Voluntary Data Collection Under ECOA

A very thorny and contentious issue is whether or not the Equal Credit Opportunity Act (ECOA) should be amended to permit, but not require, a creditor to collect data on nonmortgage credit applicants’ sex, marital status, race, color and national origin for non-mortgage credit. The original ban on collecting such data was designed to prevent any hint of discrimination in the lending process. Nonetheless, the Federal Reserve proposed this amendment to the gathering of the data in April 1995. There was no change in the prohibition on considering these factors when deciding whether or not to grant the loan application. The proposal generated a flurry of comments. In general, consumer groups approved the proposal, whereas creditors recognized it as fostering extensive litigation and further government intrusion into the lending process. 

After 20 months, the Federal Reserve withdrew the proposal, but continued to receive comments requesting that it reconsider its withdrawal. The Joint Agency Committee (representing various government agencies) encouraged the FRB to revisit the issue and permit the voluntary gathering of the “prohibited” information on non-mortgage loan applications. According to John P. Taft’s article in the Personal Finance Law Quarterly, the committee gave five basic reasons for this action: “(i) data collection for mortgage loans has increased access to credit; (ii) increased information will enable institutions to more effectively market their products; (iii) discrimination in business and consumer loans is a serious problem; (iv) creditors could better monitor their fair lending performance; and (v) additional information will allow agencies to detect discrimination." The discussion of the Community Reinvestment Act in the previous issue of this publication casts great doubt on the validity of these reasons. Further, the litigation that followed the Home Mortgage Disclosure Act provides an adumbration of future litigation. However, the proposal is under active consideration at the FRB.