ECOA & Advertising: What’s the Connection?

With Fair Lending top of mind for regulators and lenders alike, it is essential to understand the regulatory underpinnings of this legal concept. Two regulations are used to enforce Fair Lending – the Fair Housing Act and the Equal Credit Opportunity Act (ECOA). While the Fair Housing Act applies specifically to residential mortgage lending, ECOA applies to all creditors and all types of lending. Given ECOA’s broad reach and impact on financial services – including advertising – it’s worth digging deeper into this particular regulation. 

The Basics 

In short, ECOA prohibits creditors from engaging in practices intended to discriminate or exclude otherwise creditworthy consumers based on:  

• Race; 
• Color; 
• Religion; 
• National origin; 
• Sex; 
• Marital status; 
• Age (provided the applicant has the capacity to contract); 
• The fact that all or part of the applicant’s income derives from a public assistance program; or  
• The fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act.  

These restrictions apply to multiple aspects of the lending process, including consumer requests for information, evaluation of credit applications, extensions of credit, notifications and furnishing of credit information, among others. 

Where ECOA Meets Advertising 

The word “advertising” only appears three (3) times in the current version of this rule and official interpretation. Yet, the Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB) rely heavily on ECOA when pursuing violations related to advertising, particularly § 1002.4(b), which states: 

A creditor shall not make any oral or written statement, in advertising or otherwise, to applicants or prospective applicants that would discourage on a prohibited basis a reasonable person from making or pursuing an application. 

The CFPB’s official interpretation of this paragraph notes that this includes “the use of words, symbols, models or other forms of communication in advertising that express, imply, or suggest a discriminatory preference or a policy of exclusion in violation of the Act.” The interpretation goes on to explain that advertising intended to encourage members of “traditionally disadvantaged groups” to apply for credit, especially those “that might not normally seek credit from that creditor,” is permissible under ECOA. As special-purpose credit programs increasingly enter the affordable lending conversation, creditors should take special notice of § 1002.8, which outlines the parameters of offering such programs compliantly. 

The Big Redline 

Outside of blatantly discriminatory ads or those that actively discourage a protected class from applying for credit, the biggest concern related to advertising under ECOA is the idea of digital redlining. In late 2021, the CFPB, DOJ and the Office of the Comptroller of the Currency (OCC) announced a joint effort to combat redlining, with specific attention to “digital redlining, disguised through so-called neutral algorithms, that may reinforce the biases that have long existed.” 

CFPB Director Rohit Chopra noted in his remarks during the joint announcement, “Technology companies and financial institutions are amassing massive amounts of data and using it to make more and more decisions about our lives, including loan underwriting and advertising…Given what we have seen in other contexts, the speed with which banks and lenders are turning lending and advertising decisions over to algorithms is concerning.” 

What Chopra is referring to in part here is the use of targeted marketing. This strategy uses consumers’ data to deliver personalized digital offers to a smaller group of consumers that (in theory) are more likely to be receptive to the offer being presented. The concern with using targeted marketing to promote credit products is that the algorithms used to determine the advertiser’s target market could be altered to exclude borrowers from the “traditionally disadvantaged groups” ECOA is designed to protect. 

For example, a metropolitan statistical area (MSA) is one data point that could be used to target a specific group of consumers. As evidenced by the CFPB and DOJ’s October 2021 consent order against Trustmark National Bank, this could be considered digital redlining if MSAs comprised of lower-income or minority consumers are expressly excluded.  

Another way discrimination could manifest itself is by presenting different content to selected groups. The example the CFPB offers in its comment on § 1002.4(a) is “provid(ing) information only on ‘subprime’ and similar products to minority applicants who request information about the creditor’s mortgage products, but provid(ing) information on a wider variety of mortgage products to similarly situated nonminority applicants.” While this specific example deals with requests for information, the same holds true in the context of advertising, in that only presenting “lesser” loan products to minorities constitutes discrimination under ECOA. 

To ensure compliance with ECOA, lenders should have a legal or compliance expert review advertisements prior to distribution and weigh in on any target marketing efforts. For social media, financial institutions should address targeted marketing within their social media policy and utilize automated monitoring solutions when necessary. In addition, the FFIEC’s Interagency Fair Lending Examination Procedures and the FDIC’s Consumer Compliance Examination Manual, which includes sections on both Fair Lending and ECOA, provide a wealth of information and insight into how regulators interpret ECOA and assess compliance.