (applicant completes Form RD 1940-20).
B. Evidence of compliance with Executive Order 12372 (if applicable) Form SF 424
is sent to a clearinghouse for intergovernmental review.
C. Phase I due diligence (Environmental Site Assessment; see Chapter 3).
D. Map showing location of support services.
E. Evidence of submission of project description to SHPO with request for
comments.
Comments regarding relevant offsite conditions:
[insert any pertinent comments]
(02-24-05) SPECIAL PN
HB-1-3560
Appendix 4
Handbook Letter 104 (3560)
REFERENCE: HB-1-3560 Chapter 5
PURPOSE:
Letter To Interim Lender
RURAL DEVELOPMENT
[LOCATION]
[insert name of interim lender]
[insert address of interim lender]
Dear [insert name of interim lender]:
[use this paragraph for organizations]
Reference is made to a request from the [insert applicant name] through [insert name of
general partner or principal, and title] for interim financing from your firm to construct a
housing facility at the interest rate, terms, and conditions agreed upon as reflected in the
attached letter.
[use this paragraph for individuals]
Reference is made to a request from [insert name of individual] for interim financing
from your firm to construct a rental housing facility at the interest rate, terms, and
conditions agreed upon as reflected in the attached letter.
This letter will confirm certain understandings on behalf of the Rural Development.
Final drawings, specifications, and all other contract documents have been prepared and
approved, and the applicant is prepared to start construction. The applicant and Rural
Development have determined that the conditions of loan closing can be met. Rural
Development funds have been obligated for the project.
Rural Development has required the applicant to deposit $[insert amount] with your firm
to be used before any interim loan funds or other loan or grant funds. You may first
advance the applicant funds on deposit, and then advance the proceeds of the interim loan
or other loan and grant funds in accordance with the terms and conditions stated in your
attached letter, to pay for construction and other authorized and legally eligible expenses
incurred by the applicant. It is understood, however, that advances of both the applicant's
funds and the interim loan funds will be made only upon presentation of proper
(02-24-05) SPECIAL PN
HB-1-3560
Appendix 4
statements and partial payment estimates proposed by the builder and approved for
payment by the consulting architect, applicant, and Rural Development official.
We have scheduled the Rural Development loan to be closed when construction is
substantially complete in accordance with the Rural Development-approved contract
documents, drawings, and specifications, and the applicant provides evidence and a
signed certification indicating that there are no unpaid obligations outstanding in
connection with the project. At that time, funds not exceeding the Rural Development
loan amount will be available to pay off the loan advances your lending institution has
made for authorized approved purposes, including accrued interest on the Rural
Development loan to the date of closing.
Rural Development cannot provide you with an unconditional letter of commitment
guaranteeing Rural Development loan closing. Factors such as noncompletion, default,
unacceptable workmanship, and marked deviation from approved drawings and
specifications could prevent the Rural Development loan from being closed.
These problems can be minimized by making a thorough review of the contract
documents and drawings and specifications, evaluating the qualifications and past
performance of the builder, and obtaining an adequate corporate surety bond
guaranteeing both payment and performance. If the builder is unable to provide a surety
bond, we suggest that you consider making advances for partial payments to the builder
based upon no less than 60 percent and no more than 90 percent of the value of
acceptable work in place, less the aggregate of previous payments.
The following are additional safeguards to help ensure Rural Development loan closing:
1. We invite you or your representatives to accompany Rural Development
personnel during construction inspections so that at least three or four joint
inspections can be made at critical points during construction, including the final
inspection, to help ensure that construction is proceeding in accordance with the
Rural Development-approved drawings and specifications.
2. Rural Development will maintain its commitment in the amount of the obligated
loan funds for a reasonable period of time after the expiration of any specified
completion dates, provided work on the project is progressing satisfactorily and
any identified problems have been resolved.
