In 1998, the Board issued an Advance Notice of Proposed Rulemaking (ANPR) that raised the particular issues under review. The Commission, along with six other federal agencies -- the Department of the Treasury, Department of Justice, the Department of Housing and Urban Development, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, and the Small Business Administration - (another federal agency, the Office of Federal Housing Enterprise Oversight, joined in filing the 1999 comments) submitted a joint comment letter primarily addressing two subjects raised by the Board: 1) voluntary data collection; and 2) preapplication marketing practices. The joint comment urged the board to permit data collection regarding an applicant's race, sex and other characteristics for all types of consumer and business credit, and encouraged the Board to extend Regulation B's prohibition on discrimination to preapplication marketing practices.
On August 16, 1999, the Board published a Proposed Rule on Regulation B, in which it suggested several changes to the regulation (64 Fed. Reg. 44,582). The Proposed Rule would allow lenders to voluntarily collect data on race, sex, and other characteristics for all types of consumer and business credit. While it would not prohibit discrimination on prohibited bases in all preapplication marketing, it would, however, require creditors to keep records related to "preapproved" credit solicitations. Regarding special purpose credit programs, the Board proposed a revision to the regulation's commentary to clarify that creditors may design new products to reach consumers who may not meet traditional credit standards due to credit inexperience or the use of credit sources that do not report to credit bureaus.
The 1999 Joint Comment
This year's joint agency comment restates the FTC's and other agencies' "strong support and encouragement for the Board to amend Regulation B to allow lenders to collect information about the race and gender of applicants for non-mortgage credit, as it has proposed." It goes on to state that the "current regulatory prohibition inhibits the ability of financial service providers to learn about and respond to market opportunities to provide credit for underserved communities," and that "the prohibition makes it difficult for institutions to know whether products intended to expand access to credit, including to minorities, reach their intended customer base." On this subject, the letter concludes that "allowing creditors to collect race, gender and certain other data for business and consumer loans will likely lead to innovation and increased access to credit, a greater level of voluntary compliance, and more effective fair-lending enforcement."
Also in the letter, the agencies stressed their support for additional changes to Regulation B concerning pre-application marketing practices. Specifically, as detailed in the supporting materials accompanying the letter, the agencies supported the Board's proposal to enact an information retention requirement, but also suggested that the proposal address discrimination on prohibited bases in pre-application marketing, and that "at a minimum, the Board clarify that considering one or more prohibited bases in selecting potential applicants in a prescreened solicitation constitutes discouragement of prospective applicants in violation of existing 202.5(a)." Appropriate exceptions could be created, the agencies contended, "for affirmative marketing programs that qualify as special purpose credit programs designed to expand the availability of credit to certain groups."
Finally, regarding such special purpose credit programs, the agencies wrote in support of the Board's proposed revision of its commentary to clarify how creditors may determine the need for establishing these programs. "Expressly permitting creditors to establish special purpose credit programs to reach consumers will encourage the provision of credit to the many consumers who are being adversely affected by their limited credit experience," the comment concluded. "The provision will also help address concerns raised about the practice of some subprime creditors of not reporting credit information of certain customers."
The Commission vote to file the comment letter (and supporting material) regarding Regulation B was 3-1, with Commissioner Swindle concurring in part and dissenting in part, as detailed below (FTC File No. P984808; for prior FTC comments on this subject, see press release dated June 2, 1998; staff contact is Peggy Twohig, 202-326-3210).
Commissioner Swindle issued a statement, concurring in part and dissenting in part with the Commission's comment, saying that, "I agree that this proposed amendment [regarding information collection based on prohibited bases] is worthy of consideration.
It would give lenders the flexibility to decide whether it is in their own interest to collect prohibited basis information, while at the same time not limiting the legal protections that are intended to combat the discrimination that continues to plague our society." However, he continued, "I dissent from the joint comment to the extent that this amendment is premised on the rationale that it will cause a significant increase in minority lending and assist the Commission in its enforcement actions."
Citing the joint comment's contention that "recent data suggest that the Home Mortgage Disclosure Act's (HDMA) disclosure requirements play an important role in expanding access to equal credit," Swindle said that "based on my experience with lenders and, in particular, as a government lender to low-income borrowers, I believe the booming United States economy and private credit markets, not HDMA data collection and reporting requirements," have caused increases in minority lending. Accordingly, he said, such potential increases should not be the reason for supporting a revision of Regulation B.
Second, Swindle questioned the view that giving lenders the option of collecting prohibited basis information would aid Commission law enforcement. "If lenders have the option to collect (or not collect) information," he said, "lenders who discriminate are unlikely to compile information that would reveal that they have violated laws... ." Accordingly, "I do not think that the information collected under this optional scheme would tell us much about which lenders have or have not engaged in credit discrimination. The 'assisting enforcement' rationale thus does not justify a data collection option under Regulation B either."
Finally, Swindle suggested that "giving lenders the option of collecting prohibited basis information might be an interim measure until Regulation B can be amended again to require that lenders collect this information... ." If HMDA-imposed mandatory collection requirements worked, he asked, why not apply the same standards to Regulation B? Similarly, he contended, if optional collection requirements prove ineffective in helping the Commission improve its enforcement of credit discrimination laws, "the natural next step would be to impose mandatory collection requirements."
The two rationales on which the joint comment relies for permitting the collection of prohibited basis information," he therefore concluded, "lay the groundwork for the future imposition of mandatory collection efforts that may be burdensome and intrusive." To avoid such a situation, Swindle said, the joint comment should instead make it "clear at the outset that the exclusive justification for the proposed amendment to Regulation B is to provide increased flexibility for lenders in their business practices."
- Following a public comment period, the Commission has made final a consent with the following entity: Prolong Super Lubricants, Inc., et al. The Commission's action makes the consent order binding on the respondent.
Commissioner Orson Swindle issued a statement in this matter, concurring in part and dissenting in part. In his statement, Swindle wrote that he supports the provisions of the order prohibiting Prolong from making unsubstantiated claims about the attributes and benefits of its motor oil additive in the future. However, "there is a troubling lack of symmetry between the complaint and the order" regarding its provisions prohibiting Prolong from misrepresenting the existence or results of tests and from misrepresenting that a demonstration confirms the benefits of a product in connection with the sale of any product. "While firms should not misrepresent the existence or results of tests or demonstrations," he contended, "it is inappropriate to include specific establishment of demonstration requirements and remedies in an order without corresponding complaint allegations." He therefore dissented as to Paragraphs III and V of the order.
The Commission vote to approve the final consent order was 4-0, with Commissioner Swindle issuing a statement concurring in part and dissenting in part, as noted above. (FTC File No. 972-3014; see press release dated September 2, 1999; staff contact is Gerald E. Wright, 415-356-5270).
Copies of the documents mentioned in this FYI 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 Ave., N.W., Washington, D.C. 20580; 877-FTC Help (877-382-4357); 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.