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Using special purpose credit programs to serve unmet credit needs

February 22, 2022 / Source: CFPB

By Tim Lambert – FEB 22, 2022

Far too many minority households and businesses continue to lack fair and equitable access to credit. This critical unmet need, coupled with historic and ongoing discrimination such as redlining, has exacerbated our racial wealth divide and continues to leave many communities shut out from and underserved by lenders.

The CFPB today joined seven other federal agencies in issuing a statement encouraging lenders to explore opportunities available to them to increase credit access through special purpose credit programs (SPCPs) to better serve historically disadvantaged individuals and communities.

Responding to the credit needs of individuals and communities

Under Federal law, lenders are permitted to design and implement SPCPs to extend credit to a class of persons who would otherwise be denied credit or would receive it on less favorable terms, under certain conditions.

In particular, the Equal Credit Opportunity Act (ECOA) and Regulation B permit creditors to offer or participate in SPCPs to meet special social needs through:

  1. Any credit assistance program authorized by federal or state law for the benefit of an economically disadvantaged class of persons;
  2. Any credit assistance program offered by a non-for-profit organization for the benefit of its members or an economically disadvantaged class of persons; or
  3. Any SPCP offered by a for-profit organization, or in which such an organization participates to meet special social needs, if it meets certain standards prescribed in regulation by the Bureau.

Previously, the CFPB issued guidance that helped to explain how lenders can offer or participate in a SPCP. In addition, the Department of Housing and Urban Development recently issued guidance confirming SPCPs for real estate loans or credit assistance, that are compliant with ECOA and Regulation B, generally would not violate the Fair Housing Act.

While the CFPB and other federal agencies don’t determine whether a specific program qualifies for special purpose credit status, lenders may consult their appropriate regulatory agencies with questions about any aspect of ECOA and Regulation B’s special purpose credit provisions.

Joint SPCP initiative

Today’s interagency statement calls attention to these programs as one way to expand access to critical financial services, including mortgage lending.

Recent research has shown that the average white family has eight times more wealth than the average Black family. Research also indicates that Black and Hispanic credit applicants are often denied at higher rates, and minority small business owners are often approved for smaller amounts of financing than their white counterparts.

A fair and well-regulated financial system serves as a critical engine for growth and economic mobility. Creating programs that work to serve disadvantaged individuals and small businesses can provide an important means of addressing unmet needs while strengthening communities.

Working with our agency partners, we’re committed to exploring incentives that better serve those who have been historically shut out of the mainstream credit markets.

Read the full interagency statement .