3. Rural Development will not arbitrarily abandon your lending institution in the
event of default. If the contractor defaults, Rural Development will attempt to
provide financial assistance to the applicant in accordance with our administrative
procedures and lending requirements if a new contractor can complete the project
for a total cost within the security value of the project. If this is not possible, or if
the Rural Development loan applicant becomes unable or unwilling to continue
with the project, Rural Development will attempt to provide financial assistance
to any eligible applicant to purchase the completed project from your lending
institution (subject to the availability of funds, our administrative procedures, and
our lending requirements).
HB-1-3560
Appendix 4
4. Rural Development is aware that circumstances such as subsurface ground
conditions and change orders necessitated by required changes in the work to be
performed may cause cost increases after Rural Development loan approval and
the obligation of Rural Development loan funds. When justified, Rural
Development may make subsequent loans to help cover the eligible costs,
provided additional loan funds are available, the change orders were approved by
Rural Development, the increased costs are legitimate and are for authorized loan
purposes, and the total cost of the project is within its security value.
Your assistance to the applicant is appreciated.
Sincerely,
_______________
State Director
(02-24-05) SPECIAL PN
HB-1-3560
Appendix 4
Handbook Letter 105 (3560)
REFERENCE: HB-1-3560 Chapter 7
PURPOSE:
Notice To Proceed
[insert date]
[insert name of borrower]
[insert address of borrower]
RE: [insert name of project]
[insert location of project]
Dear [insert name of borrower]:
Pursuant to the terms of the Contract Documents and Loan Commitment dated [insert
date], you are hereby authorized to commence work necessary to complete the project.
Accordingly, this letter will serve as your formal “Notice to Proceed.â€ﾝ
It is expected that construction shall be completed within [insert the number of days]
consecutive calendar days. The construction period shall commence on [insert start date]
and will conclude on [insert finish date]. It is the responsibility of the Contractor to meet
the schedule as set forth and in accordance with the terms and conditions of the Contract.
[Insert name of agency official] will serve as the Agency’s Contract
Representative for this project. Please return this “Notice to Proceedâ€ﾝ signed and dated
where indicated, by an authorized official of your organization.
If clarification is required, do not hesitate to contact [name of contact] by phone at [insert
phone number].
Sincerely,
[insert name of Agency Official]
RECEIPT IS ACKNOWLEDGED:
By Borrower: ____________________________
______________
[signature of authorized official]
[date]
By Contractor: ____________________________
______________
[signature of authorized official]
[date]
HB-1-3560
Appendix 4
Handbook Letter 106 (3560)
REFERENCE: HB-1-3560 Chapters 4 and 12
PURPOSE:
Notice of Pre-application Review Action
RURAL DEVELOPMENT
[LOCATION]
Date: [insert today’s date]
[Insert Applicant’s Name]
[Insert Applicant’s Address]
SUBJECT: Notice of Pre-application Review Action [Proposal Name, Location]
We reviewed your pre-application for Section 515 Rural Rental Housing assistance and
determined that your proposal is eligible for funding by this agency. Your proposal
received [insert number of priority points] priority points and was selected for further
processing under the National NOFA.
Therefore, a formal application, meeting the requirements of Chapter 5 of the HB-1-
3560, must be filed with our office by [insert date 30 days from date of this notice]. A
“Rural Rental Housing Application Packageâ€ﾝ is enclosed to assist you in this effort. The
loan request may not exceed $[insert request limit] and [insert limit of number of units]
Rental Assistance units.
Please see the attachment to this notice for conditions under which further processing will
continue.
Within one week of receiving this notice, you are instructed to contact [the individual
named below] to set up a meeting. At this meeting, you will be given additional guidance
and copies of appropriate exhibits and forms that are needed in order to complete the
final application process. Any outstanding issues will also be addressed at this time. The
Agency may, at its discretion, choose to hold a telephone conference for this purpose as a
substitute for an in-person meeting.
You may contact me by telephone at [insert telephone number] with any questions
concerning this notice or the application process.
[insert name of MFH Loan Specialist]
Attachment
(02-24-05) SPECIAL PN
(02-24-05) SPECIAL PN
HB-1-3560
Appendix 4
ATTACHMENT TO NOTICE OF PRE-APPLICATION REVIEW
INVITING A FORMAL APPLICATION
1) The action taken herein is based upon representations made in your pre-application.
