In a recent interagency statement, the federal banking regulators highlighted the availability of Special Purpose Credit Programs (SPCPs) as a tool for financial institutions to expand access to credit for underserved communities. The industry has also seen a recent uptick in SPCPs as several large financial institutions have announced their plans to roll out or expand their respective programs. SPCPs have been permitted by the federal Equal Credit Opportunity Act (ECOA) since 1976 and the regulators have repeatedly highlighted and even encouraged financial institutions to explore the opportunities available through SPCPs.
Although ECOA is most well-known for prohibiting discrimination in the credit process, through Regulation B and the Consumer Financial Protection Bureau’s (CFPB) rule making authority, it also allows creditors to create programs that will improve access to capital for historically disadvantaged groups (ECOA, 15 USC §1691(c)(3) and Regulation B, 12 CFR §1002.8). SPCPs must comply with regulatory guidance and be established and administered pursuant to a written plan that identifies the class of persons the program will benefit. The program also needs to extend credit to a class of persons that would otherwise have limited access to credit or would receive credit on less favorable terms.
Several regulatory agencies have issued statements in support of SPCPs,1 and the CFPB has provided guidance on the requirements of a written plan stating that it should include the following:
- The class of persons that will benefit from the program;
- The procedures and standards that will be used for extending credit;
- The time period the program will be in place or when the program will be reevaluated to determine continued need; and
- A description of the analysis the organization conducted to determine the need for the program. The needs assessment can be based on the organization’s own research or data from outside sources. This analysis also needs to explain the nexus between the program, the organization’s customary credit standards, and how it will improve access to capital.
Federal regulators have been calling attention to the “credit invisible” population (20% of the U.S. population in 2015) for a number of a years. Credit accessibility disparities became even more evident during the COVID-19 pandemic, specifically impacting minority homeownership and small business ownership. SPCPs are especially well-positioned to serve these communities. In addition to the benefits realized by these underserved communities, financial institutions themselves have also come to recognize the benefits of properly structured and operated SPCPs. In addition to the obvious potential for loan growth, financial institutions may also benefit from a regulatory compliance perspective. For instance, an effective SPCP may be a factor considered during a financial institution’s Community Reinvestment Act examination and rating.
Regulatory agencies that supervise and enforce ECOA and Regulation B do not determine whether a program qualifies for SPCP status since those determinations must be made by the creditor(s). However, regulators have a long-standing practice of consulting with regulated institutions considering introducing an SPCP, and financial institutions are encouraged to discuss their plans with regulators. Regulators have also indicated that compliance with standards can be challenging due to the many technical requirements and that financial institutions considering implementing an SPCP would benefit from a careful legal review of their plans.
SPCPs are an important tool for financial institutions “to attract new customers and serve a social good, which in today’s economy, is paramount to staying competitive.” As mentioned above, a number of large financial institutions already offer SPCPs, and many of those financial institutions have decided to expand the reach of their respective programs. Regional and community banks and credit unions are uniquely positioned to know and understand the needs of their communities, and those smaller institutions may also benefit from implementing an SPCP.
1 Regulatory Guidance on SPCPs
- 2022 Fair Lending Interagency Webinar December 6, 2022
- U.S. Department of Housing and Urban Development: Office of General Counsel on the Fair Housing Act’s Treatment of Certain Special Purpose Credit Programs That Are Designed and Implemented in Compliance with the Equal Credit Opportunity Act and Regulation B December 6, 2021.
- Acting Comptroller Hsu December 9, 2021 News Release.
- CFPB Advisory Opinion on Special Purpose Credit Programs. December 21, 2020. Clarifying the requirements of the written plan required for SPCPs.
- CFPB Blog July 31, 2020: Expanding Access to Credit to Underserved Communities.
- OCC Advisory Letter 2203-8, Financing Minority Businesses, October 24, 2003.