The Federal Trade Commission has negotiated the largest civil penalty ever obtained in a settlement of alleged violations of the Equal Credit Opportunity Act (ECOA). Franklin Acceptance Corporation (Franklin), a Philadelphia-based finance company engaged primarily in the business of purchasing installment sales contracts from automobile dealers, was charged by the FTC with violating several provisions of the ECOA. The complaint alleges that Franklin refused to consider income from public assistance or child support; refused to combine the income of unmarried co-applicants while combining the income of married co-applicants; and where co-signers were required, permitted only spouses to co-sign loans. In addition, Franklin was charged with failing to provide to applicants who were denied loans notices of adverse action, as required by the ECOA and the Fair Credit Reporting Act (FCRA). In addition to the $800,000 civil penalty, the proposed settlement of the FTC's charges would prohibit Franklin, and any other company owned by Franklin and/or its parent corporation, Copelco Financial Services Group, Inc., that is engaged in the business of purchasing retail automobile installment sales contracts, from violating any provisions of the ECOA, its implementing Regulation B, or the FCRA in the future.
"The ECOA protects consumers who deal with companies that regularly extend credit," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "While not everyone who applies for credit will obtain it, the ECOA gives everyone an equal chance. This settlement sends a strong message: the ECOA requires companies to evaluate creditworthiness, including an applicants income, in a fair way. The FTC will deal with companies that violate this law."
The ECOA and its implementing Regulation B prohibit discrimination against an applicant for credit on the basis of race, color, religion, national origin, age, sex, marital status, or the fact that an applicant's income is derived from public assistance. The ECOA and Regulation B also require that denied loan applicants receive notice of adverse action as a tool to detect such discrimination. An adverse action notice informs consumers of their rights under the ECOA and the name and address of the agency charged with enforcing this law -- here, the FTC. The notice also provides consumers with the right to receive in writing the specific principal reasons for denial, which could reveal inaccuracies in their credit histories or signal possible discrimination. The FCRA requires a lender to inform loan applicants if their applications were rejected based in whole or in part on a report from a credit reporting agency and to provide the name and address of the agency.
The FTC's complaint detailing the charges against Franklin alleges the company, on numerous occasions, violated the ECOA and Regulation B by:
and -- when Franklin has taken adverse action on an application:
The FTC's complaint also charges that when the defendant denied consumers credit based in whole or in part on information from a consumer reporting agency, the defendants failed to tell the app-licants or provide them with the name and address of the reporting agency, thereby violating the FCRA.
Under the proposed consent decree to settle the charges, the defendants must pay a civil penalty of $800,000. The consent decree also would prohibit Franklin, and any other company owned by Franklin and/or its parent corporation, Copelco Financial Services Group, Inc., engaged in the business of purchasing retail automobile installment sales contracts, from violating any provisions of the ECOA, its implementing Regulation B, or the FCRA in the future.
The complaint and proposed consent decree were filed at the FTC's request by the Department of Justice in U.S. District Court for the Eastern District of Pennsylvania, in Philadelphia, yesterday. The Commission vote to refer the complaint and proposed consent decree to the DOJ for filing was 4-0. The consent decree is subject to approval by the court.
NOTE: This consent decree is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent decrees have the force of law when signed by the judge.
Copies of the complaint and consent decree, as well as information about the ECOA and the FCRA, are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(Civil Action No.: 99-CV-2435)
(FTC File No.: 962 3167)