Any changes therein, including but not limited to changes in complex cost, size, or
scope of complex, rental rates or subsidy costs to USDA-Rural Development, affect
this decision and must be reported to and approved by Rural Development in writing.
Any changes not approved by Rural Development will be cause for Rural
Development to discontinue processing your request for services. All applicants
requesting changes will be required to give full justification for each change and, if
Rural Development approval is not given, written reasons will be given with a 30-day
negotiation period to resolve the differences.
2) This action should not be misconstrued as a reservation of funds, the availability of
those funds, or loan approval.
3) Loan processing will continue based upon a loan not to exceed the amount specified in
this notice.
4) If a complete application has not been submitted to Rural Development by the date
specified in this notice, we reserve the right to discontinue processing your loan
request with 30 days written notice. If a longer timeframe to develop your application
is necessary, you should submit a request in writing with specific reasons why a longer
timeframe is required with a projected date to accomplish such action. Failure to
submit a complete application, or request a longer timeframe, will be considered a lack
of interest on your part and a request to withdraw the pre-application.
5) You are advised against taking any actions or incurring any obligations that would
either limit the range of alternatives to be considered or have an adverse affect on the
environment. Satisfactory completion of the environmental review process must occur
prior to loan approval. The issuance of this review action does not constitute site
approval.
HB-1-3560
Appendix 4
Handbook Letter 107 (3560)
REFERENCE: HB-1-3560 Chapters 4 and 12
PURPOSE:
A Letter Informing the Applicant of the Lack of Funds
RURAL DEVELOPMENT
[LOCATION]
Date: [insert today’s date]
[Insert Applicant’s Name]
[Insert Applicant’s Address]
Your application for Rural Development services as been favorably considered by the
[insert office location] Loan Committee. This favorable consideration does not
necessarily mean a loan will be made to you. You are cautioned not to make purchases,
option real estate, or make commitments in anticipation of receiving a loan because of
this favorable action.
Funds for making [insert type of loan] are temporarily exhausted. Your application will
be held for consideration until funds are available. You will be notified by letter at that
time.
Please advise us promptly if there are sufficient changes that would affect your eligibility
or if you are no longer interested in obtaining the assistance for which you originally
applied.
Sincerely,
[Name of decision maker]
[Title]
(02-24-05) SPECIAL PN
HB-1-3560
Appendix 4
Handbook Letter 108 (3560)
REFERENCE: HB-1-3560 Chapters 4 and 12
PURPOSE:
Letter Denying Funding due to Ineligibility
[insert date]
[insert name of applicant]
[insert address of applicant]
Dear [insert name of applicant]:
Thank you for your interest in the Rural Rental Housing Loan program. After a thorough
review of your [insert either initial or final] application, it has been determined that your
proposal does not meet the criteria of the National NOFA and therefore, is ineligible for
the Rural Development Housing loan for which you have applied. Our determination is
based on the following:
[insert list of specific reason(s) for the ineligibility]
Should you have any questions or wish to further discuss this matter, you may contact
[insert name of Specialist] by phone at [insert phone number of Specialist].
Sincerely,
[insert name of MFH Program Director]
HB-1-3560
Appendix 4
Handbook Letter 109 (3560)
PURPOSE:
Letter Informing of National Office Review
[insert date]
[insert name of applicant]
[insert address of applicant]
SUBJECT: Notice of National Office Review
[insert proposal name and location]
Dear [insert name of applicant]:
This letter is to inform you that your initial application has been submitted to the National
Office for comprehensive review due to special circumstances involving your project
type. We are currently awaiting a response from the National Office. Once the National
Office has completed its review, you will be advised of the results.
You may contact me at [insert phone number of Specialist] with any questions
concerning this notice or the application process.
Sincerely,
[insert name of MFH Loan Specialist]
(02-24-05) SPECIAL PN
posted by DesignatedBroker at 7:43 AM
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