When it comes to collecting an applicant’s government monitoring information or their demographic information (aka ethnicity, race, sex, etc.), there are two regulations that come into play, Regulation B (Equal Credit Opportunity Act) and Regulation C (Home Mortgage Disclosure Act). All financial institutions are subject to Regulation B while only some financial institutions are subject to Regulation C and that creates a bit of tug of war, if you will. Regulation B says you must request this information when you receive an application for credit primarily for the purchase or refinancing of a dwelling (1-4 family) occupied or to be occupied by the applicant as a principal residence, where the extension of credit will be secured by the dwelling. Collecting it when you shouldn’t, is a violation just the same as not collecting it, when you should. But, then you have HMDA which says applicable financial institutions need to collect information for any dwelling-secured loan where the purpose is to purchase, refinance, improve a dwelling or for other consumer home equity purposes. To avoid the potential conflict, Regulation B gives an out in Section 1002.5(a)(4) which states, …a creditor may collect information under the following circumstances provided that the creditor collects the information in compliance with…appendix B to 12 CFR part 1003, as applicable:….In other words, a financial institution that collects information in accordance with HMDA will not be in violation of Regulation B.
The challenge is that you are supposed to determine all of this so you can collect the information at the time of application. That can be difficult, especially when it comes to certain types of loans and Regulation B actually provides some leniency for institutions subject to HMDA and allows financial institutions to collect the information for business (non-agricultural) purpose home equity loan applications, even though they are not HMDA reportable.
David explains more in the video.
Published
2024/03/14
