For immediate release

The Federal Reserve Board today withdrew a proposed amendment to Regulation B, Equal Credit Opportunity, relating to the collection of race and other data in credit transactions. The proposed amendments would have eliminated a rule that generally bars creditors from asking about sex, race, color, religion, and national origin. Under the proposal, creditors would have been allowed but not required to collect this information for all types of nonmortgage credit applications. In withdrawing the proposal, the Board stated its belief that the issue was one that is best left for Congress to consider. The Board's notice is attached.

FEDERAL RESERVE SYSTEM 12 CFR Part 202 Regulation B; Docket No. R-0876 Equal Credit Opportunity AGENCY: Board of Governors of the Federal Reserve System. ACTION: Withdrawal of proposed rule. SUMMARY: The Board is withdrawing a proposed amendment to Regulation B (Equal Credit Opportunity) that would have eliminated the general prohibition on collecting data relating to an applicant's sex, race, color, religion, and national origin. EFFECTIVE DATE: December 24, 1996. FOR FURTHER INFORMATION CONTACT: Jane Jensen Gell, Sheilah Goodman or Natalie Taylor, Staff Attorneys, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System, at (202) 452-3667 or 452-2412; for the hearing impaired only, Dorothea Thompson, Telecommunications Device for the Deaf, at (202) 452-3544. SUPPLEMENTARY INFORMATION: I. Background The Equal Credit Opportunity Act (ECOA) makes it unlawful for creditors to discriminate in any aspect of a credit transaction on the basis of sex, race, color, religion, national origin, marital status, or age (provided the applicant has the capacity to contract), because all or part of an applicant's income derives from any public assistance, or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act. The ECOA, which is implemented by the Board's Regulation B, is generally silent regarding what information a creditor may collect from an applicant. Regulation B prohibits creditors from asking for or otherwise noting an applicant's sex, race, color, and national origin, except in connection with home mortgage loans. The regulation also prohibits creditors from collecting information concerning an applicant's religion. On April 26, 1995, the Board published for public comment a proposed amendment that would eliminate these prohibitions; the proposed amendment would have allowed, but not required, creditors to collect these data for any credit products (60 FR 20436). Creditors that collected these data would not have been required to report or disclose them to the public. The Board proposed that if a creditor requested this information and the applicant chose not to provide it, the creditor would have been prohibited from collecting the information through visual observation or other means. The regulation would have continued to bar creditors from considering this information in a credit decision. II. Comments Received Approximately 250 comment letters were received. Nearly 70 percent of them opposed the Board's proposal; the majority of these comments were from creditors and their trade associations. These commenters generally expressed concern that the amendment would lead to mandatory data collection and result in substantially increased costs and burden. In addition, these commenters raised concerns about the quality of the data that would be obtained, given that supplying the information would be voluntary and not all applicants would choose to provide it. Of the 30 percent of commenters that supported the Board's proposal, approximately half were creditors and half were community representatives. Both groups believed that the data would allow creditors to better identify underserved groups and design programs that would address unmet credit needs. Creditors who supported the proposal believed that it would reduce compliance burden (by allowing them to streamline training and use one application form for multiple credit products, for example). These creditors also stated that having the data would give them the ability to evaluate their compliance with fair lending laws. III. Discussion In 1977, when the Board chose to prohibit creditors from collecting these data, the policy choice was seen as a way to discourage discrimination: If creditors did not have these data, they could not use them to discriminate. In addition, the prohibition was intended to emphasize that factors unrelated to creditworthiness such as sex or race should not be part of the credit decision. The fundamental question raised by the proposal is whether the rule prohibiting data collection furthers the ECOA's goal of preventing discrimination in credit transactions. The comments, while helpful, tended to focus on practical issues (such as data quality) rather than how best to ensure fair lending. Ultimately, there is no easy way to measure the extent to which discrimination occurs in credit transactions, nor the effect the rule has had on the incidence of discrimination. It is impossible to know precisely how, if at all, lifting the prohibition and making these data available would affect creditors' actions. On the one hand, it is likely that the prohibition has helped to prevent discrimination in at least some credit transactions. On the other hand, creditors have collected data in connection with mortgage loan applications for nearly twenty years, and there is no indication from this experience that data collection increases the potential for discrimination. In the past the Congress has expressed interest in this issue, at least with respect to data collection for small business loans. Given this history and the significant policy issues involved in any decision to remove the prohibition, the Board believes that this is an issue more appropriate for the Congress to consider. Consequently, the Board is withdrawing the proposed amendment pending further congressional guidance. IV. Regulatory flexibility analysis The Board's Office of the Secretary has determined that no analysis is needed since the proposal is being withdrawn. By order of the Board of Governors of the Federal Reserve System, December 20, 1996. William W. Wiles Secretary of the Board

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1996 Banking and consumer regulatory policy