Reg B: FRB Issues Regulation B Commentary Revisions

The Federal Reserve Board final revisions to the Official Staff Commentary to Regulation B provide guidance on the treatment of age in tiered credit scoring systems, obtaining monitoring data for applications taken electronically, and when or how to obtain signatures and guarantees.

Recent developments in credit scoring systems have prompted this newest guidance on permissible consideration of age in scoring systems. The new commentary permits consideration of age in age split scorecard systems as long as the scorecard group that includes the elderly (age 62 and older) includes most of the population being scored. The commentary permits creating a special scorecard for youthful applicants whose job history and credit performance is limited and therefore difficult to compare to other applicants. However, the new commentary clearly prohibits development of separate scorecards for a small age span including elderly applicants.

The new commentary advises that creditors may determine the need for revalidation of a scoring system by analyzing the loan portfolio and the performance of applicants approved by the system, or by analyzing population stability or changes that could have an impact on the system's performance.

The new provisions provide guidance what creditors may consider when evaluating property offered to support the loan. When an individual applicant offers jointly-owned property to support their credit qualifications, the creditor must determine the value of the applicant's interest in the property based on the form of ownership at the time of consummation. Creditors may not consider the possibility that the ownership status of the property will change. The new commentary also provides guidance on permissible methods to obtain support when the individual applicant is not qualified for the credit requested.

Commentary to ?202.7(d)(6) clarifies permissible circumstances for obtaining guarantees. A requirement for guarantees on business loans must be based on the business relationship of the guarantor, not the marital relationship. Thus, the creditor may require a guarantee of all officers, including officers who happen to be spouses. However, the creditor may not require the guarantee of all spouses of officers of the business. Any requirement for guarantees must not be founded on a prohibited basis.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 15, 10/96