In a prior post, we considered the application of the Equal Credit Opportunity Act (ECOA) as a defense to guarantor liability. A related issue is whether claims under the ECOA exist against a successor or “assignee” creditor uninvolved in the original credit transaction.
The ECOA generally prohibits creditors from discriminating against credit applicants on any prohibited basis (e.g., race, religion, sex, marital status). 15 U.S.C. § 1691(a). In a climate where loans are routinely bought and sold, it is not infrequent that when an ECOA claim arises (often in response to collection activity), the owner of the loan is not the originating lender. When this happens, the assignee creditor is at a disadvantage since it has little, if any, knowledge of the specific facts surrounding origination of the loan.
The ECOA contemplates this situation and provides the assignee creditor a “safe harbor” against violations by originating lenders. Under the ECOA, “creditor” is defined as “any person who regularly extends, renews, or continues credit; any person who regularly arranges for the extension, renewal, or continuation of credit; or any assignee of an original creditor who participates in the decision to extend, renew, or continue credit.” 15 U.S.C. § 1691a(e). Pursuant to the ECOA’s implementing regulation, Regulation B (Reg B), “[a] person is not a creditor regarding any violation of the [ECOA] or this regulation committed by another creditor unless the person knew or had reasonable notice of the act, policy, or practice that constituted the violation, before becoming involved in the credit transaction.” 12 CFR 202.2(1) .
This carve out affords protection to assignee creditors who lack knowledge of the originating lender’s offending act, policy or practice before acquiring the credit.