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A Refresh on Regulation B’s Special Purpose Credit Program

On April 26, 2022, Wolters Kluwer conducted a webinar “Special Purpose Credit Programs: Everything You Always Wanted to Know”. The speakers included:

  • Patrice Ficklin, Fair Lending Director of the Consumer Financial Protection Bureau
  • Pamela Perry, Vice President, Single-Family Equitable Housing, Freddie Mac
  • Kenneth Scott, Citibank
  • Anand Raman, Skadden Arps

The speakers discussed the credit needs of individuals, especially minorities and women, who would be otherwise be denied credit under normal underwriting standards, the evidence needed to support Special Purpose Credit Program, and the circumstances these Plans should be re-evaluated. The webinar stressed the need of financial institutions to meet the credit needs of the community it serves by thinking outside the box to see how they can provide a special purpose loan program with alternative underwriting standards.

Regulation B 12 CFR §1002.8 outlines the standards for a Special Purpose Credit Program. Not sure how to get started? The following paragraphs will provide you the guidance needed to research, develop, and implement a Program.

Providing Credit to Underserved Communities

The Consumer Financial Protection Bureau (CFPB), in Supervisory Highlights and blogs and in its December 21, 2020, Advisory Opinion (AO), has suggested the Special Purpose Credit Program as a good way for institutions to address the credit needs of underserved populations.

The December AO contains insight on the Program’s requirements and expectations to ensure “fair and responsible access to credit among disadvantaged groups and better address special social needs.” 

In addition, the AO’s footnotes are especially helpful and offer research and data for for-profit agencies trying to determine whether a Special Purpose Credit Program is appropriate for their communities.

Five Steps to Develop Your Program

Under the Regulation, financial institutions are required to follow specific steps when developing a Special Purpose Credit Program. They include:

  1. Identifying prospects. Community leaders may be able to identify residents and businesses who would benefit from access to credit. Keep in mind that the Program is geared to those “who would otherwise be denied credit or would receive less than favorable terms.” Thus, potential candidates could include minority- or women-owned small businesses, residents requiring affordable housing and/or home improvement loans, and those who would benefit from a credit-building loan program. 
  1. Developing a written plan. Illustrate how you will address local credit issues. Key considerations include:
  • Individuals or groups who would benefit;
  • Procedures and standards;
  • Period the Program will exist or when to reevaluate it; and
  • Research and analysis justifying the creation of the Special Purpose Credit Program.
  1. Meeting with your regulators. Present your written plan for the Special Purpose Credit Program and your data and research to your regulators. They can help you determine whether your program is on target or if it requires tweaking.
  1. Marketing your program. Get the word out to targeted groups about your Special Purpose Credit Programs by partnering with community organizers, holding informational meetings, sending e-blasts to prospects, and sharing information in newsletters.
  1. Measuring effectivenessMonitor your efforts. Regulation B §1002.5 and §1002.15 allow financial institutions to collect GMI for self-testing purposes. Such insight can help you determine how effectively you’re addressing the needs of your targeted group. 

Real-World Success

We have seen several banks successfully implement Special Purpose Credit Programs. 

One bank provided financing for home improvements—roofing, HVAC systems, handicap ramps, plumbing, and so forth—for low-income homeowners. 

Another bank established a program to help low-income residents with car repairs and personal care—medical and dental costs and eyeglasses. 

Such borrowers received special rates in both cases and were subject to terms with less restrictive underwriting requirements. 

Providing a Credit Builder or Credit Repair Program is yet another way to assist low-income residents. 

TCA Can Help

If you are considering a Special Purpose Credit Program, talk with staff and bank management about what the program will look like, ways to tailor it to your community, and how the product could evolve as local needs change and new ones emerge.

We’re available to help advise you on the development of your bank’s Special Purpose Credit Program and provide guidance on your Fair Lending Program. 

TCA can show you A Better Way to manage your Fair Lending Program. 

For more details on and help with your Special Purpose Credit Program:

As always, TCA is here to help with A Better Way to answer all your regulatory questions. Contact us at [email protected] or at 800-934-7347.

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