How to Implement a Special Purpose Credit Program and Why You Should
A Special Purpose Credit Program can help your credit union both expand and diversify its field of membership. Learn how.
Learn what types of initiatives would qualify under the regulations and how your credit union can benefit.
In February 2022, NCUA Chairman Todd Harper sent a guidance letter to all federally insured credit unions encouraging them to set up and take advantage of Special Purpose Credit Programs (SPCPs), defined as, “credit assistance programs for economically or socially disadvantaged consumers and commercial enterprises.”
The letter was a companion to a broader interagency statement issued by the Board of Governors of the Federal Reserve System, the FDIC, the Office of the Comptroller of the Currency, the Department of Housing and Urban Development, the Department of Justice, the Federal Housing Finance Agency, the CFPB and the NCUA. The aim was “to remind creditors of the ability under the Equal Credit Opportunity Act (ECOA) and Regulation B to establish special purpose credit programs to meet the credit needs of specified classes of persons.”
Specifically relating to credit unions, Harper noted, the ECOA and Regulation B—the act’s implementing rule issued by the CFPB—allows for the extension of special purpose credit offered pursuant to “any credit assistance program offered by a not-for-profit organization for the benefit of its members or an economically disadvantaged class of persons.”
Pointing out that many credit unions already offer lending options that fit both the description and aim of a special purpose program, the letter highlights the importance of such initiatives in expanding and diversifying a credit union’s membership. Harper states:
Credit unions can use SPCPs to foster greater financial inclusion and ensure that the cooperative nature of the credit union system lives up to its mission of meeting the credit needs of consumers, including underserved populations, communities of color, and those of modest means. I encourage all credit unions to consider using an SPCP to provide credit to economically disadvantaged members and communities within their field of membership.
How Do SPCPs Differ From Other Programs?
The stated aim of the CFPB’s Regulation B is to protect “applicants from discrimination in any aspect of a credit transaction.” More specifically, the regulation prohibits any credit program that discriminates based on race, color, religion, national origin, sex, marital status, age, receiving public assistance income, or having asserted certain consumer rights.
In addition to outright exclusion, “discrimination” in this instance may refer to any form of disparate treatment toward a member of a protected group, such as facing a different application process or receiving less-favorable borrowing rates.
However, section 1002.8 of the regulation, titled “Special Purpose Credit Programs,” allows an exception for lenders who, as the CFPB states, “extend credit to a class of persons who would otherwise be denied credit or would receive it on less favorable terms, under certain conditions.”
Due to this stipulation, credit unions may offer lending programs directly tailored toward low-income borrowers without facing certain compliance or regulatory concerns.
What Might a Credit Union SPCP Look Like?
An informative post on NAFCU’s Compliance Blog written by Keith Schostag, the organization’s senior regulatory compliance counsel, notes that while a SPCP must not discriminate on a prohibited basis, the “program may still require participants to share a common characteristic, such as ‘race, national origin, or sex,’ as long as the program was not created to evade any part of the ECOA or Regulation B.”
In discussing certain subsections of the regulation, the author cites four examples from supplemental commentary on the law of initiatives that could potentially qualify:
- Energy conservation programs to assist the elderly;
- Programs under a Minority Enterprise Small Business Investment Corporation;
- Subsidized housing programs for low-to moderate-income households;
- Student loan programs based on the family’s financial need.
However, Harper’s letter closes by making clear that the agencies involved in promoting SPCPs, including the NCUA, “do not determine whether a program qualifies for special purpose credit status.” And while the agency will provide guidance to interested institutions, ultimately, “credit unions must determine whether their program qualifies for special purpose credit status.”
The potential benefits of launching a Special Purpose Credit Program should be clear to any credit union given its capacity to draw new members from different communities and backgrounds. That said, while the coalition of agencies clearly is pushing for more widespread implementation of SPCPs, the simple fact those same agencies are unable to determine eligibility could leave credit unions considering a program in an opaque middle-ground.
The best path forward is therefore, naturally, to ensure to the greatest extent possible a potential program meets all the requirements outlined in the ECOA and Regulation B before its being implemented. To do so, a credit union must first identify which specific groups within its service area would benefit from such a program. This should be done by analyzing your field of membership to understand both its demographic and economic makeup.
Not only will such analysis and data aid in the launching of a Special Purpose Credit Program, it will additionally allow you to track and measure the program’s impact to ensure you remain compliant with all regulations moving forward.
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