CUNA Comment Letter
Docket No. R-1008, Proposed Amendments to Regulation B Regarding Collection of Data From Borrowers
November 10, 1999
Ms. Jennifer J. Johnson
Board of Governors of the
Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551
RE: Docket No. R-1008, Proposed Amendments to Regulation B Regarding Collection of Data From Borrowers
Dear Ms. Johnson:
The Credit Union National Association (CUNA) appreciates the opportunity to comment on the proposed amendments to Regulation B, which implements the Equal Credit Opportunity Act. The proposed rule, which appeared in the Federal Register on August 16, 1999, would permit creditors to voluntarily collect more information on borrowers, including information on their race, religion, gender, and national origin. The proposal would also require creditors to retain records on prescreened credit solicitations and would require retention of business credit records for 25 months, rather than the current 12 months. CUNA represents more than 90 percent of our nations 11,000 state and federal credit unions.
We are generally opposed to the proposal that would permit creditors to collect voluntarily more information on borrowers, including information on their race, religion, gender, and national origin. Credit unions are also concerned about the proposed record retention requirements. This opposition is based on a number of factors, as described below.
Invasion of Privacy
Credit unions who responded to us on this issue are very concerned that their members will view the information collection as an invasion of privacy. Recent litigation concerning institutions accused of selling personal information and the debate surrounding the financial privacy provisions of the financial modernization legislation have focused a great deal of attention on this issue. These events have heightened the publics interest with regard to privacy issues. Also, the Federal Reserve Board (Board), along with other financial institution regulators, recently withdrew the proposed Know Your Customer-- regulations, which would have required financial institutions to have policies and procedures in place for screening transactions that may be tied to money laundering and other financial crimes. The proposal was withdrawn after the regulators collectively received over 200,000 comment letters opposing the rule, most of which expressed concern over the loss of privacy. This further illustrates the publics sensitivity regarding the privacy of financial information.
This mistrust over the collection of this information could also lead to litigation against creditors if the information is collected during the application process and the loan is then denied. The borrowers may see a connection between the collection of information and the denial of the loan, even if no such connection exists.
Another unfortunate reaction to the collection of the information may be that borrowers will become alienated and will go to creditors that do not collect this information, even if the loan terms are less favorable to the borrower. Because credit unions are member-owned, not-for-profit cooperatives, their members are generally best served by seeking credit union services whenever they have financial needs. It would be unfortunate if members severed relationships with credit unions that collect information on race, religion, gender, and national origin and then seek the services of other types of financial institutions or, worse yet, the services of non-traditional creditors that offer very unfavorable loan terms. Some borrowers may even be discouraged from applying for loans and will not receive the financial services that they need.
Unfair Use of the Information by Regulators and the Justice Department
Credit unions may be placed in a very difficult position by regulators and the Justice Department with regard to the collection of information regarding race, religion, gender, and national origin. If credit unions voluntarily collect the information, they will be concerned that the regulators, Justice Department, or other parties will try to use the information to demonstrate that discrimination was a factor in the decision to deny the loan even if the denial was based on other factors. However, if credit unions decide not to collect the information, they will be concerned that the regulators and Justice Department will imply that these credit unions are concealing information about their lending practices that would be uncovered if the information were collected. In general, this could be a no-win-- situation for credit unions that believe the information, or lack thereof, could be used unfairly by regulators and the Justice Department.
We are also concerned that a large number of files would have to be looked at to determine fairly if there was a violation. This may impose a significant cost on credit unions in their efforts to provide the necessary information. As small financial institutions, many credit unions may not be as equipped to handle such costs as compared to large banks and other creditors. Even if a significantly large number of files are scrutinized, a review of the raw data without an in- depth analysis could be misinterpreted.
We believe the proposed rule is not necessary because there are already data collection requirements that exist which can be used by the regulators to foster fair lending. The Home Mortgage Disclosure Act (HMDA) is a primary example. We believe the HMDA requirements, when applied appropriately, provide a sufficient indicator regarding a creditors lending practice.
Burden on Creditors
Collecting information on race, religion, gender, and national origin will increase costs and burden for creditors who choose to collect the information. Credit unions that initially do not collect the information may also fear that they will have to absorb these costs if examiners pressure lenders to collect the information. This fear is based on a belief that some examiners may find a need for this information regardless of whether or not the need exists. Credit unions that do not collect the information will also be concerned about this burden because many will believe that the information collection will become mandatory at some point in the future.
If the proposal is adopted, employees will have an even greater burden imposed on them if they have to fill in the information that a borrower neglects or chooses not to provide. With regard to employee training, credit unions will have to invest more time and money to train employees to ignore the data that they collect and to ensure that the employees are not using the information to discriminate against borrowers. Again, credit unions that do not initially collect the information will be concerned about this burden because either they believe the examiners will pressure them to collect the information or that the collection will become mandatory at some point in the future. It would be helpful if the Board would provide additional emphasis in the rule and the Supplementary Information that the information collection is voluntary. We believe the Board should also communicate this to the other federal and state financial institution regulators whenever possible.
The collection of the information will be particularly burdensome and costly for a creditor whose loan portfolio contains a larger number of personal loans for smaller dollar amounts, as compared to mortgage loans. Credit unions may be inordinately affected since many make more small loans than other types of creditors. Some credit unions have indicated that they may have to consider imposing application fees or minimum loan amounts in order to offset this increased burden.
For credit unions that decide to collect the information and accept the burdens described above, there may be additional burdens that were not anticipated. One example may be those circumstances where there is a perception that the information influenced credit decisions, even if it is not true. In response to this perception, examiners may feel compelled to increase their vigilance with regard to these creditors.
Issue of Whether Collection will Facilitate or Detect Discrimination
Borrowers may perceive that the information is being used to discriminate, regardless of how it is actually used by the creditor. Borrowers may be uncomfortable providing such information and if denied credit, these borrowers may feel discriminated against. This perception should not be facilitated by permitting the collection of this information.
Prescreened Credit Solicitations
The proposed rule would also require creditors to retain records on prescreened credit solicitations. These records would include the list of criteria used to select potential recipients, the solicitation used, the correspondence related to the solicitation, and the marketing plan to which the solicitation relates. Creditors would also be required to retain business credit records for 25 months, rather than the current 12 months.
Credit unions are concerned about these record retention requirements. Retaining such information would be burdensome and could attract additional scrutiny from regulators. This additional cost and burden would be passed on to the credit union members. There is also the question of how to retain these records since few records are kept now, other than scoring information and debt limits. If the Board believes these requirements are necessary, we suggest that the retention requirement be limited to correspondence related to complaints about the solicitation.
Thank you for the opportunity to comment on the proposed amendments to Regulation B. If you or other Board staff have questions about our comments, please give me a call at (202) 218-7795.
Assistant General Counsel