Letter to CFPB on Circular 2023-03 addressing ECOA

Dear Director Chopra:

The American Bankers Association (ABA) appreciates your acknowledgment that financial service providers and the consumers they serve benefit from clear rules. As you noted in your written testimony to Congress in April 2022, "Laws work best when they are easy to understand, easy to follow, and easy to enforce." You also promised that the Consumer Financial Protection Bureau (CFPB) would "[D]ramatically increase its issuance of guidance documents, such as advisory opinions, compliance bulletins, policy statements, and other publications."

You have followed through on this commitment, overseeing the agency's issuance of a steady stream of guidance documents, which have had a significant impact on industry—and the products and services available in the consumer financial marketplace. However, this impact has not always been positive, and the guidance issuances have not always provided legal clarity or useful advice and information to regulated entities.

As discussed in ABA’s white paper, Effective Agency Guidance, this is sometimes the result of a failure to follow either the mandatory process of the Administrative Procedure Act (APA), which is required for guidance that is a binding "legislative rule." In other cases, the guidance may in fact be an "interpretive rule" or "general statement of policy" that is not subject to the APA, but the failure to confer with regulated entities to understand their interpretive questions, operational impacts, and system constraints limits the utility of the guidance, undermines its acceptance, and may limit its durability as administrations change.

Because ABA and its members welcome guidance that complies with legal requirements while providing useful information and advice, we are offering industry feedback on certain recently published guidance documents. Our goal is to provide constructive feedback on the legal and operational issues presented, the benefits and costs, and to identify interpretive questions that remain—in other words, to provide the comments industry would have offered had the CFPB sought public comment prior to issuing the guidance. Our intent is for the Bureau to issue guidance documents that are transparent, consistent with the law, and focused on promoting the interests of consumers in a strong, vibrant, and innovative market for consumer financial products and services.

Summary of the Comment

On September 19, 2023, without consultation with the banking industry, the Bureau released Circular 2023-03 addressing creditors' responsibility to provide reasons for adverse action under Regulation B, which implements the Equal Credit Opportunity Act (ECOA). The Circular responds to the following question: "When using artificial intelligence or complex credit models, may creditors rely on the checklist of reasons provided in CFPB sample forms for adverse action notices even when those sample reasons do not accurately or specifically identify the reasons for the adverse action?”

Not surprisingly, the Circular answers that question in the negative. Banks understand that they cannot use model form reasons if those reasons are not accurate. And the Bureau has made clear that Regulation B applies with equal force to all methods of credit decision making.

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